Earnings call: COPEL reports a 41,6% EBITDA efficiency

In the second quarter of 2024, Companhia Paranaense de Energia (NYSE:ELP) exhibited robust financial growth, with a notable performance in its Copel Distribution segment, which saw a 41.6% EBITDA efficiency. The company, trading under the ticker symbol CPLE6.SA, reported a consolidated adjusted EBITDA of BRL 1.3 billion and a net income increase of 54% to nearly BRL 0.5 billion compared to the same period last year. COPEL's solid credit rating of AAA by Fitch Ratings underpins its growth strategy, while the company also focuses on operational excellence and efficient capital allocation. The second quarter also saw a 7.2% real-term decrease in personnel and administrative costs, contributing to a strong financial standing. COPEL is actively exploring growth opportunities, including potential participation in capacity and transmission auctions, while also considering shareholder-friendly capital allocation strategies such as share buybacks and increased dividends.

Key Takeaways

• COPEL's Copel Distribution segment achieved 41.6% EBITDA efficiency.
• Consolidated adjusted EBITDA reached BRL 1.3 billion, with net income nearly BRL 0.5 billion, up 54% year-over-year.
• The company maintained its AAA credit rating from Fitch Ratings.
• Personnel and administrative costs decreased by 7.2% in real terms from Q2 2023 to Q2 2024.
• COPEL is considering options for capital allocation, including share buybacks and increased dividends.
• The company is exploring growth through capacity and transmission auctions and is in the process of selling real estate assets.

Company Outlook

• COPEL's strategic pillars focus on operational excellence, efficiency, cultural transformation, and disciplined capital allocation.
• The company has a digital transformation plan in partnership with Google (NASDAQ:GOOGL) Cloud.
• COPEL is halfway through the sale process of small generation assets and has completed the sale of the Araucaria thermal power plant and a 51% stake in Compagas.
• CapEx is aligned with expectations, emphasizing efficiency and quality in the distribution segment.

Bearish Highlights

• The company experienced a revenue frustration of BRL 27 million due to lower wind performance and maintenance activities.
• There was a reduction in the average energy price of the generation and transmission portfolio by 6% year-over-year.
• Debt level remained around 1.9 times net debt over EBITDA, potentially affected by payments related to the Voluntary Severance Program.

Bullish Highlights

• The trading company generated positive EBITDA, with adjusted EBITDA increasing by 7.2%.
• Copel Distribution's EBITDA increased by 32%, and Copel TNT showed resilience in a challenging energy price scenario.
• The volume of energy sold increased, and electricity purchased for resale decreased by BRL 38 million.

Misses

• There was no specific update on the sale of lots and Small Hydropower Plants (SHPs).
• COPEL did not disclose CapEx estimation for PMSO and the capacity auctions.

Q&A Highlights

• Rodolfo Lima discussed potential participation in a transmission auction, emphasizing the need for careful consideration of return expectations and strategy.
• The company is evaluating its optimal capital structure and considering opportunities for capital allocation outside its current portfolio.
• Daniel Slaviero highlighted the company's commitment to strategic planning, asset divestment, cost control, and maintaining quality service.

COPEL's second quarter of 2024 demonstrates a company in strong financial health, with an eye towards strategic growth and shareholder value. The company's focus on efficiency and disciplined capital allocation, paired with its exploration of new market opportunities, positions it well for future expansion and resilience in the dynamic energy sector.

Full transcript - Companhia Paranaense de Energia Pref ADR (ELP) Q2 2024:

Operator: Good morning, ladies and gentlemen. Welcome to Companhia Paranaense de Energia COPEL Video Conference Call to discuss the Earnings for the Second Quarter of 2024. This video conference is being recorded and will be available on the company’s website, ri.copel.com. The presentation is also available for download. Please be advised that all participants will be only watching the video during the presentation, and we will then begin the question-and-answer session when further instructions will be provided. Before proceeding, I would like to note that the forward-looking statements are based on beliefs and assumptions of Copel's management and on information currently available to the company. These statements may involve risks and uncertainties as they relates 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 video conference will be presented by Mr. Daniel Slaviero, CEO of Copel, Mr. Felipe Gutterres, CFO of Copel, as well as directors of the subsidiaries who will be available for the Q&A session. I would like to turn the floor to Copel's CEO, who will start the presentation. Please, Daniel, you may proceed.

Daniel Slaviero: Good morning. Thank you, everyone, for attending our video conference. We are very pleased to present another quarter with solid growth especially at Copel Distribution, which reached 41.6% EBITDA efficiency. In Copel's consolidated results, we had an adjusted EBITDA of BRL1.3 billion and net income of almost BRL0.5 billion, a growth of 54% compared to the same period of last year. Felipe will detail these results later in the call. We have also concluded the payment of the balance of dividends related to the 2023 results in the amount of BRL632 million. And in line with our practice in recent years, we will forward a discussion on dividends for the 2024 financial year at the September Board of Directors meeting, so next month. I also highlight news that reinforce our robustness and resilience of our company. Fitch has maintained our credit rating as AAA. In a capital-intensive business such as the electricity sector, it is important to maintain the highest possible rating because it demonstrates the company's sound financial profile and contributes to having a low cost of capital. This is fundamental for our growth plan. This year, as we have been saying in the past months and quarters, the strategic pillars of this new phase of Copel; operational excellence, efficiency, cultural transformation and discipline in capital allocation. This is the basis of our future growth and the ability to generate value in a sustainable way. I will address the developments we had this quarter in each one of these pillars. First, it is with great satisfaction that I registered here the addition of three new talents to our team. Felipe Gutterres, our new CFO, with extensive experience in management and capital markets; André Gomes, with deep knowledge of the electricity sector as Director of Regulation and Market and Rodolfo Lima, who worked in all links of the commercialization chain as General Director of Copel MercadoLivre. In addition to a wide background in the respective areas of expertise, all of them bring a renewed vision and valuable experience to enjoy all of the other employees and collaborated at Copel in this cultural evolution process. We're very happy. And once again, welcome to all of you to this opening with our earnings conference call, especially you, Felipe and Rodolfo, André. In the efficiency pillar, I take this opportunity to update you on the status of the voluntary severance program. Of the total of 1,437 professionals who joined this program, next week, more precisely. On Wednesday, August 14, 1,078 employees will leave the company. 180 people have already left early in the best month and 179 employees who hold critical positions had their departure date postponed divided in 2 transits, majority of them by December '24 and the remaining by the beginning of '25. It is important to note that we prepared a meticulous rightsizing study of the company that provided among other things, the mapping of critical position, a knowledge transfer plan and the adoption of new technologies to improve the efficiency of our operational activities. But I can tell you that what makes us most proud in this process was the internal mobility and career transposition program among professionals that the company already has. It was an effort to make the most of our internal talent and provide opportunities for growth for these employees. So this materializes one of the main internal benefits of Copel becoming a corporation. It's important to note, but all of these initiatives have a single objective. We continue providing a very high-quality service to our customers. Notably, a process of this magnitude must go hand in hand with the digital transformation plan. We have several partners helping us on this journey. But I'd also like to highlight our partnership with Google Cloud, which has brought benefits on separate front. So it has process automation, scalability and flexibility in data processing, artificial intelligence and maximization of intragroup synergies. I remind you that in the coming months, we'll be at the final phase of our ZBB project and as we've been saying, the results will be presented at our Copel day in November. Moving towards the end of my opening remarks. In terms of operational excellence, I'd like to emphasize our energy trading strategy, which is allowing for a good balance between the contracting levels and the premix of the portfolio. We have observed an improvement in the energy price scenario in recent months with increasing volatility, this is a reality. And we've also seen the PLD taken off from the floor at various times. And this ends up, of course, providing change in the perception of medium and long-term prices. We can detail this more. Rodolfo can detail this more in his address in the Q&A. We've been driving in this new trading environment to make the most of the best price movement to execute our energy sales strategy which, as I said, is being led by Rodolfo. Finally, I'll address one of the most dear topic for this administration, the efficient capital allocation. At the time, the priority has been the necessary divestments to focus on our core business of electricity and decarbonization of the generation matrix. But we've had two good news over the last month, the conclusion of the sale of the Araucaria thermal power plant with the receipt of BRL320 million for our share in the business and the sale of 51% stake that Copel held in Compagas or BRL906 million with the base date of December 23. The completion of the sale of this asset is contingent on the approval from the relevant regulatory bodies, and we expect that to occur in the coming months. I would like to thank all of the team involved in these transactions, especially the leadership of our Director, Cassio Santana, leading the new business area, and he was decisive -- him and his team were decided for these events. And I would also like to thank all of our partner companies, financial institutions, lawyer firms and all of the companies who have assisted us in both transactions. We are now halfway through the sale process of small generation assets. One of the [Indiscernible] and we will probably have something to tell you in coming months. We are convinced that prudent capital management is a precondition for sustainable growth. We're focusing on allocating our resources in a way that maximizes returns and support projects that are aligned with our values and commitments to the environment and to society. I invite Filipe to provide more details of the company's earnings in the second quarter, and we will then open for the Q&A. Thank you.

Felipe Gutterres: Good morning, everyone. I'm very excited to speak with you as Copel's CFO with an honor to lead our financial team and very motivated to contribute to the growth and continued success of our company. And making with this introduction, I'd like to highlight a fundamental aspect of our business model, which is Copel's integrated performance and its diversified portfolio. We generate transmit, distribute, and trade energy, which provide us a number of strategic benefits while also making our portfolio more resilient. Our asset base is not replicable, and it paves the potential growth platform in several products. Our integration generates multiple opportunities to maximize operational efficiency, process optimization, intragroup synergies increased profitability in this new moment for the company, which is what we're very focused on, as Daniel said. 44% of our EBITDA came from distribution, 16% from transmission, and 36% from generation. Our consumption profile is concentrated in industrial, residential and commercial mainly, but I draw attention to the importance of agri business as well. We operate in 10 states with GET, and we have 5 million consumers in Parana, which is the fourth-largest economy in Brazil, grows 2x the growth of national GDP, with a per capita GDP higher than the national average, in addition to an unemployment rate significantly lower than the national average. On the next slide, I address our EBITDA performance. Our adjusted EBITDA was BRL 1.3 billion in the second quarter of this year, an increase of 5.7% compared to the same period of last year. This robust performance came strongly from the 32% growth in Copel distribution EBITDA, which stood out as one of the main drivers of the positive results in the period, representing 44% of the group's EBITDA. Copel TNT showed resilience in the face of a more challenging scenario for energy prices, average price of 175 in the second quarter of 20, 6% lower than last year, contributing with BRL676 million of EBITDA, corresponding to 53% of the group's EBITDA, combining generation and submission. I'll finish with our trading company that generated an EBITDA of BRL35 million in the period. In the next slides, I'll zoom in on the business unit, starting with distribution. Copel distribution generated EBITDA of BRL 556 million in the second quarter, 32% better than 2023, mainly due to the growth of the build-buyer market, an increase of 6.2% in the grid market in the state of Parana during this period. The control of management costs, which is also a relevant point. We had a reduction of 5.2% in costs with personnel and administrators, due to the reduction of 176 employees. If you consider INPC of 3.7%, between the second quarter of 2023 and the second quarter of 2024, the cost of personnel and administrators registered reduction in real terms of 7.2%. Looking at adjusted EBITDA of the last 12 months, we've reached BRL 2.4 million, BRL 700 million above the regulatory level, which is equivalent to 42% improvement. We maintained strict control over our manageable costs, which varied only 0.5% in the consolidated results compared to the second quarter of 2023, while inflation in the period was 3.7%. Moving to generation and transmission. We see a reduction in the average energy price of the portfolio. In the second quarter of 2024, it was 175.7, down 6% compared to the previous year. Among the factors that affected grid mix, it is worth mentioning that last year, we had a contract in the AECR of 778 average megawatts, with a sale price of around 250 per megawatt hour, which ended last September. So this comparison has that impact, to be noted. We had a lower performance of wind complexes, impacted by a greater containment in the period, as we can see in the charts, and also with wind below the certification. In addition to the need for some maintenance that caused unavailability, we also used this period of lower winds to advance some maintenance. And this all resulted in a revenue frustration of BRL 27 million in the quarter. On the other hand, we increased the volume of energy sold and had a reduction in electricity purchased for resale by BRL 38 million, due to the better hydrological conditions. Average GSF 99.3%, compared to 94.3% in the second quarter of last year. In transmission, we had an increase of BRL 31 million in the revenue from the availability of the electric network test, as a result of the periodic tariff review applied to the transmission contract. With all these effects, Copel jet – to the resilient and recorded an adjusted EBITDA of BRL 676 million, 3% below the same period of last year. Moving on to trading. We had an adjusted EBITDA of BRL 35 million 7.2% higher than quarter-on-quarter, a result of the reduction in the average price of energy purchased for retail and the increase of 4.2% in the volume of energy sold. We maintained strict control of our costs. Our manageable costs, which varied only 0.3% quarter-on-quarter, all inflation in the period was 3.7%. We had an increase in cost of third-party services of BRL 25 million, which is within our plan to advance in prevention and maintenance activities in the distributors network, especially aimed at achieving adequate quality levels in our concession area. These activities include, for example, the intensification of streaming and mowing on the vicinity of distribution lines. But we reduced other operating costs and expenses by BRL 17 million, basically due to lower losses related to the activation and major assets, lower insurance expenses. Personnel costs also decreased by BRL 5 million, minus 1.7%, mainly due to the reduction of 258 employees, partially offset by the salary adjust. [Foreign Language] We had a growth of 54% quarter-on-quarter with an increase in EBITDA. And Vega, partly offset by the monetary variation on the balance of the plant payments. In the quarter, in the half year, we had a income of BRL 1 million. So now I'd like to talk to you about CapEx. We performed historic CapEx strongly led by the investment plan in distribution with focus on the remuneration base, efficiency and quality. We've realized 86% of the expected and the investments are moving along in line with our expectations. To finalize, I bring the overview of our indebtedness, given the robustness of our cash cost, our cash due to the BRL 2 billion raised in the last year's primary offering for the payment of the [indiscernible] We maintained a leverage of around 1.9 times in the net debt over EBITDA ratio. This scenario will change as soon as we make the payment of the bank bonus that should occur in the fourth quarter as well as the payment of indemnities related to the VTV or the Voluntary Severance Program. Our average – I remind you that our covenant limited to this 3.5 times net debt over EBITDA. Our average amortization period is around four years, but I'd like to point out that we have the BRL 6 billion that mature after 2029. I'd like to highlight that one of my priority is to deepen the study on the company’s optimal capital structure and promote debate internally with the Board to define the most efficient level for the company. We now get into the Q&A session. Thank you, Felipe, for your presentation. And I'd like to say that when you have the priorities in a study, the optimal analysis of a new capital structure considering our private legal nature this will take some time, but we intend to address this in the coming months with this in-depth study that is debated internally. [Indiscernible]

Operator: Thank you. We will now begin the questions-and-answer session. In order to ask a question, please click on raise hand or submit your text through the Q&A icon. First question, Daniel?

Unidentified Analyst: Good morning, everyone. Thank you for this opportunity. I have two questions here. The first is about capital allocation and the capital structure. I just want to understand a little bit more of your strategy, especially here considering the divestment you had at Compagas. If you can talk a little bit more about the destination of these funds? A lot of people ask us about dividends, whether you're considering something along those lines from now on? That's the first question. And my second question is more in terms of costs. We saw the cost of the distribution company growing year-on-year below the inflation. So I'd like to understand how you -- do you see this moving forward? If it's still something that we can see going down significantly in these cost lines at a distribution company or if we've already reached a more recurring level going forward. So how do you see this evolving? Thank you.

Daniel Slaviero: Excellent. Daniel, my name tag. So first, on cost allocation then I'll turn to Felipe to add. But our line here is really a study for an optimal capital structure that was mentioned. So this is a discussion that was closely linked to our migration to Novo Mundo, that's part of our strategy. But since that's also linked to factors that are not under the company's full control and scope, we have a limit for a more concrete indication towards the end of this year, beginning of next year. In any case, we will be doing this work on the study of the capital structure that can move along. Regardless of when the migration is going to occur in the new market, but that's part of our strategic view. As for the dividend, we will maintain the policy of payment of 50% and the extraordinary events may and will be part of our studies for the payment of ordinary and extraordinary dividend. So as they materialized, especially the Compagas side because of its relevance and value, we will certainly consider that in our movements here for the payment of dividend reminding you that we have a robust investment plan for 2024 and 2025. We're also preparing for the capacity auction. The ordinance will probably be published in coming weeks, and the auction probably will occur in December of this year. So it is an opportunity for allocation, but considering the company's cash and raising capacity and the extraordinary events that are developing, this will enable a very detailed analysis of our payment of a minimum of 50% that is in our policy. But as things develop, there may be room for extraordinary dividends. In terms of the cost structure at the distribution company, what we saw here this quarter were some investments, some costs of BRL 20 million as reinforcement for the climate event. So we cannot say that the cost structure that we have today is what we need. We're still moving along the way in our commitment of 17% of general COPEL and the PMSO reference of 2023. So we have here a target between BRL 460 and BRL 480 million of a reduction in three years. And that's what we're going to update you about on COPEL Day and whatever the ZBB work finds in opportunity. So the distribution company still has room for reduction opportunity. For the people who are leaving the company, it's a large contingent for the distribution company of those 1,437. It's around 830, 840 people. But also in the efficiency of centralizing contracts, renegotiating supplies and procurement. So there are some drivers that we see as opportunities to stabilize at a slightly lower level than what we have, at least in MSO. And in P, reasonably lower than what we saw this past quarter. Emerson (NYSE:EMR), anything to add?

Felipe Gutterres: Yes, thank you, Daniel, for your question. The distribution company does have a plan, as Daniel said, and with the migration to a corporation, we've already been able to eliminate some inefficiencies from the mixed economy period, but there are still some opportunities, especially coming from investments in the automation of the network and digitalization processes at the distribution company, as well as changes to processes, as Daniel already mentioned. So it is to be expected movements in the lines of cost reduction. And I think that to conclude and open to the next questions, I think we will see all of these efficiency improvements at COPEL throughout the 2025 budget, because we'll have an impact in the last quarter of the reduction in fee that's significant, quite significant, and we are within the estimates to rehire between PMS from BRL 100 million to BRL 120 million. You remember our commitment at last COPEL Day, quickly within those numbers. So we are executing and performing very much in line with our strategic plan. And during 2025, when we're going to see a new level of PMSO for COPEL as a whole.

Unidentified Analyst: Excellent. Thank you very much for your answers.

Operator: Next question, Bruno Amorim, Goldman Sachs (NYSE:GS).

Bruno Amorim: Good morning. Thank you for this opportunity. I have a follow-up in the capital allocation discussion and two questions related to that. First, if you can talk a little bit about -- I know, you're still revisiting the discussion on capital structure. But if you can tell us about the leverage -- levels that you believe are healthy for the company. The company is running close to time that seems quite comfortable. And the second question for capital allocation is about the segments or areas that you understand may offer opportunities for capital allocation outside of its current portfolio, either in terms of geography or sectors that you may be interested in?

Daniel Slaviero: Excellent Bruno. Actually demand sense that 1.9 times, two times is a little bit in Rio, because we have BRL 2 billion of cash so the primary there's going to be the grant bonus of the BRL 3.7 billion adjusted by the Selic rate by the fourth quarter, that's going to be close to BRL 4 billion, and there's around BRL 600 million of that voluntary severance program. So with that, you get a little bit higher than 2.5, 2.8 times. We get close to that level. So note to point that still for a private company, this seems to be a comfortable level. How much we're going to target for the future is something that still being analyzed and discussed what Felipe and his team, who will run a deep dive on that, as I said, in the coming months. So it's expected that this will be fully concluded by the beginning of the first quarter 2025. As for growth opportunities, I believe we've been saying recently that no company generates long-term value simply by cutting costs and selling assets. I think this is a phase that the company is going through, but still working in some remaining inefficiencies that are inherited -- inherent to a state-held company that has to bid for everything and can't simply contract. So I think there's a beginning, a middle and an end to that. I think the next main stage for the company is to make good capital allocation and good capital allocation is not necessarily only linked to investments. There maybe share buyback that could be good capital allocation, or maybe you can pay more dividend, which could also be good capital allocation. So that's our job, and that's the part of the company. But in terms of investment, I believe the priority here for us is in the short-term to extract more from our current assets. So the capacity auction is a major avenue. There's a transmission auction that we are studying because there's a lot of synergies, but we have not yet made any decision, no final decision because I think, of course, of the four substations three belong to Copel. So maybe it makes sense, but we're still looking into it in more detail because of the return of the segment that's also tighter, always tighter. But there is reinforcement and improvement, and we've just been through a review of the transmission companies that was very interesting. So I would say that, we are looking at opportunities that transcend any geographic aspect of Parana. COPEL has already has companies in 10 states. We have no limitations to act outside of those and space where we are already present, this is something that still depends on the opportunities that will come up. At this time, we're not seeing anything to concrete other than these improvements or expecting more value of the company's current assets.

Operator: Next question, Ms. Luiza, Itau BBA.

Luiza Candiota: Good morning. Thank you for the presentation. I have a few questions. If you can give us an update in the process of selling lots and SHPs, if you can talk a little bit there. And if you can talk about the CapEx estimation for PMSO and the capacity auctions, whether you can give us this number or not? Thank you.

Felipe Gutterres: Good morning. Marcello, if you can give us an update in the real estate sale process, what stage we're at, how this is moving along, and then I'll talk a little bit about the SHPs. And the CapEx estimate since its topic has very, very low infrastructure investments. There's no environment issue. We have not been sharing this estimate because they're strategic, very strategic. And basically, you have very little costs that are not costs inherent to the turbine itself in PMSO, which is mature. But Marcelo, please.

Marcelo Monteiro: Good morning, everyone. At Copel, we call this sale of real estate as the Parana project. It's a very bold sale project. And I start with Padre Bossino where the old operations center for generation submitted was located and all of the resident villages at the hydropower plant. The residential Village in Casillas was already sold. And now we're doing this process with Poddar, arsenal dose, GPS and Segredo. And we are at the final stages of signing the purchase and sale agreement of those pieces of real estate. We have a binding proposal from a fund that is interested and made an offer that Copel considered very good, positive, considering the return on these assets, and we are at the final stages of signing this agreement. And from this moment, we will already receive installment from the sale of those pieces of real estate. So I consider this sale especially of the residential villages that are very difficult with high cost and we'll reduce our maintenance costs of those villages and also surveillance and management of those villages. That's very positive moving towards the conclusion that we would be able to confirm with the signature of this contract at the beginning of August. As for the SHPs and those assets, Marcelo and everyone. We've concluded the nonbinding proposal stage we move to the other three lots there, the small centrals, the midsize and the Figueira thermal power plant, we refer the best -- we moved the best proposals to the second phase. So they are undergoing the due diligence process. This is something that we could have in our planning. The signing process should occur in the fourth quarter of this year. If I may add about the capacity auction, I'd like to add something if you allow me, Copel is prepared for the auction that shall be held in December. That's what the government, the Ministry of Mines and Energy and the National Electricity Agency, have been disclosing. They will hold the auction in December. So Copel is prepared with the suppliers and three contracts already in place to be able to participate in this auction in December. We're waiting for the publication of the ordinance that establishes the time line for this auction. It's a very important investment where we have the discipline of capital allocation and the policy defined pipe [indiscernible]

Luiza Candiota: Thank you. If I may, just a doubt about the auction on the methodology, especially for the hydro power plant, I think there's a lot of doubt in terms of penalties? And I mean, do you already have in mind how this is going to work? Because when we talk with some companies, they say, "Oh, we're going to look into it. But it's important to understand the details, we are not able to conclude yet whether or not it makes sense. But at this point, the conversations you've had with the ministry, are these detailed clearer to the companies? Or do you still need to wait for the publishing of the invitation.

Daniel Slaviero: It's not clear yet, Marcelo, and Vital [ph] has been working on that. But we are all on the same page, all the companies are on the same page. We've been getting a lot of intersections with them, but it's not clear. What we see very intensively is a concern from the ministry for this to occur in reasonable terms so that we can guarantee the competitiveness in this hydro product. And since it's the first time where the hydro power plants will be in a capacity auction to have very adequate conditions in terms of the criteria of how the operation is going to develop in coming years. But really, we are also waiting for the final details, but it seems to us as with other examples that the ministry provided, that there will be -- they will be reasonable in the final conditions of the ordinance Yes. And we expect to have that defined with the publication of these guidelines ordinance. And then with the invitation to bid and the contract that will be issued for the public hearing, but we have a lot of interactions with them and Copel's technical teams have been looking at these interactions and the information provided, and we are already being able to evaluate in a best way for this auction to bring the results expected by the company. Thank you.

Operator: Next question Guilherme, Santander (BME:SAN) -- Guilherme Lima

Q – Guilherme Lima: Good morning. Just a question about the company's commercialization strategy if you can update us on your expectations revolve on the contracting level, we've seen this quarter contracting level compared to other generators still a little bit lower. So, how do you intend to evolve this? And you can give us a price perspective if the CD price makes sense for the second half of the year? That's it. Thank you.

Daniel Slaviero: So, Rodolfo, if you may

Rodolfo Lima: Yes, of course, Guilherme. So, the beginning of the quarter, especially due to the rains, started with very low prices in the long-term. So, what we did was monitor those prices. They recovered in the period. So, for June, we understood it was already at an interesting price and we started to contract on those terms. And that's the strategy. We know that the current system will become increasingly more volatile, considering the matrix and the expansion and there will be good windows for contracting. So it's the change in pace according to the price that we've been working on. So April and May, we understood was not the moment to run after contracts. But after the hike in tune July that we see now until the end of the year, we will start to find good windows to buy it better for 2026 on. Noting that for 2024 and 2025, we sold all the energy that we had, its minor adjustments, but nothing relevant. So we're talking more on the long-term. Talking about the [indiscernible]. It is compliant, but of course, the further away it is from the supply period, the less liquidity you have and the higher average size to have around it. So ,we have a lot of time in commercial intelligence to try and capture these -- it's not on unanimous. So, we see a lot of room for variation.

Daniel Slaviero: And just to add here, Guilherme, around 76 megawatts that we've sold for 2025, for example, but pretty much exhaust what we have and the availability, always considering a natural hedging of CSF. CSF this year, is around 13%, 87, 88, so we always consider that with -- avoid any expense with energy purchasing. But when we look at the longer term perspective, this volatility that Rodolfo mentioned, that everybody knows, this update and the methodology and the price verification, you already see an acceleration in the long-term energy price above €170 million, €175 million. So there's already an improvement. And we really believe in the capacity that the hydropower plants have of providing power, energy, especially in peak moments, and we'll start to work strongly for that to be valued and materialize in prices due to the stability that hydropower plants provide to the system.

Q – Guilherme Lima: Great. Thank you.

Operator: Next question, a written question from Matteos Lirin [ph].

Unidentified Analyst: Congratulations on the results. Felipe and Rodolfo welcome. My question is, will we participate in the transmit auction to grow in the sector?

Rodolfo Lima: Matteos, I think we talked a little bit about that. You see that on Felipe's slide, we already have in terms of network of almost 75% of our EBITDA be it for transmission SP&T or distribution. So in the segment's portfolio, it is a good investment that brings a lot of stability to the company's revenue. Now specifically on transmission auction and the auction now in September, it's inherent to have a lower rate. So considering the level of discount and the company shares, we are thinking very carefully to see what the strategy is, whether or not we're going to join. And if we enter the auction, we need to have a return expectation that is more suitable and proportional to what we see today in the price of the share. So speak down and as I said, we have a fiduciary responsibility in terms of capital allocation and where the best capital allocation is. If it's investment in what segment, what investment profile or as I said, their buyback programs possibly or payment of dividends -- extraordinary dividends, as our policy allows for. With all of that said, the transmission segment is something that we like due to stability and our expertise and our capacity being a private company for [indiscernible] and anticipation of the deadline. But this will all be weighted and considered for us to. If we decide to participate to have a good strategy. And if we succeed, great and if we don't, well, it's how it is. It's part of the game. What makes it look specifically at that lot, as I said in the beginning, is that it does bring a lot of synergies to our current operations. There is very little incremental costs in this process. So that makes -- it's our diligent [indiscernible] and everyone to be engaged in study. What the biggest bet of this auction of September will bring?

Operator: As there are no further questions, we now conclude the question-and-answer session and turn the floor to Daniel for his closing remarks.

Daniel Slaviero: I would like to thank you all for your participation once again and thank all of the Copel people for their work and their commitment and dedication this quarter. So once again, Copel's execution capacity, I think this is like a trademark for us, and we are relentless in the perfect execution of our strategic plan, either with asset divestment or our process of focusing on the core business, in the simplification of our structure and participation, that's something we're also looking at and cost control and a very important moment, which is the reduction of almost 1/4 of the company guaranteeing in the same levels of quality and service provider. So the results of this quarter reinforced the consistency of the company's work. And as I've mentioned, now being able to have this plan, this mix between professionals who have already been here who know the company, adding new talent who come with new prospective, new angles, new experiences that can give us momentum and greater agility to the cultural transformation process that the company is going through. So I think that this vision of a consistent company that is focused on delivering all of the commitments made with our employees, our shareholders and society as a whole is a very typical brand of Copel. Thank you all very much. Have a great day and will remain available to you.

Operator: Copel's conference call has now concluded. We thank you all for your participation. Have a great day.

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