Auren Energia S.A. (AURE3.SA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Auren Energy's conference call discussing the results of the third quarter of 2025. This conference is being recorded, and the replay will be available on the company's Investor Relations on the website, ri.aurenenergia.com.br. The presentation is also available for download. [Operator Instructions] Before we proceed, I would like to remind you that forward-looking statements are based on the beliefs and assumptions of Auren's management and on information currently available to the company. These statements involve risks and uncertainties as they refer to the future events and therefore, depend on circumstances that may or may not occur. Investors, analysts, journalists should be aware that macroeconomic conditions, industry dynamics and other factors may cause actual results to differ materially from those expressed in the forward-looking statements. Joining us on this conference call today, Mr. Fabio Zanfelice, CEO of Auren; and Mr. Mateus Ferreira, CFO and IRO. The Investor Relations team is also with us today. I would like now to hand over to Mr. Fabio Zanfelice, who will begin the presentation. Please go ahead, Fabio.

Good morning, ladies and gentlemen. Thank you very much for attending for this results, earnings results for the third quarter. This is our agenda. Let's show the highlights then energy market, operational performance, commercial performance, financial performance and also the beginning of our corporate structure -- restructuring and then closing remarks and then the Q&A. Now let's see the highlights of the third quarter. This is a very interesting quarter in terms of our results because on one hand, we are very pleased with what we have presented and achieved in terms of resulted with the integration of AES, and it is a quarter where exogenous events have impacted our performance. We are closing with BRL 773 million in EBITDA and an accumulated of BRL 3 billion in the last 12 months year-to-date, BRL 3.8 billion. So it's a very important result. Here in the highlights, we would like to call your attention to the conclusion and the final integration of AES Brasil with synergy captured for the period, we will refer to that further down the road. And maybe the most important topic here today is that we have reached in this quarter almost 93.4% of availability of our wind assets. And in 2024, we had 70%. So a very important advance in the performance of our assets and synergy capture and in the conclusion in record time of an integration of AES Brasil. Our operational performance, this was a quarter in which curtailment impacted our results. We will give better details. What we should highlight here that except for the curtailment effects, the company would have reached in its wind assets, 98% of our certification perspective. So it is important to highlight this point because our performance, as we heard previously, the assets would be in terms of wind assets and in availability are doing very well. Another highlight is the conclusion of our management. We have concluded an important step in terms of paying our debts and also an issuance. We have elevated for another 10 years with a very competitive cost, so 2.2%. The leveraging was not reduced in almost 1 time since the 2024 last quarter, and it has remained stable with the EBITDA. We also like to highlight the impact of our diversified portfolio with moderation gains that are quite expressive, BRL 66 million for the year, and we have reached BRL 124 million, which allowed us to compensate the curtailment impact to BRL 150 million for this quarter. So on one hand, we had a negative effect of the curtailment, but on the other side, we have the positive effect of modulation compensating this reduction of the results and the exogenous variable. Another important factor also mentioned and highlighted as a relevant factor was the approval by ANEEL of the compensation of excluded investments in the CESP, namely [ Jupiaotiraargona ] with a total of BRL 500 million. And this is a historical value, most of it in 2015, and now we will follow the process of the public hearing of the Ministries of Mines and Energy, which define the index of the adjustments of these values for the -- today's value. And finally, we had the approval 2 weeks ago of MP 1304 extremely important with regards to the curtailment issue, another important factor for the company was also the mention and definition of the criteria for the renewal of the concessions for the hydro plants. This is important because part of the company's portfolio has a concession that will be due soon. So now for the energy market, the highlights, this quarter in terms of performance of the ENA or the -- was better than the previous quarter, 21% below MLT -- or LTA, I'm sorry, but the great gain in this page here is the demand side that has also contributed for the systemic effects of curtailment. We had a quarter in which the energy was 4% below the estimate of E&S, 3 gigawatts in average and the average curtailment was 5.6 average in the quarter, 3 gigawatts less in terms of a load with a very important impact and the same energy was 1% lower than the consumption of the same quarter last year. So the impact of a lower temperature lower than average and maybe this has been the lowest winters we had in the last 10 years. So this also impacted the system's operations. On the next slide, we will talk about our reservoir levels also due to the lower demand and also a change in the price formation that we had in January, the storage of the system was maintained above the number observed in 2024 and 17 percentage points above the average for the last 10 years. So we are very comfortable in terms of the reservoir levels. On the other side, we had a GSE reaching 56% against 79% in the first quarter 2024. And we also had the impact of lower consumption and increase of micro generation and also energy dispatch or thermal dispatch that given the short-term price was above. But the most important factor here was in the seasonality of physical guarantee that in this quarter was 54 average gigawatts against 49.3% for the same quarter in the previous year. So this is a greater allocation of physical guarantee, which allowed us to the GSF depth to be bigger. On the next slide, we have mentioned this factor of lower hydropower. And left, we can see the 18 gigawatts in consumption against 77 for this quarter with a lower average gigawatts for this quarter and participation of hydropower in 49% in the last quarter against 53% in the third quarter of 2024. If you can see on this slide, you can see that wind generation is stable in terms of its share and thermal, as we heard, due to the dispatch, but maybe the great villain here in this process was distributed generation, which participated with 9% of our generation in this third quarter 2025 against 6% on the third quarter 2024. On the right side of the chart, we can see the evolution of our PLD, which will show the change of the methodology of price formation. In the same period last year, the average was BRL 170 per megawatt hour, and this for the third -- will be BRL 252 million. The volatility was approximately 31% in the third quarter 2024 and now 38%. However, in average, the volatility was bigger in absolute values in this quarter compared to the previous one in 2024. And this will also justify the impact of curtailment in our financial management, and we had an increase of almost 40% of PLD in this period for the third quarter of 2025 against the same quarter in 2024. The assets that were sold in terms of the free market finished with the same basis considering the same opportunity of curtailment and they end up being more impacted by the need of higher PLD. Very well. On the next slide, we have the curtailment issue. On the left side, we present the total curtailment month by month with a total of 5.6 average gigawatts hour, one of the largest ones in all the quarters, in the last few quarters. The composition here, 53% of this curtailment was due to energy issues, 29% for 18% for electric issues. And we have on the right side, a little bit of what would be the curtailment if we do not have a deviation of the load in terms of the projection and also if we didn't have the expected MMDD. Therefore, the average curtailment was 23.1% in this quarter, and it would have been 15% if these 2 variables had not happened. And we would like to highlight this movement because truly the energy consumption, the lower energy consumption had an important impact in the centralized renewable for this quarter. On the next page, we are going to talk about our operational performance. From the standpoint of our hydropower generation that is slightly lower as we presented previously with a smaller participation of hydro in the total production of the system in this third quarter 2025. And for the wind power, discounted the curtailment impact, if we did not have the curtailment impact, we had generated 98% as I said before. And we have an availability of the assets from AES plus the other assets of around 95% in the third quarter. And solar power, the most impacted area with daily profile, we had a generation of 71% of P90. If it weren't for the curtailment, we would be very close to the PIF 50 of generation with an availability -- a very high availability. On the next slide, we are presenting the evolution of the acquired assets availability after the acquisition of AES. We left 89.3% in January this year, and we have reached 93.4% by the end of September. A slight drop in September with regards to August in comparison with August, some maintenance issues we had in this last month, but the highest highlight here is that for every 1% of recovery of the availability, we have added BRL 20 million as a potential margin. So from January until now, we had 4%. And so we added approximately -- we generated a potential of revenue of BRL 80 million. So also the same availability when measured in January 2024, which was pre-AES acquisition was around 70%. Therefore, in 1 year, 9 months, the company had the ability of recovering almost 23.4% of availability in these assets. And this is something that should be celebrated by the company and recognized the ability of maintenance and all the other areas that have supported in this recovery. On the next slide, we have the benefits of the diversified portfolio, presenting on the chart, the profile of generation compared to PLD. So this is an average PLD for this quarter, showing the company's ability of capturing extraordinary revenues given the profile of the short-term price. So in this quarter, as I said, we had BRL 66 million in impact of modulation positively. And in these first 9 months, BRL 125 million. And the total impact of curtailment for the quarter was BRL 196 million, and the impact of modulation was bring a net result of exogenous effects over the result of the company of BRL 130 million. On the next slide, we have the energy balance with not many variations with regards to what was presented in the last quarter, basically 36 megawatts hour average as a result of a high production negotiation from our Jaiba Solar Park. The company is well hired and contracted for this year and the years to come. And here, the profile that you already know in terms of a greater availability in the longer term where the company will benefit of the reviewing of the long-term prices according to the market. The market has recognized that the greater price for expansion has changed and the new projects will only be implemented if we have a better cost for expansion, which also makes the market prices to be revised in the future and where this is where the company has more uncontracted conventional energy. On the next slide, we will talk about our financial performance. Therefore, I would like to pass the floor to Mateus.

Good morning, everyone. Thank you so much for participating in another earnings call with regards to our quarter's results. As we heard in the beginning, we had an important impact in terms of GSF curtailment. We closed the quarter with BRL 773 million in EBITDA, representing a decrease of 10%, BRL 90 million with regards to the same quarter of 2024. This drop is justified by 2 main reasons. We had a result in the commercial result in this fourth quarter of -- when we make the adjustment for the contract that was migrated from the previous quarter, the result would have been positive in BRL 25 million, which would make a difference of BRL 15 million in the results for 2024. We already had said in the previous quarters, the company had a very strong result in the commercialization. Most of the result of that was concentrated in the first quarter, which will justify this difference between the first quarter '24 from the second quarter of 2025. So when we see the result of commercialization for the first year, we see BRL 124 million in results in line with the previous years. Another difference of around BRL 5 million is the impact of curtailment of GSF for the quarter. When we consider the next page, the positive side of the financial performance of the quarter was the continuous reduction of the operational expenses or PMSO of around BRL 58 million since the closing of the transaction with AES' value has already reached BRL 212 million, and we will continue strong and pursuing the number of BRL 250 million that we have been referring to since the very beginning of this year, which continues steadily to reach this guidance of PMSO. On the next slide, regarding leveraging. As it was said on R&D, we will now experience a more stable period of leveraging. Previous quarter had a 4.9x the EBITDA debt, meaning net debt of BRL 19 million. As Fabio said, we -- at the end of this quarter, all the liability management meant issuing of over BRL 14 billion in debt, and we closed this quarter with a prepayment of 100% of debt for that payment. So in less than 1 year, we paid what was expected to be paid in 4 years. We now have an average term of 7 years, and it is very competitive in terms of the rate. It's CDI minus 2%. Now the corporate restructuring. This is something we've been addressing since the closing with AES. And now in the third quarter, we started what is expected to be a long process, and that should be concluded during 2026. In sum, what we'll be doing is concentrate all those assets of the company that are concentrated in assess and/or in operations in only one vehicle. So CESP today has a capacity of 2,000 will go to 7.2 megawatts. So all the hydropower assets of the company will be under. It is important to say that this has not been fully approved, both in terms of governance and also regulations. But in August, we started the waiver process. And so we are now giving full disclosure of the goals. The objective of this reorganization is both because of 2 publicly traded companies or participations in -- on operations, more efficiency of the financial liabilities of the company as well. So now I will give it back to Fabio to conclude our presentation. So now the key takeaways, I would like to highlight in terms of regulatory environment. MP 1304, I believe to be very important and important for the company as well, which is the topic of curtailment. And we now have a definition of the extension of the term. We expect that the past numbers because of reliability will be around BRL 250 million and once it is enacted as law, we then have the opportunity to acknowledge that since now. Then our integration was in a record time since the acquisition of AES, all the integrations and organizational adjustments, everything was completed. And the most important fact was recovering the wind farm assets. The company is now delivering a better performance with 95% availability, which was our goal for the end of the year. And the synergy capture that was announced and that we have already captured BRL 212 million since November '24, we will close the year with BRL 250 million as we had announced in the beginning of the year. Maximum focus on deleveraging. We will continue with this priority. And all the team will be fully focused in this way. And finally, compensation, it's BRL 500 million, as we said, and it is a very important moment in which this will be received by the company. And now we will be waiting for the Ministry of Energy to announce and so that we can wait the adjusted amount following the correction factor and the payment schedule of that amount. Now I would like to start the Q&A session.

[Operator Instructions] We will start with the first question from Banco Safra.

I have 2 question. The first one is about the energy trading strategy. I would like to hear from you, considering the results of this quarter and comparing that with the energy balance that is contracted. I would like to understand if you plan to make any adjustments in this energy trading strategy that you've been adopting in the last quarters? And also looking forward to the next quarter, can we expect volatility in the results of energy trading when we consider the previous quarters? And also one second topic that is the company's interpretation of what was proposed in the MP 1304 regarding the curtailment. What is the dimension of the curtailment that will be compensated? I would like to hear from you how you see that.

Thank you for your question, Daniel. Regarding energy trading, the first thing I would like to highlight is -- in the previous quarter, we said that the major results would be concentrated in the first half of the year and that the second half would not have very significant results because in the first half, the results were really positive and surprising. Now regarding the company's strategy, it remains the same. which is to benefit from the best moment for -- to sell in short positioning and to take advantage of this opportunity to contract with the lowest possible prices. Now there were some market factors that give the impression that there would be some change in the strategy, but that is not so. The market expectations were lower. And regarding the forecast in the beginning of the year, the need for energy acquisition was higher than we expected, but we also had the understanding that it was not a moment to reduce PLD since March this year, the company believed it didn't make sense to lock a positioning of those amounts. That said, the strategy remains the same. There were some external factors that had an impact and the trading company is has the same strategy of making decisions when it's the right moment. This is now a unique moment. It is not time for energy acquisition. Storage is higher than historical numbers, higher than 2024. The North region also high storage and hydrologically, the scenario to be expected is about the same, leading to spill in the North. And we know that from now to the beginning of the year, prices tend to go down, especially in the first quarter and also second. So the positioning of the company now regarding any debt for 2026 or any trading, the strategy remains the same. As for curtailment, depending on how the MP 1304 moves forward, especially in the free assets market, we will need the energy amounts to face that situation. So the trading strategy will be guided by that. We will be making adjustments in our positions throughout the year of 2026. And the compensation coming from the MP 1304. There are 2 understandings we believe that based on the past and based on the reliability. And now a different understanding that is the condition compensation. So depending on how it is enacted and if it is enacted in whole. Now the Ministry of Energy must define the rules regarding the offer of renewables. We are now waiting for the Ministry of Energy to determine how the MP will be enacted. We are working with several different scenarios. And we will have to wait or we will have to wait for the law to be passed and so that we have a better understanding of how the compensation will be.

Next question is from Mr. Kevin Disch from XP.

My question is also regarding MP 1304. We see that this is still being discussed. We don't know if it's going to be vetoed. So in case it is, we don't really understand how the compensation of futures will be. And and the classification criterion. So these BRL 250 million, is this enough for the company not to have to resort to legal action. We know that there are some reserve energy contracted, and there's a positive forecast because of other gains in the market because of those reserve contracts. So I'd like to understand how you see the magnitude if those numbers will avoid having to resort to legal measures. if that is equal or more to BRL 250 million in case there is a veto.

Thank you for the question. This is a systemic analysis. It is beyond the company's understanding. The legal measures will depend on the industry as a whole. It will -- it is beyond the company's strategy. And depending on how it evolves, the company will make its decision. The more appropriate would be for this to be addressed and solved. And if there's a risk of veto, what will be vetoed or not? And what will be then regulated. And this is part of my previous answer. Once it is known, the company will make its assessment in terms of what makes more sense and if we should or should not take legal action. We will have to wait and see how this will evolve so that we can have a firm position in terms of what we will be doing.

The next question Mr. Pedro Liz from SulAmerica.