Auren Energia S.A. (AURE3) Q4 FY2025 Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the conference by Auren Energia for the results for the fourth quarter 2025. This conference is being recorded, and you can access the recording at ri.aurenenergia.com. The presentation is also available for download. We inform all the participants that after we will start our Q&A session. More information will be given in the beginning of the Q&A. Before we move forward, I would like to make the disclaimer that this is -- these are the suppositions of Auren and the current information available for the company. It might include uncertainties that have to do with future events. Therefore, they depend on circumstances that might or not happen. Investors, analysts and journalists should take into consideration that events related to the macroeconomic environment to the segment and other factors can make the results be different than those that are shown here in the different prospective declarations. In this conference, we have Mr. Fabio Zanfelice, CEO from Auren; and Mr. Mateus Ferreira, CFO and IR. Also, the Investor Relations is also present here. I would like to pass the floor to Mr. Fabio Zanfelice, who will start the presentation. Thank you. Fabio, you have the floor.

Thank you. Good morning, ladies and gentlemen. It is a pleasure to have you here with us and yet again, another call. It is important, of course, for all of us to conclude the year of 2025. It was a very important year for all of us. These are the first highlights for 4Q '25 with an EBITDA of BRL 4 billion, adjusted EBITDA, EBITDA that is very important to us, very robust, considering all the systemic effects of the current electric system impacted by curtailment, both wind and solar energy. So we are very pleased to report a very important figure even in this challenging scenario. All the other highlights for this quarter, we have consolidated our synergies, a very positive one. We closed the year with BRL 280 million in captured synergy after acquiring AES Brasil, more than twice what we have announced when we signed this acquisition, which was BRL 120 million at the time. So we went above BRL 160 million and the first figures that were disclosed to the market. This integration took 10 months to be completed. It's a record time and half of the average of integrations that we see in the market. And as we highlight with the results that are above expectation, both in synergies as well as operational performance, which is the second highlight here. We reached by the end of December, 95% of availability in incorporated assets. We anticipated in one year our target of recovery of the performance of these assets. And I would like to remind you that this figure in January 2024 was around 77%. So it is a recovery of almost 20 percentage points for each percentage point, it's BRL 20 million plus potential costs in these assets. Another important highlight is if we exclude the curtailment of figures in 2025, our generation will go above the certificate -- the P50 for the certification with 102% of the P50, which reinforces both our recovery, an important recovery for the asset performance as well as the accuracy of the certification of generation of these assets, which was redone once we purchased AES. So it is an important figure, indicating, again, a very robust portfolio and the wind power that we have here in our company of the total portfolio at Auren. With regards to the portfolio itself, the positive effect of diversification, we have closed the quarter with BRL 207 million in impact in curtailment; however, we also announced BRL 70 million in gains in modulation, once again showing that 34% of the curtailment effect was mitigated by the flexible portfolio that the company holds, mainly by the hydropower and also the wind power that some assets have a very well-aligned profile with the wind power profile. For the year, the curtailment will total of BRL 530, but the modulation was also able to mitigate part of it with BRL 196 million with a net effect in modulation and BRL 334 million. Once again, this shows that even though the company is more exposed to curtailment, thanks to our diversified portfolio, we have the resilience to support this with our hydropower portfolio. Another news that I would like to highlight has to do with the management of our pension liability. This has come to us through SASB. We added a very small part also of the AES requirement. We had a total for the 2 companies, BRL [ 1,800 ] million in terms of pension liability. We're able to approve 6.28% of actuarial rate. And we also work in immunization of this asset for our pension fund, which, therefore, allowed us to have a reduction of BRL 991 million in terms of actuarial risk. The most important fact, not only the expressive numbers that the company is able to reduce its annual payment in the BRL 54 million in contributions to cover this liability in 2026. This is a very important information that has to do with the structural risk reduction. Another highlight, not only for the quarter, but for the whole of the year, once we concluded the integration of AES, the company is now ready with a solid basis in order to build our future. Our focus in 2026 would be to refine the processes of the company. Of course, after this integration, there are still opportunities in terms of value capturing through our processes. We will also conclude our society integration or corporate restructuring that was completed in 2026, and this will be the purpose in 2026. We will talk about this later. There's a slide on this. And then we will continue to work with our processes with a focus on operational excellency. And to conclude on the regulatory area, the quarter was highlighted by the publication of Law 15,269, an important landmark for the sector with the treatment of the legacy curtailment and some addressing of the curtailment in the future. I guess everybody knows that we do not reach exactly the purpose or the objective of wind power sector. However, it is a reduction of our uncertainties. There's a little bit of concern in terms of curtailment. It will not solve our issue 100%, but we will certainly advance some of our objectives. This is an important highlight for the last quarter. Now back to our agenda. Let's look into the energy market. The last quarter was a bit challenging we recorded an ENA or affluent energy of 100%. So there was a recession in the hydro sector. This was a frustration of 18 watts average. And even more so, it was 13 gigawatts below what we observed in the fourth quarter in 2024. This is an adverse scenario so the reserves level, which had better levels in the previous year, reached 24%. This reservoir is even considered optimal because it's 9% above the last 10 years average. But still, it's 8% below what we had in 2024. So 2025 ended with a less favorable reservoir levels than what we had in 2025. On the next slide, we will have a look at the impact of this last quarter. Of course, with our hydropower a little bit below what we expected, we saw in thermoelectric gap and this is because of what was introduced in 2025 and also for the change parameters increasing risk aversion in terms of reservoirs. So with a change of model, unfavorable hydropower, and this will have an impact of 17% in the composition of the mix above what we observed in the last quarter of 2024. And in the whole set of the results, we have more impact and we have a greater contribution of distributed generation and also solar and wind power, which brought about a reduction of the participation in hydropower in the generation for that quarter, 225 percentage down to 52%. Another important factor and more determining is that the load consumption for the first quarter was below the consumption of 2024 and below the expectation given by ONS. Of course, this brought about what you can see on this chart on the right side, which was the observation of GSF of 67% against 80% in the fourth quarter of 2024. just to highlight even more this explanation with regards to GSF, the profile of seasonality was also different in the last quarter of '25 compared to '24, contributing for a GSF that was below what we observed in the fourth quarter '24. On the next slide, bit of a consequence of everything we've talked about, low hydropower below what was expected in terms of price formation models, we had in the last quarter, an average of the short-term prices above what we observed in the fourth quarter '24. The average was BRL 225 per megawatt hour against BRL 218 on the fourth quarter '24. As you can see on the chart on the right volatility measured by the hourly prices was close. It was 86% in the last quarter '24 [indiscernible]. However, on the last quarter, '25 was much better distributed. It was better distributed throughout the quarter, given that in '24, we had a peak of -- an important peak in October '24, bringing greater volatility to this chart. This is the new market reality, more volatility on an intraday basis and a level a bit higher in terms of the gains and losses in terms of changes in the weather, the climate. On the next slide, we're going to talk about curtailment. This is a variable that will impact even more the impact of the company, on the last quarter '25, there was a reduction in wind power in the order of 23% in power. And this impact was, as we saw in the chart on the left, it was more pronounced in the month of October. And part of this impact also is a result of wind power being above what was expected in October, but also with impact of the MMGD, micro generation, also the frustration of demand as we saw on the right side chart. The 23% here in reduction of generation represents 5 gigawatts meters on the quarter. If we had a demand as expected, as had projected, we have a reduction in this value in average gigawatts. And if there was not a contribution above the expected, we will also have a cut of 1 gigawatt average. So this will show that if these 2 effects did not happen, curtailment would be 30% lower what was observed going from 13% to 16% and 5 gigawatt average to 3 gigawatts average. So this is specificity. We know that this is the impact of GD that came here to stay, but the demand also had an important role in frustrating the consumption, and it was a determining factor for the curtailment we observed in the last quarter of 2025. Now to operational performance. We had on the hydropower generation reduction in this fourth quarter compared to '24, as we saw around 11% as we explained due to renewable sources. And the frustration in terms of the demand. On the wind power, also impacted by curtailment reduction of 5%. And I would like to highlight that if we observe -- we generated above if we considered the level of curtailment we observed, we would have generated above P50, showing that wind power was pretty good. On the fourth quarter, we generated 33 -- we would have generated above 23 megawatts above the certification, showing that we have the ability as we have highlighted the quality of our portfolio for our company as well as wind resources aligned with our expectations. In terms of solar power, also reduction with regards to the 2024, a bit below what we expected in P50, 10 megawatts average due to lower solar resource. What important is here the different sources here. We see -- we had hydropower, 57%, 6% solar and 30% wind power. On the next slide, we see the highlight, the evolution of the availability of acquired assets in the process of AES acquirement. As we said, we concluded 2025 with 95% availability, 94.6% to be exact, an average of availability, 11 percentage points above 2024. 2024, we had an average of 84%. But in January, this number was 77%. So if we look from January '24 to December '25, the recovery was quite expressive. A highlight to serve some parks that are very important, such as Tucano from 80% to 88%. Tucano is a wind park that has 5x turbines. This is an equipment that has presented issues around the world, and we were able to have an important recovery for this equipment. And Ventos 88% to 95%, reaching almost its ideal level of availability and Caetes also from 93% to 97%. Therefore, we can show that this recovery is important and also homogeneous throughout the company assets. As I said at the beginning, every 1% improvement, every 1 percentage point on availability, we had a potential of BRL 20 million in terms of revenues for our wind power assets. On the next slide, we will now talk about the systemic effects on the portfolio. We also talked about this in the beginning of the presentation. The impact of the curtailment was BRL 270 million. Modulation contributed to reducing this impact in BRL 70 million, which resulted in a curtailment of BRL 137 million for the quarter. One important data we have here for this chart on the right side has to do with the evolution of the spread throughout 2025. Since 2023, actually, considering the observed scenario, actual one, the pink line and the scenario if we have a curtailment. We can see that the curve for wind power more specifically or the adding of modulation was very important. And we can see the increase in time because of the effect of curtailment. This just comes to show that the curtailments are happening at the middle of the day. So both the profile of certain parks as well as the generation will also contribute to the modulation gain. But what we would like to highlight more specifically is curtailment has been happening in certain hours of the day where you have a lower demand. So this will also contribute when we consider the scenario when we look into the market, this curtailment in time, it's not exactly the same average of future market prices. It happens at lower prices. On hydropower, it also happened the same way. When we look on the chart in the middle, it reached BRL [ 18.50 ] and also the solar power has the same profile, not as big, but also reduction of the impact of modulation in the last quarter when compared to the scenario without the curtailment. Next slide. We will now discuss the commercial performance. The consolidated performance of the company. We see a consolidation in the first 3 years. And the last earnings release, we see the consolidation an average of 169 megawatts of self-production contracts and also the auction for selling in the Northeast markets to reduce the risk for the company in view of the price differences in the market. Regarding purchases, it was an average of 120 megawatts purchased for 2026 and also 42 megawatts to reduce the short position of the company. So we see that the level has reduced and remaining the same for the long term. And now for the next slide, I'll give the floor to Mateus.

Thank you, Fabio, and good morning, everyone. We now have the financial results of the company and adjusted EBITDA of BRL 1 billion, an increase of 13% compared to the previous quarter, an excellent performance if we compare with the third Q of '25 as well. The adjusted EBITDA because of the recognition of some prudent investments, if we excluded that positive impact, the EBITDA would be very similar to what we experienced at the fourth Q of '24. In the next slide, as Fabio said in the beginning of the presentation, our synergies led to a very strong performance since the acquisition of AES Brasil, we have now led to BRL 279 million in synergies, surpassing the BRL 250 million previously indicated what was informed by the company at the time of the acquisition. So we're very happy with those results. And now for 2026, our concentration is to focus on that same financial performance for the company, so as to have a readjustment of costs that I will detail in the next slide. As we had foreseen, we are now in this plateau period after a leveraging period in the third Q. And now for the fourth Q, 4.8 leveraging was our forecast, very significant reduction compared to our last prediction and very well in line with the previous Q. The gross debt of the company is of BRL 4.5 billion, meaning very competitive costs. Our average cost is CDI minus 0.8, so we have concluded all the liability management of the company. As you can see to the left in the bottom, no concentration within a year in terms of what was forecast. The average term is very comfortable. It's on average 7 years and our cash position, which is enough to cover for the next 3 years. Next slide, we will now address some additional measures to create value. There are 3 main topics that are well known. The first one is the simplification of the corporate structure. We keep on working in this field. We are working on the waivers of some debts of the company, something that should be concluded by April so that we can move on to execution. In simple terms, this means to concentrate all the hydroelectric assets of the company under one single vehicle. To the left, you can see the current structure compared to what it will be post restructuring. We will be eliminating 2 publicly traded company. Companies will have a better cash management. And in 2026, we will be working in a new front so as to conclude all that work by the end of the year. The zero-based budgeting is another strong focus. This is a very significant structural change in the company. And one of the goals is to seek greater cost optimization, leading to numbers below the inflation. And thirdly, as Fabio has said, the immunization of pension liability. We were able to approve some very important interest rates. And we have also worked on reducing the actuarial deficit. In terms of the pension liability, it is very significant and BRL 55 million in cost that will be avoided. And now I will give the floor back to Fabio to conclude our presentation.

Well, the main closing remarks to conclude our presentation are our company is very well positioned to capture market opportunities. We have a very comfortable term. And we are still working on what we believe to be the marginal expansion cost. These are positive numbers to us. Leveraging is something that was followed by users very closely, and we are in a downward trend, and we expect to achieve optimum levels in the next 2 or 3 years. As for the regulatory field, for 2026, we expect a reduction in the indexation, especially with the prudent investments in CESP. As for capital allocation discipline, we remain very disciplined, working to generate value for shareholders and bringing returns that are above the expected as, for example, the battery auction. We also had auction of capacity where Porto Primavera was not included. There were some discussions by the environmental agency. The the flow and outflow of that asset was under discussion and the decision was not to include Porto Primavera in that auction. It is definitely not something final, and we expect that plant to be included. We will now be addressing that in more details. As for corporate reorganization, as Mateus has mentioned, all those assets will be under one single vehicle, which is CESP. This is something very interesting because this will be just like prior to the acquisition and meaning a very smart structuring of the company. And finally, in 2025, one of the most important achievements was the successful completion of AES integration. We were able to follow through with all the results we had forecasted. And I would like to express my thanks to the shareholders and to the Board because even in view of a very challenging year and all the regulations -- the regulatory challenges, we -- we know you all contributed a lot to our success. I would also like to thank our partners and suppliers and especially all our team in the company. This was a very positive year. We learned a lot with the integration of AES. And we know that everyone worked hard so that we could now present such results to you all today, ladies and gentlemen. So thank you very much. We will now move on to our Q&A session.

[Operator Instructions] Our first question was asked by Mr. Ricardo Bello from Safra Bank.

I have 2 questions. The first one is about the curtailment level. Could you share more about the -- what you see the level you see for wind and solar farms? And also for the solar assets, we see a lot of evolution compared to the previous Q. And I would like to know more about the strategy moving forward. Is this profile that we've seen in these results, something structural? Or are we to expect something different for the next quarter or the next year as a whole?

Regarding curtailment, to give you some more details, we see some more curtailment for January. But because of all the rain in February, we see that wind energy was lower than what we expected. And therefore, curtailment was also under the expected, but that should be something particular to the first quarter. We see that all the operations that we are carrying out led to very strong operations and very positive prices in our long-term contracts. As for our company strategy, what I can share is what I've shared in the presentation. You see that there's a higher level of contracting, and this has been so since we acquired AES. There's higher leveraging. We were able to reduce risk because of any exposure in view of our positioning. So in the long term, as we've said, our expectation is that the long-term prices will be more in line with the long-term expansions. We will be observing how these prices behave, especially because there's not that much liquidity for significant operations in the future. So this will now give us more time to reflect on those operations. But that's structural. And now as -- to answer your question, we -- in terms of operations, we are now, as always, paying close attention to arbitrage and price volatility. We're always capturing that kind of information to capture opportunities. So basically, this is -- these are the guidelines we've been following for our company.

We are now closing the Q&A session, and I would like to give the floor back to Mr. Fabio for his closing remarks.

Thank you all. Ladies and gentlemen, thank you for attending one more earnings release call. I thank you all for your time and hope to see you all in our next earnings call. Thank you, everyone. Have a nice day.

This conference call is now ended. Thank you all for your participation, and have a nice day, everyone. [Statements in English on this transcript were spoken by an interpreter present on the live call.]