Auren Energia S.A. (AURE3) Earnings Call Transcript

Good morning, ladies and gentlemen. Welcome to Auren's Conference Call to discuss the company's results for the third quarter of 2026. This conference is being recorded, and the replay can be available on the company's Investor Relations website at ri.aurenenergia.com.br. The presentation is also available for download. [Operator Instructions] Before proceeding, I would like to remind you that forward-looking statements are based on Aure's management's current beliefs and assumptions as well as information currently available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore, depend on circumstances that may or may not occur investors, analysts and journalists should bear in mind that developments in the macroeconomic environment, the industry and other factors may cause actual results to differ materially from those expressed in those forward-looking statements. Joining us today are Mr. Fabio Zanfelice, CEO of Auren; and Mr. Mateus Ferreira, CFO and Investor Relations Officer. The Investor Relations team is also with us today. I would like now to turn the floor over to Mr. Fabio Zanfelice, who will begin the presentation. Fabio, please, you have the floor.

Good morning, ladies and gentlemen. It is a pleasure to have you here once again for yet another results for our 3Q 2026. These are the highlights for the quarter. Our adjusted EBITDA is the main highlight, reaching 1.1 million[indiscernible] to the financial compensation for past curtailment and to the successful trading strategy. for the period of September 23 until November 25. You know very well this topic, and we will also talk a little bit more about this during our presentation. Also, motivated by the positive results, as I said, with the trading strategy during this quarter, thanks to the improvement to the hydro landscape in the country. In this context, we have BRL 108 million, as I said, benefiting with the drop of prices. I also would like to highlight the Cajuína construction. We have completed adding 112 megawatts of installed capacity into our portfolio. This project is already in operation under tests and it will start commercial operation until the end of the year. This was constructed within the deadlines and the budget we expected. Also, I'd like to highlight our portfolio effect in terms of diversification. For this quarter, we had a total curtailment of BRL 173 million, which were compensated by a modulation of BRL 59 million which will, therefore, give us a negative impact of BRL 114 million for the quarter and in the year, BRL 173 million, we will also talk about this in the next few pages. With regards to financial management, we reduced our net debt in BRL 246 million, closing with a leverage of 4.7x the net debt adjusted EBITDA and excluding the impact of the curtailment, the company would have an EBITDA of around BRL 129 million and still represents a growth of 7% compared to 3Q '25. So it's an important result for the company. And now we will go into the details of these results. Regarding the market, we have had a quarter that was quite different with regards to the energy. It was the 3Q '26 closed with 178 million, 138 LTA representing 59 percentage points above the third quarter '25, 75% of LTA, 70% higher in terms of energy going into the system. And you can see here in the storage trajectory, we have a drop in the reservoir level lower than what we observed in the beginning of 2025. And today, we see in 52.8% of the total volume, which is a positive reservoir level, given the period of the year because there is also a reservoir management that we do in order to absorb the rains that come during the what period, the rainy season and also due to the El Niño effect. On the next page, considering how we have met the demand with the different sources. We see an increase -- a recurrent increase in terms of participation of solar energy in order to meet the load in our system. It is centralized and distributed met 17% of the consumption for the last quarter compared to 12% on the quarter. The first quarter in wind power presented a reduction from 21 to 19 due to wind the power being lower in this quarter compared to the previous quarter. And because of the positive hydro hydropower, we have a compensation and an increase in hydropower. So the GSF ended this quarter, 77%, again, 65% of 3Q '25 on therefore, 12 percentage points above of which in percentage points were given to a higher hydroelectric generation and the rest for the physical guarantee with regards to the same quarter of 2025. On the next page, to indicate we have a little bit of the evolution of the market prices. The first chart to the left indicates a monthly price throughout 2026 in January up to September, we have on the gray line, the observed line, which was expected for 6 and also what happened during the year. Showing that in the beginning of the year, we really had an expectation that was very pessimistic with regards to market prices during the year due to a January that was low fluence of around 65% of LTA. So it was one of the worst in history, which reflected throughout the market. Fortunately, after February, we had a recovery. And with the El Niño in the middle of the year, we were able to see an important reduction in prices given a better hydrology as we presented in the previous slide. With regards to the chart in the middle, we can see the market curves for the next 5 years. We see 2026 with a lot of volatility. We were considering January BRL 342 as an average for the year. And now we are around 190. So it was an important decrease in 2027. Also -- we also see some volatility due to a better fluency. What is important to highlight is that on 2020 onwards, price markets are higher than what we observed in the beginning of the year. So there is a matching in terms of the long-term expectations with the system, which will benefit the company because we have an interesting position after 2028. On the right, we have the PLD month by month since January 2025. And we are also able to observe that in 2025, the PLD average was BRL 252 and it dropped to 130 in this last quarter, almost 122 lower, a 50% drop. For the PLD or the difference in the settlement price. However, the volatility increased. We have a daily volatility for third quarter to 63 million in the third quarter in '26, almost 60% higher volatility, which also explains the modulation and a little bit of the impact of the cost of curtailment in this last quarter. On the next slide, we already addressed curtailment and for this quarter, we had a curtailment higher than what we expected in 2025. The consolidated was 6.4 gigabytes against 6.6% in the first quarter of 2025. The wind source with a greater potential going now to 25.8%, solar 33.2225.8%. But the volume in general was higher than the solar capacity expected for the period. However, we will refer to this in future slides. There was a reduction of the cost of curtailment due to the configuration of prices. as we commented on the previous page. Of the total curtailment 30% for this last quarter, represented by the reliability and electric reasons. We will also refer to this. These 2 items is still under discussion, and there is a regulation that has to be done by ANEEL in terms of the compensation for these values which would represent BRL 114 million for the company. Now regarding operational performance. As we said, there was an increase of 10% in the hydro production for the company. The reference generation from the above, the grade power was wind power, 14% lower due to lower wind resources as what expected in the pre- or what's seen in the previous quarter 2025, 26% of 90. And if we added to this equation, the curtain objective, we have reached 90% of P90 and 88 of the P50. So it was a core in which wind power was below expectations on solar power, also a reduction of 5% with a greater curtailment given the fact that if we compare potential generation, we would be aligned with P50 for the certification of our wind farms. The greatest topic here was actually win the power, which probably was a topic that impacted the results of the company negatively. On the next slide, we see the commercial performance. We have a little bit of the effects of the cost of curtailment throughout the months. We can see in the upper part of the slide, we have our Southeast market PLD in the dotted line and the average cost in the yellow of SIN to meet the curtailment prices in the Southeast because we do not have wind power in the Southeast. And here to the right, we have PLD and the cost, the wind cost and also solar costs -- is -- if we consider solar curtailment costs and which has improved, but the greatest impact here was wind curtailment cost. If we look at the third quarter 2026, the average cost for curtailment was BRL 90 per megawatt hour. And in the same quarter 2025, it was around BRL 160 meg per megawatt hour. So in terms of company impact, the total curtailment in financial terms was of the order of BRL 26 million below what we had in the first quarter of 2025. On the lower line, we will comment the modulation effects. We can see a comparison between the PLD of the Southeast and the Northeast markets with an hourly average in the quarter, and we also see that there is an important difference in the profiles. If we consider the top price for the third quarter, 26% against the minimum price we have a variation of BRL 270 per megawatt hour, considering the same quarter in 2025, it's 120 a difference. So almost 200% increase in terms of the spread between the top and the low prices on a daily, hourly average. And also, we see that this will broaden the impact also in the Northeastern market. It is greater there. And this will bring a positive impact in terms of the modulation. On the next slide, we have the actual except of modulation and curtailment impacts. We can show on the left, what is the benefit of modulation on unit value, both for wind as well as hydro and solar power. We have a increase of the value for wind power and also for hydro, solar is more or less stable. And we can see the total impact for the company and curtailment and modulation. We see the third quarter 2025, BRL 173 million in terms of curtailment impact, 59 million for modulation, which would result in the net modulation of BRL 250 million. The same number was for the third quarter, which is positive here that we can consider. If you consider the 9 months accrued throughout the month, 2026 has a negative impact the total negative impact. If we had curtailment and modulation of BRL 131 million against almost BRL 200 million, which was observed in the same period for last year. As we can see, there is an improvement in the portfolio response to the curtailment effects combined with modulation. On the next slide, considering the generation energy balance, we have around 600 megawatts average, and the balance is practically unchanged in the longer term. We have a small purchase for 2027 on the third quarter '26, of 26 million. But as you well know, the commercial activity is very dynamic, and this is already a different balance given the current activities and trading. And certainly, there were other operations for purchasing and selling. But we can see that the long-term position for the company starting '28 remains with an expressive balance as we have seen in the previous slides. Now I'll pass the floor to Mateus talk about the financial performance. Thank you. Mateus?

Good morning, everyone. Regarding the financial result, we had a growth of 50% of EBITDA 73 to 1.86, including the curtain financial compensation, if you were to exclude the growth will be of the order of 7%. This once again will indicate the benefit of having a portfolio which, on 1 hand, will have a negative effect because of wind resources of BRL 75 million. But on the other hand, we had positive effects in terms of trading and GSF, a more positive GSF, and yet another quarter in cost reduction showing that the company is focused in keeping costs in adequate levels after the acquisition of AES. If we consider now the next page, from the standpoint of the company, indebtedness, it was a less active quarter. We had already and the liability management in 2025. What we can see in this quarter is a maintenance of EBITDA net debt ratio, we -- we're already indicating to the market that 2026 would be a year of stability, and we end this quarter with 4.7x the EBITDA level. If we consider the curtailment compensation, this would be around 5x against in line with the company's initial line and what we have already forecasted and disclosed to the market. Our debt profile is still good. We have no liability management to do on the short term. We have a [indiscernible] to 2025 of only BRL 300 million. In terms of financing, this -- there were no changes from the previous quarter, which, of course, allows us to work the company indebtedness even in a market that is more a market that is a bit shaky as it is now for fixed income. We have the same levels of the previous years, with CDI plus 2.7%. A good part of the debt is related to IPCA, the same one that will also make the necessary adjustments of the company -- for the company. And I will pass the floor back to Fabio.

Okay. The first regulatory base, just to give you a bit more of the curtailment, this was a recognition of the curtailment, BRL 40 million of financial revenues, which represents a monetary correction by IPCA. You know very well this chart. It is very well discussed in the sector and the expectation is that we will have the final settlement in the end of 2027. And we have the numbers until the end of 2017 when the company actually will decide if they accept the values related to our commitment. It is important to highlight that the term is up to 2025. And from that date onwards, it's now under AEL's regulation curtailment by reliability and also the franchise part of the curtailment due to energy issues that will also be compensated under certain conditions, especially reliability. And the products have to meet the networks and the company will keep track of this under ANEEL of the total value of curtailment. If it were to be regulated, and we had the right to have the full payment or compensation. This will reduce the impact for this quarter. In reducing impact in the first 9 months of the year, BRL 140 million. And this would allow us to have a neutral effect for modulation in the results of the company. Now let's talk about the final considerations. The main conclusions for the company as outlook. The company is still very disciplined in terms of the management. We remain focused, and we had important results. We have also a zero-based budgeting, which also represented an important reduction in the company's results as you were able to see in our results page, the company is still engaging in a strategy of artificial intelligence and above all, in the company's commitment and capital allocation within the expectation of our shareholders. The company is well positioned in the market and both in terms of the long-term perspective with good results in the growing prices in the market. The company has been working in trading position, which also helps us to capture important value in terms of price volatility. And another important topic is the company's portfolio working well as we saw with a reduction, even though there was a greater curtailment volume for this quarter. The offsetting between the positive effect of the portfolio allowed us to have a reduction of the impact of the curtailment. The deleveraging trajectory as presented is following plans. As presented for many quarters to all you, ladies and gentlemen, and we have close trajectory in order to attempt and reach the level of 3.5x the net debt-to-EBITDA ratio. Also considering a CapEx reduction, which will take place in this next quarter since we have already completed Cajuína 3 and also the even adding of Castres, which will collaborate to deleverage from the regulatory standpoint, the ordinance 140 was important in this, and the company is now following the evolution, as we said, for the regulation of the curtailment and electric reliability. We are still working on power, as you know very well. The company's position is that energy curtailment is not just because of centralized issues, but also by distributed sources. And it's more than fair that this would be shared between all those part of the system. So we continue to work with this line and also with the disclosure of the correction terms of investments. This is another topic of publication under the Ministry of Energy, and this will have an important result. It will be recognized as soon as we are able to deal with the correction of this amount. So ladies and gentlemen, I would like to thank you. Now we can move forward to the Q&A session.

[Operator Instructions] We have a first question. It comes from Mr. Fillipe Andrade from Itaú BBA.

I would like to listen to you about 2 important points. First, about the auction that's going to take place now in December, if Auren has the appetite to join? And what are they going to do in terms of the terms? And also, if you could talk about the uncertainties that still exist about the contracting topics and also the discussion of the law in the Congress. And also the regulatory issues. If you could please update us about the advances about the indemnity of the assets that have been impacted.

Thank you for the question. Well, we've already disclosed. We've registered projects. We've studied this theme a lot, not only due to the auction, the capacity, but also we see this as a source of flexibility for the portfolio of the company. we will be ready, but there are several conditions for the participation, especially return. The company today is well known from all of you leverage above the market expectations. So the priority is to deleverage, but we cannot miss opportunities of good business. So we will be prepared for the auction, but the expectation of return has to satisfy -- has to make sense. So that we really win one of -- some of the projects. That's one of the first points. So within all this, we all have the regulatory uncertainties, macroeconomic. We're going to be working on this during the auction. And about the cost of the auction, we have already mentioned that we don't think that this will be allocated to renewables because this is an area which is being -- there's a lot of uncertainties about this sector, and this has to be discussed. We don't have an opinion about canceling or postponing the auction. We're going to accompany the evolution of the discussions up to the auction date about indemnity. We are waiting for the public consultation about the definition of the readjustment topic. So the company has been following this topic. And up to now, we don't have any definition about dates. This would be a decision of the ministry. What we're doing is accompanying and paying attention to everything.

Our next question comes from Mr. João Pimentel from Citi.

I have 2 questions to ask you. The first one is about this volatility that we see in the price of energy during 2026. We saw the price oscillating a lot became stable for quite a long time until recently, when we started seeing a decrease, especially in the first quarter. But further forward, the decrease is not so high so big. How can you see the behavior of this 27 tons of liquidity? Do you think they're sort of waiting or waiting to understand this period to take position, liquidity in the second semester is low. That's why the prices have varied less I'd like to understand your vision for '27 specifically. And I'd also like to hear from you an update about the renovation of Heidrick. How are the discussions panning out? How have you interacted with the government? So these are the 2 points I'd like to ask you about.

Well, thank you for the question. this movement, '27 has a combination of liquidity in the market with the uncertainty of El Niño. The company that has evaluated the scenario -- El Niño has a positive side. We see that it is more water down south. But in the Southeast where the reservoirs are there's no absolute certainty that it is a vector of increasing the rains. So due to this, the market is sort of weighting the configuration of the behaved. But even though we don't know about the rain, we know about the temperature. So another thing is that the load will probably go up, but we're not absolutely sure that the rains will come. So I believe that the market has observed this process -- and if there's any surprise. Now in the third quarter, it's not usual for September to have so much rain as now. So you can see that from October on, the fourth quarter will start and the market starts observing that there is, in fact, consistency in this period, which has brought responses related to the price of 2027. I think this explains a little bit the volatility. And the second semester, the indications between this the semester when the first semester turns and the market is observing to see if there is any impact for the second semester. So we observed a bit less operations due to this expectation of inversion of the climate. So this is this isn't related to the price. As for concessions, as you have followed, we have public hearing that was open by and the vision of the company, we defend that the concessions will continue. This has happened to other players as Axel and compel. And in these events, we think that the -- this will be extended, and this will attend to the expectations on both sides. So we defend this process. So -- and this is also something that will mitigate the risk of the continuity of these assets. So this is a position of the company, and this is how we contributed to the public hearing of the ministry.

Our next question comes from Mr. Daniel Travitzky from Safra.

I have 2 questions here. The first one is about commercializing strategy of energy. I'd like you to talk a little bit more about how you're working in the fourth quarter and then also how you're positioning yourselves in the first quarter with relation to price. And then you've also closed a short position from '28 ones. Also if you could tell us about the strategy of the company and what is going to be done from this date on. So if you could also talk about leveraging was able to reduce the leverage 5x. So if it's going to continue working like this, we have a scenario where the interest rates can continue high for quite a long time. So does -- what changed? Will there be an optimum level of leveraging from now on? For example, if there's in the auction, if you win, how will this optimum leveraging continue in such a scenario?