Q2 2026 AXIA Energia SA Earnings Call
Speaker #1: Dentist, Vice President of Technology and Innovation, Mr. Marcelo de Siqueira Freitas, Vice President of Legal Affairs, Mr. Renato Carreira, Vice President of Learning, People and Services, Mr. Robson Pinheiro de Campos, Vice President of Engineering and Projects, Mr. Rodrigo Limp, Vice President of Regulation, Institutional and Markets.
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Speaker #1: Before we proceed, we would like to clarify that any statements made during this conference call regarding the company's business outlooks, projections, operational and financial goals, constitute the beliefs and assumptions of Axia Energy as Executive Management, as well as information currently available to the company.
Speaker #1: Forward-looking statements are not guarantees of performance, as they involve risks and uncertainties, and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, and other operational factors, may affect the results expressed in such forward-looking statements.
Speaker #1: We now invite Mr. Ivan Monteiro, President of Axia Energia, to begin the presentation. Please proceed, Mr. Ivan. Thank you. Good morning, everyone. The second—first and second quarters, and the first half of the year marked by the strong expansion of our investments highlighting the modernization of our equipment, focusing on the increase of operational resilience, as well as the acceleration of disbursements in the transmission segment.
Speaker #1: Coming from the successful participation of Axia Energia in the auctions carried out thus far, we also captured a better margin in energy trading with positive effects in the management of our stake with the conclusion of relevant operations in the second quarter of this year, maintaining the reduction trajectory and the volume of our contingencies exemplified with the reduction in the inventory of provisions for the compulsory loans.
Speaker #1: Finally, the payment of our shareholders: we announced the year-to-date 7.7 billion BRL to redeem Class C preferred shares. I turn the floor to our VP, Eduardo Hayama, who will continue with the presentation.
Speaker #1: Good morning, everyone. Thank you, Ivan. Moving to slide 5, talking about the earnings. Our EBITDA reached 6.7 billion, up 21.5%, basically due to the greater contribution of the generation segment, transmissions being stable, and costs being well under control in the quarter.
Speaker #1: As for the investments, an increase of 50% year over year from the close to now 3 billion this quarter. As I had mentioned, generation was the main contributor for this higher earnings of the quarter.
Speaker #1: Reaching a unit generation margin, when we look at the free market and ACL plus MCP, of 96 this quarter, compared to 73 BRLs on the previous—in the same quarter, the previous year.
Speaker #1: We were the winners in the last transmission auction, with the projected NAL capex of 668 million, and RAP of 50 million. In this quarter, we also completed the migration to B3's Novo Mercado, the segment of the highest governance level at B3.
Speaker #1: As always, we are committed to every quarter review our capital allocation methodology, and with the board's we approved an additional allocation of 3.7 billion BRLs in the first half of the year, totaling 7.7 billion BRLs when we consider the 4 billion already approved in the first quarter.
Speaker #1: In addition, this morning we published the material fact with the new redemption, the first redemption of PMC shares was attached. This is also a test in its own way, and in the first redemption we had an operation of 30 million that was successful.
Speaker #1: Now we reduced the period of redemption that was up to 16 business days before from the announcement to the payment, reducing it by 3 business days, we are now doing a new 2 billion BRL redemption.
Speaker #1: Finally, we've concluded the divestment of a series of minority stakes and the acquisition of control of HPP Três Irmãos. On slide 6, now it's just to mention again the increase in regulatory adjusted regulatory EBITDA as a result of the better contribution margin of generation, and as a result of that, having a direct impact on income partially offset by the worsening of financial results due to the interest rates in the period and the slightly higher leverage.
Speaker #1: On slide 7, this is important: we greatly increased the investments that are being made from previous auctions that we won, the transmission auction, as well as the allocations that we had in T&E, the investment in the revitalization of Itaipu, from 534 million in the first quarter of last year to close to 2 billion now.
Speaker #1: This quarter, as for reinforcements and improvements, there was a brief pause here this quarter or this half-year compared to the previous half-year, but the trend is still of growth, a slight growth this year.
Speaker #1: So that when we look at the investments that we're making and all the backlog that we already have contracted, that are slightly higher than 15 billion BRLs should add an RAP of 2 billion year, the generation backlog that was the LR cap auction that we won with 250 megawatts with investments of close to 1 billion.
Speaker #1: On slide 8, in portfolio management, as I had mentioned, we uncrossed a series of minority stakes, including ISA Energia, where we received close to a billion in proceeds, stakes in 4 small transmission lines with Chebraz, where we had proceeds of 450 million BRLs, and the payment for the consolidation of the Três Irmãos HPP of 256 million BRLs.
Speaker #1: On slide 9, in allocable capital, again, every quarter we analyze how much we have of allocated funding or to be allocated in this quarter; we've reached the number that we would have 3.7 billion, considering the 4 billion that we had declared in the first quarter for this half-year will have 7.7 billion of shareholder returns to be executed in the coming months.
Speaker #1: As for the redemption, going back now, we declared a redemption of 2 billion with a closing price of 53.71 BRLs per share, our shareholders will have until August 14 to opt in to for the redemption or to convert into common shares.
Speaker #1: And if the choice is for conversion, they would receive the shares on August 18, and if they're redeeming, on August 24. Now, getting into the energy trading session, slide 11, this is just a slide to understand how much we had available for trading on ACL; it doesn't mean ICR, it doesn't mean that we didn't sell, it was available due to long-term assets and the quota that we don't negotiate, so not only the total of 11 gigawatts, but by the breakdown by submarket.
Speaker #1: Since each submarket has a different price behavior, we give you this breakdown to make your analysis easier. On slide 12, where we show the evolution of contribution margin from generation, as I said, it has improved compared to the previous year, now looking at the unit margin, it would have gone from 80 to 100, quarter on quarter, that's a lot due to the mix, the mix of prices and submarkets.
Speaker #1: Was more favorable this quarter than in the same quarter of last year. On the right, we show you a little bit of seasonality looking at MRE overall and how our available capacity would be for our energy in each one of the quarters, considering that same seasonality of MRE and the projections.
Speaker #1: On slide 13, now a little bit about the hydrological scenario for the quarter, obviously the second quarter, it's where we start the dry season, although El Niño did bring already higher rain levels in the south, but since the main reservoirs are in the southeast and northeast, there has been a short-term impact, but our view to the medium-long term, it doesn't change.
Speaker #1: Now, for prices, as I talked about before, this quarter the prices in the north, northeast versus the prices in the southeast compared to the previous year were better, that was the biggest contributor to the margin from generation this quarter compared to the previous, the same quarter in the previous year.
Speaker #1: Now talking about ESG, on slide number 15, the main agenda is first was the completion of the migration to Novo Mercado, the highest corporate government's segment of B3, where each shareholder has equal and full voting rights, as well as political and economic rights, we were awarded the Pro Ethics Seal for 2025-2026, a very important seal illustrating our commitment to ethics and transparency in strengthening corruption prevention and governance and compliance practices at the company, and in the environmental side, it's important to mention 30 projects that are about 78 million BRLs in investment to recover the environment and the basin of the Parnaiba River, one of the main basins we have in Brazil.
Speaker #1: Slide 16 is at the top of all the headlines, talking about the Super El Niño, and for us, this is part of our journey towards this journey that we started in 2023, it's a journey for adaptation and resilience to climate risk.
Speaker #1: So in 2023, we started a deep dive into the climate risk and assessment of for generation assets. In 2024, based on this diagnosis and assessment, we defined a series of adaptation plans for our assets, running risk assessment for transmission assets, in 2025, but also starting in 2024, we started to implement these plans.
Speaker #1: In 2026, we already have 60% of those plans implemented, expected to be concluded by 2028. It could be slightly before that, but what's most important is that this is an ongoing analysis, of climate variables, and all future trends, looking at a 50, 70-year horizon, how we'll be prepared for any changes.
Speaker #1: And what came from this journey, first, once again, to talk about our climate event monitoring and intelligence center, that has an extensive use of artificial intelligence to improve our weather models and to forecast extreme events, which is greatly helpful for our operations.
Speaker #1: With 100% of our assets being monitored, and based on this journey, we've updated our methodology to assess new investments considering the climate factors. And that's already applied both for the transmission auctions and for any assets that we may be looking at, for example, for M&A operations.
Speaker #1: And I think this concludes our presentation. We can move on to the Q&A session. Thank you. We will now begin the questions and answers session for investors and analysts.
Speaker #1: If you'd like to ask a question, please provide your name and company via the Q&A icon located at the bottom of your screen. We kindly ask that you present all your questions at once and wait for the company's response.
Speaker #1: To submit a question in writing, simply use the Q&A icon and include your name and company.
Speaker #2: Our first question: Mr. Felipe Andrade, with Itaú BBA. Please, Felipe, you may go ahead. Good morning, everyone. Thank you for taking my question. I'd like you to please talk about two topics: first, about the investments of reinforcement and improvements if the company expects to reach revenue of $5 billion this year, income of $5 billion this year, and second, considering the stronger El Niño and looking at at least the end of the first quarter of next year, I'd like to hear about Axio's view, not only about the short-term effects in terms of available energy, but the dynamics expected for prices in the north if this scenario remains until next year.
Speaker #2: We saw here volume of purchases in the second quarter, so I'd like to understand if there's any relationship with that in that sense. Thank you.
Speaker #2: Felipe, thank you. The first question about investments, I'll ask Elio to answer, and the second about El Niño, and the consequences Rodrigo Limpi. Felipe, good morning.
Speaker #2: Thank you for the question. You mentioned here about the reinforcements and improvements. You talk about the resilience of assets are essential, and we've been increasing since 2022, 2023, starting from 2, 3 billion, closing 2024 at 3.3, 2025 with 4.5 billion BRLs, and this agenda obviously advances.
Speaker #2: Our objective is to close at around 5, 5.5 throughout here. The objective here is to invest more in our assets reinforce resilience even more.
Speaker #2: This investment brings returns to shareholders as well, so it's very adequate, and we will continue seeking growth. Thank you, Felipe. Good morning, Felipe. Thank you, as well, for the question.
Speaker #2: About the effects of El Niño in energy prices and portfolio: we already perceived an increase in rainfall and the south region. We had, in the south, the highest rainfall in the last two years, and that naturally brings pressure downwards in the short-term prices, especially July, August, and September, with the recovery expected starting as of October.
Speaker #2: And in our portfolio, we consider all possible scenarios: El Niño as a concept has some effects that tend to increase intensity, for example, higher rainfall in the south.
Speaker #2: We already saw a reduction of rainfall in the north and northeast regions, and temperatures above average in the majority of the country, without a clear definition of what happens with rainfall in the southeast, which is where we have the majority of our reservoirs.
Speaker #2: So in our forecasts and looking at everyone that monitors this, we see the forecast of having a strong El Niño until the first quarter considering the summer and the rainy season.
Speaker #2: So if these effects are confirmed in the north and northeast, may also increase price volatility in terms of strategy, what we consider is this increase in volatility and the price range that may happen, depending on the intensity of each of the scenarios, naturally seeking to expand sales especially in the north and northeast submarkets, where we have more energy available.
Speaker #2: Thank you, Limp. Our next question: Bruno, Amorim from Goldman Sachs. Bruno, you may go ahead.
Speaker #3: Good morning, everyone. I'd like a quick follow-up about capital allocation, specifically on reinforcements and improvements. Could you comment a little bit about how much this desire to increase investments is, because in the financial viewpoint, the returns are positive, and how much of it is somewhat to mitigate operational risks because of investments in an asset that's underinvested?
Speaker #3: I ask that in the context that we saw with TNB's at 8%, the lick rate at 14%, cost of capital today is very high vis-à-vis regulatory returns.
Speaker #3: So the idea is to understand whether you do see a return or very high spread in terms of cost of capital adjusted to risk, or if the more operational side of the decision also has a significant weight in the decision to increase investments in this area.
Speaker #3: Thank you.
Speaker #2: Bruno, I'll start. It's Yvonne, the risk is infinite, so there's management of operational resilience is taken very seriously by the company, and at the same time, combined with that, we have very adequate returns, and I'll ask for more details.
Speaker #2: Thank you, Bruno. Thank you, Yvonne. About reinforcements and improvements: first, aware that this is mandatory investments of each concessionaire, we have to do that for the resilience of the assets in the long term.
Speaker #2: With that said, whenever we look at regulated investments, we look at the history of the behavior of Anel with a very strong alignment with the agency.
Speaker #2: Increasing the adequate returns so that the concessionaire can allocate capital irrespective of the macroeconomic scenario. With a robust financial position at every moment, and noting that tariff reviews occur every five years, and occasionally when there's a very strong breakdown, it could happen at a shorter period, for that, so whenever there's a shift in the macro view in terms of liquidity or any different scenario, or the opposite, when there's thoughts to be very strong tailwinds, it doesn't make sense to do the payments far from detached from the reality.
Speaker #2: So when we look in the long term, the perceived returns are very compliant to each of the different moments, and historically, that's what's been happening.
Speaker #2: So the decision, as Yvonne said, first, in terms of resilience and the need to maintain the assets, thinking about the long term, but on the financial side, it is our confidence in the role of regulation in Brazil that has always been constructive.
Speaker #2: Since it's attracting the necessary investments for those who are here for the long game. Our next question: Artur Pereira with JP Morgan. Please, Artur, you may go ahead.
Speaker #3: Good morning. I'd like to ask about allocable capital that was announced this quarter of 3.7 billion, that was similar to the first quarter despite the decrease in the short term, energy operation that we saw, and that was mentioned in the call.
Speaker #3: So I know you don't break down a lot of your assumptions, but I'd like to understand in qualitative terms what brings you confidence of an allocable capital similar to the first quarter despite this price of energy.
Speaker #3: Is it confidence in the 2027 curve, or any review on the conservative price used in the methodology? Considering that in recent months, even with atypical rainfall, PLD was at a level above 120, with this higher hourly allocation of contracted volume.
Speaker #3: So you also talked about the allocable capital of 2 billion, the redemption of 2 billion that was announced, that was also seen as a test.
Speaker #3: Would you have a level of redemption that you consider more recurring? And what would you be testing in this process now with this amount?
Speaker #3: Thank you.
Speaker #2: Artur, this is Yvonne. The company during these four years with this privatization process went through a deep de-risking phase. So overall, everything that we found and worked on during these years as was summarized in the beginning, the reduction of contingencies, increase of investments to improve operational resilience, and so on, that leads us to have a sophistication of models every quarter.
Speaker #2: That's why we disclosed these numbers with increasing confidence regarding our models, price prediction models, and the behavior of the company in terms of financial management and others.
Speaker #2: But to give you a little bit more details, I'll turn the floor to Yvonne. Thank you, Artur. So again, for our methodology, we don't look at a specific year or moment.
Speaker #2: We look at a longer period of time. So we look at a five-year window going forward, and the prices that we adopt are always conservative.
Speaker #2: As you mentioned, in this quarter was the PLD was weaker, the price was lower, next year it may go up, it may go down.
Speaker #2: We adopt this for the capital allocation to maintain the company in a robust position, not at the worst scenario, but considering adverse scenarios. That we present.
Speaker #2: And based on that, we estimate what we were able to generate in excess of this conservative scenario at every call quarter going forward. As Yvonne mentioned, we adapt our models, and the way we look at the generation segment in terms of the volatility and how it should behave so a price that I consider aggressive today may become conservative, a conservative price may become aggressive, and that will be a constant input for our models.
Speaker #2: In this specific case, there was no real variation. It was more an action where we accelerated this this year as we mentioned, the sale of energy.
Speaker #2: Obviously, there's inflation, and that's classified. We don't disclose the value, but we have advanced, as was mentioned in the first quarter, and that made us comfortable to project this additional allocated capital for the quarter.
Speaker #2: So it was more that than any other thing. About the redemption, if it's going to be 2 billion, 1 billion, 3 billion, 4 billion for each operation, actually, it's going to depend on the moment.
Speaker #2: For the 2 billion, it really is to test. I mean, the first redemption we ran 30 million, were slightly more than 4,000 shareholders individual holders were affected by the redemption.
Speaker #2: That they had to act, either to redeem or convert to common shares. Since it was successful and we're running this operation now with a shorter term, we chose to run a bigger operation.
Speaker #2: With 2 billion BRLs, where in this case it's not 4,000 shareholders anymore that will have to give an opinion if they prefer to redeem or convert.
Speaker #2: Now it's going to be 50, 60,000 individual shareholders. So really now, with this test, if it is successful and we believe it will be, that's what we've been talking about to all the stakeholders, for a long time, to be sure it works, this will probably be the last actual test that we're going to run.
Speaker #2: And from now on, it's going to be normal, usual redemptions. But the operation itself will depend on the timing. If you tell me that by any for any reason, our shared prices dropped and we don't see any reason for that, and we think it's a good time, to get a bigger redemption, we may do that.
Speaker #2: Or the opposite. If by some reason it went up without any specific reason, we may hold onto it a little bit longer. It's like a buyback.
Speaker #2: There's no necessary volume buy operation or specific timing of when it's going to be done. The only thing is that the allocable capital that we declare to our investors that we'll run, of 7.7 billion, of which so for 30 million is 30 million has been executed, and now with this 2 billion redemption.
Speaker #2: Thank you. Excellent. Thank you. Once again, to ask a question in form your name and company, via the Q&A icon, or click on raise hand.
Speaker #2: Our next question. Is in writing from Danielle. Travisky from Banco Safra. Danielle says, two questions. Hello. First question, can you comment about energy allocation in the third quarter and how the energy sales performed this quarter?
Speaker #2: Second question, can you remind us about the dividend policy and how it complements the redemptions of PNCs that you've been running every quarter?
Speaker #1: Thank you, Danielle. The first study with Rodrigo Limpe. Thank you. Danielle, for your question. Talking about energy allocation in the third quarter, that was shown in the slide, the third quarter within the year is the quarter where we have fewer resources.
Speaker #1: Due to a lower GSF. However, comparing this to 2025, we have an expectation to have more resources than we had last year. With a bigger load than what was seen last year.
Speaker #1: In terms of price, today's view is of lower prices than last year. So although it's the quarter with fewer resources, it's always also the quarter where we have a detachment from submarkets that are smaller than the first and second quarters, and that makes us more comfortable to analyze the energy allocation.
Speaker #1: Comparing to medium-term horizons of 2027, 2028, we have an idea of how much which energies are contracted, and we have a controlled position for the quarter.
Speaker #1: About sales, I turn to Italoe. Thank you, Danielle. Thank you, Limpe. The second part of your question, Danielle, talking a little bit about sales, and in line with what Limpe said about allocation and submarkets, does much smaller we accelerated and saw an acceleration of energy sales in the Northeast.
Speaker #1: This is an interesting part for AXIA, because then we have a large volume of energy. So the efforts for sales were focused on that region.
Speaker #1: In the Southeast, obviously, there will always be a demand and within the portfolio policy we meet that demand. But this search for energy through the end client notes that our effort is to sell to the end customer, to the end client, to the residential end, commercial, CNI.
Speaker #1: So that's the main focus. And that's in the Northeast, it's contributing a lot more this quarter for the company's sales and overall sales. Our focused on end clients.
Speaker #1: Thank you. Danielle, about the second part of your question. I'll ask Hayama to add. Thank you, Danielle. Talking about redemption versus dividends, considering the price of shares, I'll say that preferably we would have redemptions paying dividends at a mandatory minimum of 25%.
Speaker #1: Obviously, if the price of shares from the current price with no rational explanation, and we'll start paying more dividends, and not redemption, as any buyback.
Speaker #1: But if you ask me today what our strategy should be, I would say minimum dividends of 25% and everything else via redemption. Noting that our capital allocation is a shareholder payment in cash.
Speaker #1: So if by chance the majority of our shareholders choose to convert PNC shares into common shares instead of redeeming them, we would have more redemptions because the idea is to give back these resources of 7.7 billion to shareholders.
Speaker #1: Thank you, Hayama. The questions and answers session is concluded. We would like to turn the floor to Mr. Ivan Monteiro to deliver the company's closing remarks.
Speaker #1: Once again, thank you very much for participating. Any additional information, please contact our IR team. Thank you very much. Have a great day. The AXIA Energy Conference is now closed.
