AXIA Energia (B3:AXIA3) Q3 2026 Earnings Call

0:00 Good morning, ladies and gentlemen, and welcome to Axia Energia's conference for the discussion of the earnings for the third quarter of 2026. Present here today are Mr. Ivan de Souza Monteiro, President of Axia Energia, Mr. Elio Wolff, Executive Vice President, Mr. Eduardo Haiama, Vice President of Finance and Investor Relations, Mr. Antonio Varejao de Godoy, Vice President of Operations and Security, Ms. Camila Araujo, Vice President of Governance and Sustainability Mr. Juliano Dantas, 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.

0:48 Robson Pinheiros de Campos, Vice President of Engineering and Projects and Mr. Rodrigo Limp, Vice President of Regulation, Institutional and Markets We would like to inform you that this event is being recorded and will be made available on the company's investor relations website along with the presentation being shared today, both in Portuguese and English. To view the presentation in your preferred language, select the corresponding tab located in the upper left corner of the screen, Portuguese screen for Portuguese or English screen for English. For those who require simultaneous translation, a tool is available via the globe icon labeled Interpretation located at the bottom center of your screen.

1:39 Upon selecting it, please choose your preferred language. For those listening to the video conference in English, there is an option to mute the original audio in Portuguese by clicking on Mute Original Audio. For the Q&A session, If you would like to ask a question, please use the Q&A icon at the bottom of your screen, providing your name, company and question. As per our standard procedure, your name will be announced so that you can ask your question live. At that time, a request to unmute your microphone will appear on your screen. If you prefer not to open your microphone live, please inform us in the Q&A field alongside your question so that our operator can read it aloud.

2:25 Before we proceed, we would like to clarify that any statements made during this conference regarding the company's business outlook, projections, operational and financial goals constitute the beliefs and assumptions of Axias Energia's executive management, as well as information currently available to the company. 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. We now invite Mr. Ivan Monteiro, President of AXIA Energia, to begin the presentation.

3:17 Please proceed, Mr. Ivan. Thank you. Good morning, everyone. I thank you for attending AXIA Energia's presentation of the earnings of the third quarter of 26. This quarter reflected the continuity of the execution of our strategy with relevant growth of investment in generation and transmission, maintaining strong discipline in capital allocation and a constant search for improvement of operational efficiency. To sustain this growth, We've expanded and diversified the funding sources with an increase of the average duration and reduction of the cost of our debt. The important reduction in our expenses already integrates the benefits in large-scale negotiations with our equipment suppliers and service providers.

4:09 However, it does not yet reflect the entire potential for increasing our operational efficiency as we foresee with the introduction of AI in the company's processes. We will continue to prioritize the increase of operating efficiency to meet the diversity and frequency of extreme weather events and their consequences to the management of our more than 95,000 equipments. Finally, I highlight the continuous growth of our customer base as well as the delivery of energy solutions with products and services that go beyond Simply Energy Trading. I turn the floor to our CFO Haiama. Thank you. Thank you, Ivan. Good morning, everyone.

4:56 Regarding today's agenda on page three of our presentation, we'll go over the financial performance and talk a little bit about trading on the quarter and later our ESG agenda. On slide five in the financial highlights, Our generation contribution margin was better than last year, up by 10%, a result of better prices in the ACL market, partially offset by the decrease in the PLD of what was not contracted, and also due to a higher energy generation due to the higher GSF.

5:45 Our regulatory EBITDA reached almost 7 billion, up 8% compared to the previous year, and I would like to highlight a consecutive increase in investments, reaching close to 3 million BRL, up 6%, and if you consider the nine months, it's almost 30%. As for operational costs, Ivan mentioned a 10% reduction, Thank you for watching! In terms of allocated capital, we had already declared an additional $4 billion to be allocated to shareholders, reaching $11.7 billion.

7:00 $11.2 are actual redemption of preferred shares, and there's still $500 billion to be allocated by the end of the year. Slide 7, going through financial performance. Our revenue, as we talked about, benefited from the better prices. Partially offset by the drop on PLD, there was a higher available generation. and a slightly more hourly allocation of contracted volumes. So it's pretty much in line with the previous year. In terms of EBITDA, that was a combination, obviously, of the operational efficiency, when we talk about manageable costs going down 10%, the increase in equity income this quarter, close to 50%, as well as gains both in generation margin and transmission margin. In terms of income, when we look at the IFRS net income, before we were looking at regulatory levels, we see a slight drop of 400 million PRLs despite the drop on EBITDA that was offset by the better financial results in the quarter.

8:33 On slide eight. Now talking a little bit about our financial strength this quarter. We had the pleasure of hearing about the Fitch upgrade. Now low rating agencies put us in the same position as AAA Brazil. And we had this upgrade to BBB in foreign currency. Noting that in addition to the cash that we ended Close to 30 billion, we had a public bank facility that we had already announced, a revolving credit facility that we had previously announced of 3 billion BRLs. And here I'd like to highlight basically the mandate letter that we signed with the IDB, funding for two transmission projects in the amount of 680 million BRLs, concluding all of these fundings that we did during this quarter. Through October. On slide nine, as for investments, as we said, the quarter, we had an increase of 6%, but I'd like to say that year to date, it grows close to 30% and maintaining our guidance that we had provided that in 2026 and 27, we would invest per year about 12 to 14 billion BRLs.

10:00 Now, getting into energy trading on slide 11. The third quarter seasonally is weaker in terms of generation. This is when you look at the tables on the right. We had less energy available in almost all submarkets except for South, and that obviously translates not only into trading margin, But also, both in terms of pricing in this case, that is lower due to the PLD, but also due to the lower volume of the quarter compared to other quarters. On slide 12, talking a little bit about hydrology.

10:45 Due to El Nino, hydrology comes on strong, a lot higher than what we saw last year, translating into An increase of stored energy that's on the table on the bottom left, ending September at 61% compared to 55% of stored energy. But also due to that, with the better hydrological conditions, GSF that in the previous year on the right, on the upper right corner, had reached 65% has now reached 77% of GSF. somewhat offsetting that drop on PLD price.

11:31 On slide three, or 13 rather, talking about the prices, you can see on the left, the prices both in the Southeast and the Northeast came to almost half of what we had in the previous year, a result of the hydrology. On the right, As I had mentioned, our contribution margin, despite this drop in PLD, came in better. The contribution margin from generation, 2 billion, compared to 1.7 billion in the previous year. This is a result not only of the slightly lower average cost, but also higher effective generation.

12:21 Finally, getting into ESG. On slide 15, I would like to highlight our inclusion in the Global Clean Energy Index. Our company is the strongest Brazilian participation in this index. Recognizing all of the efforts we've been making to be a clean company, renewable, sustainable, We've also been recognized as the most innovative energy company this year. And again, I'd like to highlight the two fundings that reinforce this agenda, both in terms of the funding with BNDES, where part of it came from the Climate Fund, but also of the mandate letter that we signed with the IDB of 680 million BRLs, showing the importance not only of the projects we develop but also working as a seal of the social and environmental standards we have in each of our projects.

13:34 Slide 16, getting a little bit into what Ivan mentioned in the beginning about our extreme concern of having resilient assets for all possible environments, especially in terms of climate risk. So we've shown this A few times, these images, these lives, that's our atmosphere system, that's our meteorology intelligence system that has been helping us greatly, not only to strengthen the adaptations we've been making to our assets, but also to bring more resilience to our day-to-day operations.

14:20 Why is it important? And then to conclude the presentation, because on slide 17, We showed two severe climate events that occurred in August and September. A cyclone going through Rio Grande do Sul in August and a strong squall line in September, which was the highest occurrence of tower collapses in a single event. To give you an idea of the impact, until now, over the last 10 years, we had 92 towers affected in Rio Grande do Sul. And in these two months alone, there have been 83 towers affected.

15:06 And with that we turn to the Q&A. Thank you. We will now begin the Q&A session for investors and analysts. If you would 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 you to present all of your questions at once and wait for the company's response. To submit a question in writing, simply use the Q&A icon and include your name and company. Please hold while we gather the questions. Our first question Felipe Andrade, Itaú PBA Hi guys, good morning Thank you for taking my question I would like to, if you can please talk about the recurrence of this PMSO that was reported this quarter, explaining a little bit more to what led it to this big difference quarter over quarter year over year and also, if possible I'd like you to comment a little bit about the appetite of clients to sign contracts now for the coming years, considering we're now getting into that window and we saw a reduction in the futures curve of 2027. If you've seen an increase in the appetite

16:40 of the end client. Good morning, Felipe. Thank you for the question. Felipe, we're reaping the results of four years of work We had a very strong dedication in improving the efficiency of the company, and this is a very important item. It's perennial. It's something that is always consolidating. And I'd like to, as I mentioned in the opening remarks, is that the number you see now is a number that does not yet include, and we're working very hard on that, all of the gains that the administration foresees with the incorporation of AI in the company's processes. So this is a number that already results of all the programs, especially all of the work that has been done by Renato's vice presidency of renegotiating the company's contracts. What's important here, Felipe, when we, in the day of the privatization, it's very important, but the day after, you need to respect the In terms of the contracts that are legacy that were signed as a state-held company and they were signed individually by each of the previous companies, FUNAS, Eletrosu, etc. What Renato and his teams do is go over these contracts, consolidate demands, correctly specified in a standardized way what the company needs and go to the market as AXIA and no longer as each of the individual companies. And with that, we get expressive gains with this behavior.

18:12 So we are pleased. It was an actual reduction. If you consider the inflation and the period, we're talking about close to 25% reduction, but far from believing that this number is something that cannot be improved, especially considering the integration of AI and the company's different processes, which is ongoing, being led now by our technology department, led by VP Juliano. Thank you, Felipe. This is Rodrigo Lima about the second point of the consumer's appetite.

19:01 We have been seeking to increase our sales efforts in the North and Northeast and we have been seeing or we have been successful at some times with the lower price scenario. Naturally, we have a stronger Demand for energy and our commercialization strategy led by the trading department, we've been able to expand sales directly to end consumers in a relevant way compared to the company's history. Our next question, Bruno Amorim at Goldman Sachs. Good morning everyone, thank you for this opportunity.

19:50 I would like you to talk a little bit as much as possible about how it changes or how your mindset changes if it changes in terms of capital allocation considering the deterioration of the interest curves scenario in Brazil. If your view changes in any way of what's a sustainable leverage for the coming years and thinking about the Bruno, thank you for the question. We have a Thank you very much.

21:08 Especially in its CapEx execution, discipline in capital allocation is a constant. It's a demand from our board all the time. And obviously, when the macroeconomic scenario changes, and nowadays it changes quite often, we make the decisions that are best for that. But again, a worsening or a relevant change in the macroeconomic scenario is addressed by the company Assuming that we can't wait and see, we must be prepared for adverse scenarios. We always highlight, for example, climate, weather, the preparation we have with our assets. And the discipline is the same. Of course, scenarios like relevant change to the FX rate or the interest rate curve, high volatility in capital markets are taken into account in everything we do.

22:02 But our investment program, the discipline in capital allocation and our presence in bids and everything we invest in, already considers that permanently. Thank you. Our next question from Daniel Travischi from Safra. Hello, everyone. Good morning, thank you for this opportunity. I have two questions here. The first, if you can talk a little bit more about the evolution of the energy balance in this third quarter. We saw that the average points, you sold a little bit of energy. So if you can talk a little bit about the strategy for the third quarter and how you're adopting this strategy For the fourth quarter, considering the hydrology scenario this quarter and the prices at slightly lower levels. And the second question is more about the dividend strategy. The company made a series of redemption operations and conversions of preferred shares this year. So how do you see this evolving until the end of the year and in 2027?

23:24 Thank you. Good morning, Danielle. So talking about the energy balance in the third quarter, we've been able to... The third quarter was a period, when we look at 2027, of higher prices than what our practice today in the beginning of November. We've been able to make a relevant amount of sales, not only in the southeast, but also for the north region of Brazil, especially in the first quarter. Which is the quarter where we have the highest amount of energy due to the seasonality of hydro power plants.

24:11 And looking at the fourth quarter, in October, it's been concluded and we are already in November and we have a well-established position, I'd say, especially for the southeast. Renato Costa Santos Carreira, Juliano de Carvalho Freitas And the price volatility, we expect it to happen.

25:01 It's expected basically when you have more rainfall. And we've also been having milder temperatures than what would be usual for this period. And that has been pressuring the average prices. Noting that we're always subject, depending on the net area load, to have price peaks at the end of the day. And that also brings positive effects to those sources that are more flexible, for example, in this case, hydropower plants. Danielle, thank you for the question. In terms of the strategy, specifically of the allocation of dividends, I'll say that at the current price, it would be more for redemption, noting that dividends Always the minimum dividend of 25%, that's actual dividend, no discussion there. But today, if we are to discuss how to allocate to our shareholders this capital, we would tend towards having a preferred share class C redemption in totality and maintaining the minimum dividend of 25% to pay out as dividend.

26:21 Excellent, thank you. A reminder that to ask a question, simply provide your name and company via the Q&A icon. To submit a question in writing, use the same icon and include your name and company. Our next question is in writing. from Hugo Gomez at JP Morgan. Could you detail better the 298 million BRLs from other non-recurring revenues and expenses? Second question, could you share the expectation for the impact in energy prices coming from the higher demand from Paraguay of the energy in Itaipu and also the change of the wind capacity perceived according to the price modeling?

27:17 Thank you for Hugo's questions. Haiama, please go ahead. Thank you, Hugo. About these non-recurring events, I won't mention the numbers. You can get that from our IR team. But just to give you an idea, there have been some adjustments we made in some systems that had a variation in cost. That shouldn't happen anymore. There have been some adjustments of Thank you, Hayama. Now about Itaipu, I'll ask for Felipe to clarify. Thank you, Hugo. The price formation models are always Due to continuous enhancement, not only the main models, but also the satellite models that input information to the models. One of them is related to Itaipu.

28:29 We are actually seeing, and there's an expectation of an increase in consumption on the Paraguay side of Itaipu's energy, which removes supply from the Brazilian market. This has been announced by ANS, TNN Depart, and the improvement of the methodology considering this expectation of demand in the Paraguay side for the coming years. And the quantitative of that definitive, we don't have yet. We have a qualitative analysis, but the quantitative will be defined in the January PMO, that's the end of December. It could be earlier, but the deadline is the December PMO. But it tends to bring or to be closer to the reality of consumption in the Paraguay side.

29:18 That's what we stand for in all enhancements. We don't defend any higher or lower price. We defend that the price should reflect as much as possible the reality of the operation, knowing that it will never be 100% the exact actual value, but it tends to be close to that. And the same discussion occurs in the prediction models of potential wind generation. They are the Curve models when powered that are considered in the model. What's been discussed and was indicated by the ANS is to improve that starting in February, restricted to D100. That is the model that brings the daily forecast that is more sensitive for the energy cuts in February.

30:08 And as starting of May, the new wave only for the first month. Ana hasn't provided yet the models so that we can have a more precise quantitative simulation that should occur in November, as indicated, for a potential implementation in February. And it's the enhancement that, reinforcing what I said, we defend that the model should reflect the reality as much as possible. It's clear that these enhancements will occur Thank you very much for attending and any additional questions please send to the IR department. Axia Energia's conference is now closed. We thank everyone for their participation and wish you all a good day.