Companhia Energética de Minas Gerais (NYSE:CIG) Q2 2025 Earnings Call Transcript

Companhia Energética de Minas Gerais (NYSE:CIG) Q2 2025 Earnings Call Transcript August 18, 2025

Carolina Senna:

Investor Relations Superintendent: Good afternoon, everyone. I am Carolina Senna, Superintendent of Investor Relations at Cemig. Welcome to Cemig’s Second Quarter 2025 earnings video conference call. We inform you that this video conference is being recorded, and will be available on the company’s IR website, ri.cemig.com.br, where you also find the full package on this call. Should you need simultaneous interpretation, the feature is available on the platform. Just click on the globe icon located on the bottom of the screen, chose interpretation and then select the language of your choice. Portuguese or English. [Operator Instructions] We will now start our call with Reynaldo Passanezi Filho, our CEO; Andrea Marques de Almeida, CFO and IR Officer; Luis Cláudio Correa Villani, Chief Information Officer; Marco Da Camino Ancona Soligo, Chief Generation and Transmission Officer; Marney Tadeu Antunes, Chief Distribution Officer; and Sergio Lopes Cabral, Chief Trading Officer.

For the initial remarks, we would like to turn the floor to our CEO, Reynaldo Passanezi Filho.

Reynaldo Passanezi Filho: Good afternoon, everyone. It’s a pleasure to be here talking to you and to show the progress of our company. I would say that as our initial video brought to you, we are now with our largest investment program at all times. Once again this quarter, with growing investments, we already have BRL 2.7 billion in investments in this first half of the year and also with great consistency in resource generation, adjusted EBITDA of BRL 2.2 billion, a very sound result. This is our adjusted EBITDA with the highlights. So once again, an investment plan in full execution, we will see the opening of substations, greater grid and conclusion of works in generation, also in gas. This is — we are very close to starting our Midwest gas pipeline.

So we are at full speed in our investment plan. And with an adjusted EBITDA that is very sound, growing BRL 2.2 billion in the quarter, I would say that this shows how sound and resilient our operating performance is. There are three topics here that we should be highlighting and they are something special for this quarter. The first is RBSE, the existing system basic grid and the review of the calculation methodology here. So for Cemig, we have a noncash impact for the quarter of BRL 199 million. It’s worth mentioning that the EBITDA that we usually disclose is the IFRS. So — and this EBITDA result shows, but cash will come over time. Also, there is another impact of a topic that is of concern, and we are fully alert about that, and we see positive scenarios regarding to this topic for the second half of the year.

But for the first half of the year, specifically for the second quarter, we had difference among energy submarkets in our trading sector of negative BRL 76 million. Our projections are that once we have the review of the criteria by the ONS and the greater interchange, this amount tends to be close to zero. This is what we expect, obviously, this is what we are hoping to happen. Also a tariff adjustment of 7.78% in line with other adjustments for distribution. Basically, here, we have inflation and also charges. And finally, our GSF auction. Again, we participated in this auction. And we were able to ensure the concession extensions for three power plants, one for 7 years and another for 3 years. So this is a total of funds disbursement of BRL 200 million.

So I would say that the — this also shows our commitment to the company’s sustainability. After all, we are talking about concessions that we’re doing 2037, and we are extending those worth 2044, so we are really thinking about the future. This is not an immediate decision, but this is an extension of concessions that are due in the future, but we understood that those were opportunities considering the energy sold for the companies. And the prices are very competitive. And therefore, we believe that this really adds value to be part in this GSF auction. So another BRL 200 million, two of them, 7 years and one of them for 3 years. I would say that these are the main highlights I would like to start the call with. Now I’ll turn the floor to Andrea.

And obviously, we are available to take any questions you might have shortly. Thank you.

Andrea Marques de Almeida: Good afternoon, everyone I apologize, I have a cold. But we, again, are following our investment plan. It’s going very well. Out of these BRL 2.8 billion that we have for the year, we have concentrated investments in distribution so that we can better serve our clients, and we have been doing that in a very structured fashion. Therefore, we have energized nine substations in these initial months. Also, we have been able to build over 2,600 kilometers in low and medium voltage networks. In generation, also, we had relevant investments in expansion. Also, we have investments in maintenance in terms of safety as well and transmission, again, investments of BRL 200 million, and especially in reinforcement and improvements for Cemig as well, as Reynaldo mentioned, we had Central West project, over 100 kilometers of gas pipelines and Cemig — also, we added 21 megawatts following our investment plan.

This is being very well executed. These are some pictures to show our substations in our Mais Energia program or more energy. And now, this is our a photovoltaic plant in Advogado Eduardo Soares, we have a grand term of 35 years, CapEx of BRL 464 million and the potential of CO2 reduction that is very relevant for us. Now turning to our results. Reynaldo already mentioned that when we compare that, now whenever we look at this comparison to 2024, we will have some nonrecurring effects from ’24. And if we analyze IFRS, we will see that — some of the effects might show a reduction. But in the recurring effect, we had a great quarter with an increase of 15% in our EBITDA. And a major factor that helped was the reimbursement of the tariff subsidies that we have received via CDE, the energy development account.

And we know that in Minas Gerais, we have this large effect, and we had a significant reimbursement that came from the CDE subsidies. Also, we had a reduction of BRL 21 million and another migration of our employees to the premium plan. That was a reduction there again. and also exposure to the submarket prices already mentioned by Reynaldo. Now, analyzing our IFRS EBITDA, talking about the nonrecurring effects, we would have a reduction. But then because we had a reversal last year. And if you remember that, those were tax provisions reversals regarding INSS in the profit sharing program that were very relevant, BRL 584 million in the net profit. We also had an effect of those provisions and also reversal of amounts to be reimbursed from PIS and COFINS.

And there was a decision from the Supreme Court at the end of last week, and we are still waiting the final ruling to know which will be the facts for Cemig. Now moving forward, we show a quick snapshot of the effects to the submarket exposures, and over time, we were showing you our monthly exposure, so BRL 480 in April, BRL 533 in May, BRL 619 in June, but you see that the price difference is already coming down. We’ve seen June a price difference of BRL 4.88. So the effect on this quarter has been much lower than the one that we had in the past quarter and a gross effect gross effect of BRL 76 million regarding the price difference here in the submarkets. Another positive result here in — when we look at managerial expenses, we have increased those below inflation with some effects here in terms of the PDVP or the voluntary redundancy program, the effect was a little bit lower in terms of outsourced services.

We are still working pruning trees, also disconnection of some meters. And we are intensively working that, and we are making great investments in distribution. Therefore, we have greater deactivation and disposal of assets. Now looking at our debt profile, it is very good. We have come to a leverage indicator of net debt over adjusted EBITDA of 1.59, now already, including all the debentures issuing the BRL 5 billion that we mentioned last quarter and already counting on the amortization of a prior debenture, and that helped us to reach an average that tenure of 6 years. So we are also evolving in this average term here. And obviously, we have a very comfortable position in terms of leverage to move forward with our investment plan that is ongoing.

Now analyzing our cash flow for the end of the quarter, we ended at BRL 3 billion, and it was well supported by our operating cash generation of BRL 2.3 billion, the debentures that we talked about, the BRL 5 billion, we had the payments on other debentures that were amortized around 2.3%, also payments of interest on capital and dividends and also our activities on investments. Now analyzing Cemig’s D results, and we will go over again what we already said about the holding. For Cemig’s D results, when we compare again, the EBITDA — adjusted EBITDA effect not considering the nonrecurring effects, we had a growth of 39%, mainly thanks to the reimbursement of the tariff subsidies, as we mentioned. Now if you analyze these results, adding the items that are nonrecurring, obviously, this effect was lower when compared to prior quarter.

Now for the energy market for Cemig distribution, there was a drop of 3.3% this quarter. Obviously, we still see the effect of migration of clients, industrial clients going to the free market to relevant clients this time have migrated large clients. They migrated to the transmission network also affecting the transported energy to our right, we see the development of distributed generation. We know this is growing over time. So when we look at the progress, 2Q ’24 compared to 2Q ’25, we see a significant growth of around 20%. Very well. For operating efficiency for Cemig D, once again, we are working in this efficiency. One of our focuses is the collection. We are aiming to collect digitally our payments, of course, pick instantaneous payment is for Brazil as a whole, one of the most efficient way of getting paid.

And today, around 67.5% collections is done via digital channels, not only Pix. And also, we have our ARFA receivables collection index of around 99%, showing that we are at a very good position vis-a-vis our collection and billing and access. Now our OpEx. It is, of course, in compliance with our regulatory OpEx and EBITDA as well as within the regulatory EBITDA. Very good results here. analyzing regulatory losses. There was a change in the calculation of losses instead of build the market, now we are considering the measured market, and that was positive to reduce distortions that were affecting losses at the distributing companies. So that’s why we see a progress here in the chart. And also, there was an increase, but we are still within the regulatory limits.

So here, we added losses that before, they were not taken into consideration, and this is a continuous work on losses. We continue installing smart meters. We continue working with legal energy with over 4,000 families being catered by this work of loss reduction and Cemig. Now for Cemig GT, we have the effect of contracts — trading contracts that are in here in a way, this was the main impact of reduction we have forecasted, and we know that. We already — we were telling that to the market. The Commercial margins regarding 2024 to 2025, these margins of the contracts come down, and this is because the margins drop. So on the side of net profit, we have a positive effect because of the repayment of the bonds that really had a negative impact in our net profit for Cemig GT because of the FX exposure.

So now we have a positive effect in our adjusted net profit for Cemig GT. We have already talked about the GSF auction success. Here, we have some more details regarding the BRL 200 million and the three plants that we were awarded, Irapé and Queimado. Two plants where we had contracts with sales price that were higher over BRL 350 per megawatt that we’re extending beyond the time period of the concession. So this extension was very positive for us. Therefore, obviously, we went in with a controlled premium. We were awarded. These plants, and we are very happy to add 3 more years for Irapé and 7 years more for Joaquim and Queimado. And also an important piece of news here for us. ANEEL has recommended the approval of the concession extension request for Sá Carvalho.

This is a very important news in terms of renewing our concessions per quotas. It’s important to say that in Pai Joaquim, we also had a benefit of discount in the TUSD. For Gasmig as well, we had great and positive effects. EBITDA for Gasmig is in line and net profit is much higher, especially driven by efficient cost management. And also, we had debentures issuance that allowed it to be funded, and this allowed us to have positive result for net profit, and we will keep on investing. And we believe that very soon, we will have the opening of our Central West project. And of course, we would like to end this call inviting you all to our Cemig day. It’s going to happen on September 10, 2025. And we will go into more details about our strategy and how we see Cemig moving forward with the challenges and opportunities for Cemig because we are a wonderful company in the energy sector.

Thank you all very much. So we end the presentation now, and we open the floor for the Q&A session and your questions.

Q&A Session

Operator: [Operator Instructions] Our first question is from Carolina Carneiro, analyst from Banco Safra.

Carolina Carneiro: Hello. Thank you very much for the call. I would like to take this opportunity and ask you to comment about capital allocation. You went into the GSF auction. Of course, you have a robust investment plan, but the cash situation of the company is very much under control. If you can give us a little bit more of visibility, what’s going to be your focus for the next transmission auction. If you were looking at any other segment? And also about the concession renewals, you had that opportunity via GSF auction, but we have some important concessions that are due in the next few years. Do you have any updates in terms of regulatory changes or discussions that are on the table that would allow us to have greater visibility about the plans for these plants? That would be very interesting. Thank you.

Reynaldo Passanezi Filho: While the best guideline is our strategic planning, our BRL 59 billion of investment plan since 2019 up to 2029. As you know, as it is included in this plan, the bulk part of this investment will be in distribution. This is a regulated sector. We were in a situation in the past where we did not have enough investments and a great need of an unmet load, almost 15% of the load was unmet in the past. And also a huge connection of distributed generation. So this initial movement of growth and distribution is really a movement to address the expansion needs to cater an unmet load and also to also cater to distributed generation. We now have almost 5 gigawatts of distributed generation that obviously needs a lot of investment.

So these are known projects, Mais Energia, Minas 3-phase and more energy. So after we conclude this initial step to face the needs of expansion to cater these two flows, the demand and supply, we then have a need of increasing resilience and automation, ANEEL and the Ministry of Energy also are requesting that. So in the beginning, it was expansion. Now in the second moment, we are making this investment to increase resilience and the quality of the service provided. This will be the bulk of our investments. We also have a gas investments in another regulated sector and about the concessions generation that you asked. Here, what we have are the regulatory rules. What we have today and we like what we see is the ANEEL’s recommendation to have the renewal per quotas of Sá Carvalho.

The same topic is being analyzed by ANEEL regarding our other two plants. And then ANEEL recommends that to the Ministry of Mines and Energy. And then we would have the renewal for quotas. We would not need to make any disbursement and then we would leave the free market and we go to the regulated market. A decision to go to the free market. It depends on the changes in the capital changes — capital structure changes, and that does not depend on the company’s management. So any other decision of maintaining the plants in the free market, obviously, they depend on decisions from the executive power and the statehouse, Minas Gerais in terms of changes in the capital structure. I would say these are the main comments that I can tell you about in terms of capital allocation, I don’t know if anyone else would like to add, feel free if you have any comments to add.

But clearly, the main guideline here is to follow our strategic plan. And there is something that I always like to highlight about our strategic plan, which is to focus in Minas Gerais and to win. So 100% of our investments will be focused in Minas Gerais. This is a role that is very strict for us. So our full investments will be done in our competitive advantages. And we understand that these involve to be here in our territory where we have the concession in most part of our assets, our plants, and that’s where we have all the synergies. We take this very seriously. So any M&A possible situations, they have to happen in Minas Gerais.

Carolina Carneiro: Thank you very much, Reynaldo. If I can ask another question. Last week, the Supreme Court ruled about PIS/COFINS and ICMS. I know that it might be too early to ask you, but if you already have any comments and other companies in the sector have a significant balance in a possible credit to be transferred to tariffs or even to the company, do you have any ruling or do you have any reading about what was decided last week? That would be great to know. Thank you.

Andrea Marques de Almeida: Well, this allows the deduction of the taxes and honor areas that have been paid. And yes, this is positive. And as you said, Cemig has already reimbursed clients for over 10 years. So now we have to see how this final ruling will be to check the impacts for us, but two positive things are to be able to discount taxes and also honoraries. This is positive, yes, but we cannot calculate that without knowing the final ruling. Let’s wait for that.

Carolina Senna:

Investor Relations Superintendent: [Operator Instructions] Our next question is from analyst Victor Cunha.

Victor Cunha: Good afternoon, everyone. Thank you for this opportunity. Now looking at the energy balance that you presented, we saw a reduction in the short position for the short term, ’25, ’26, but an increase in the short position for ’27, ’28. Can you share with us what was the rationale and this decision to increase the short position for ’27, ’28, especially during a pressure for energy prices, considering the new parameters and risk aversion, but also probable higher cost and the marginal cost of expansion, considering all challenges that renewable plants are facing. If you can tell us what you have in mind for that, I would appreciate.

Sergio Lopes Cabral: Victor. Thank you for your question. Actually, we have been working to close this position. We have been looking at the market and we have been closing positions and increasing our exposure. The short exposure in these 2 years you mentioned, still a gold effect. The counterpart that we had contracted and because we do not have delivered energy, we had to buy energy and to expose ourselves a little bit more. But we are looking ahead and closing our positions. This is our guide, we do not wish to open more positions.

Carolina Senna:

Investor Relations Superintendent: Our next question is from Lilyanna Yang, analyst from HSBC. I can also read your question. Okay. Well, there was a problem here with transmission, but she has two questions. First, in distribution, your next tariff review will happen just in 2028. Can you comment on how the current changes in the regulatory environment might affect the profitability of the company? And second question, when can we expect an expense reduction in the pension plan fund?

Reynaldo Passanezi Filho: Good afternoon, Lilyanna. I can comment on those. Once again, it’s too early to talk about an efficient frontier of costs. We have to be prepared to be talking about efficiency. This is one of our mantras. We want to improve the quality of services provided and at the same time, to look for more efficiency. This is something that needs to go hand in hand, and they are mantras for us, and we’ll always be aiming for more efficiency. And if that — and from time to time implies tariff modes, we will welcome it because it’s good for consumers as well that need to have tariff models. We have to look for efficiency, and we know that every 5 years, there is a discussion on tariff modes and efficiency. We just hope that it’s not only tariff modes regarding distribution parcel, but also that it is regarding CDEs, subsidies, charges, all of this discussion that we are following in the sector and we know that the line that has increased the most and that has affected the tariffs are charges and subsidies and not the parcels and generation and transmission.

And the one that has moved forward the least was distribution. Therefore, we are working in order to look for efficiency. And we know that every 5 years, we have changes and of course, the more automation, more technology, the better. We are now working to grow our smart meters. These are all topics that aim for better service providing. And also, they work in savings. Our IT area is looking for that. About pension funds, there was another comment from Carol about health care plans. This is the post employment. That’s a very relevant topic, a very relevant line in the company’s results, and we are negotiating all of these topics, whether it is health care plan or pension funds, especially the benefits from Cemig. We will know more as soon as we conclude any of these topics.

And before that, I think it is too early to say anything. I can tell you that we are all interested in coming into an agreement with all beneficiaries to make sure that both plants are guaranteed and for the health care plan and also the pension funds and as well as aiming Cemig’s efficiency.

Carolina Senna:

Investor Relations Superintendent: If there are no further questions, we end now our Q&A session. I would like to turn the floor to our CFO and IR Officer, Andrea Marques de Almeida for her final remarks.

Andrea Marques de Almeida: I would like to thank you very much for your questions and for your participation. We are here available to take any questions in the IR area and our leaders to help you at any time. Thank you very much, and have a nice afternoon.

Operator: Our media conference call for the second quarter 2025 Cemig’s results has ended. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]