Companhia Energética de Minas Gerais - CEMIG (CMIG4) Earnings Call Transcript & Summary

Good morning, everyone. I'm Carolina Senna, Cemig's Investor Relations Superintendent. Welcome to Cemig's Second Quarter 2026 Earnings Video Conference Call. Please note that this video conference is being recorded, and it will be available on the company's IR website at ri.cemig.com.br, where you will also find the company's presentation. [Operator Instructions]. We now start Cemig's video conference with Alexandre Ramos Peixoto, CEO; Leonardo George de Magalhães, CFO and IR Officer; Luis Claudio Correa Villani, Chief Information Technology Officer; Demétrio Alexandre Ferreira, Chief Generation and Transmission Officer; Ernando Antunes Braga, Chief Distribution Officer; Sergio Lopes Cabral, Chief Trading Officer; Sérgio Pessoa de Paula Castro, Chief Legal Officer; Iuri Araújo de Mendonça, Cemig SIM CEO; and Ronalde Xavier Moreira Júnior, Gasmig, CFO and IR Officer. For the initial remarks, I now turn the floor to Alexandre Ramos Peixoto, our CEO, who will start the presentation. Please, Alexandre, the floor is yours.

Thank you, Carolina. Good morning, everyone. It is a real pleasure to be here with you on my first earnings call as a CEO, ahead of our dear Cemig group. I take on this role with great confidence, confidence in the company we've built, also confidence in the quality of our people, the excellence of our professionals and above all and the great potential that lies ahead. I would like to start with a very clear message. We have a sound company. We delivered consistent results, and we know how to execute and that consistency comes from a well-defined strategy, disciplined management and a real ability to turn plans into tangible outcomes. And it's important to make it very clear right now, the quality of the service provided to our clients that will always be at the core of our priorities. We want to be recognized not only by our financial results, but also by the excellence of our operation and the quality of the experience we deliver to the millions of clients we serve, over 9.5 million consuming units. And that's why we will continue executing a relevant cycle of investments, especially in distribution. We have over BRL 22 billion in our tariff review cycle, for May of 2028. And we are investing to turn the networks more robust to modern, resilient and prepared for the new demands of our clients and also for the transformations in the electric sector, highlighting the full opening of the electric power market in Brazil, which should happen in November 25, 2028. As all of you know, the electric sector is undergoing a deep transformation. And I can tell you that we are very well positioned to be part of this future, we have quality assets, knowledge investment capacity and experienced team and very well prepared one to execute our strategy. We have an important advantage. We are an integrated company. The combination of our businesses gives us scale, complementarity and also a privileged view of the sector's changes. That integration strengthens our ability to navigate different cycles, seize opportunities and create value in a sustainable fashion. So the message I would like to convey to all of you in his first earnings call is of confidence and continuity of the implementation and the success strategy and a long-term view, a management with financial discipline, consistent results and responsibility in our business is, therefore, meeting our commitments and generating value to our shareholders. Today, we have a strong company, and we are working and we'll keep on working hard so that it can be even stronger. And with that long-term vision, customer focus and discipline in execution and commitment with results that I start this new cycle. I will continue working on this new cycle of this management ahead of this company. Having said that, I thank you very much with the opportunity to be addressing it. And I turn the floor to our dear CFO, Leonardo George de Magalhães to start the presentation of the results of the second quarter. Thank you very much.

Thank you very much Alexandre, for your message. Good morning, everyone. Thank you for being here with us in this video conference call for the second quarter's results. We will start with the highlights of this 2Q. We have had very consistent sound results and with the operating performance of BRL 2.5 billion in the quarter, a recurring EBITDA that reflects our soundness in terms of results for the company. The company, as Alexandre has mentioned, is integrated to a number of businesses that support our cash generation and as well as our results at every quarter, bringing you consistent results. Also, we have funding of BRL 4.6 billion also in this quarter. This was very relevant, and this was to support our investment program. In the next slide, we'll talk more about that. This is an investment program that is very relevant, especially you're distributing company that will be generating value for the next years. For shareholder remuneration, historically, this is a company that has a good remuneration to its shareholders. And we had interest on capital of BRL 631 million. That represents BRL 0.22 per share. Growth strategy. Our CapEx is of BRL 1.8 billion. We are going to go over that figure. And also we had a tariff adjustment for Cemig distribution with 6.5% of average tariff impact to Cemig's consumers. On this slide, we have the planned investment for the year, which is BRL 6.7 billion. And up to the first 6 months, we were able to invest BRL 3.3 billion, 49% of the total amount. And the message is that we are in line with the investments forecasted for the year. As also, we had estimated and we are communicating to the market. We have a large investment in our distribution brand, BRL 2.6 billion in these first 6 months. an investment in generation of BRL 275 million and Cemig SIM also a significant highlight of BRL 227 million, Gerais BRL 92 million in investments, especially here in the Midwest project. And with 33.5 kilometers of network built in the quarter. Now going over the investments of our distribution branch here the company. We see that with these investments, the company is adding a lot of value, not only thinking about the remuneration base that we expected to be included in the next tariff review in 2028, but also in the quality of service that we provide our clients, which surely has -- will be positively affected by all of these investments. In transmission, also we have relevant investments and these are investments that are bringing in additional revenue just for additional RAP in this quarter, we have BRL 36 million thanks to investments that have been concluded and they are already bringing revenue to the company. So in summary, the company is frequently being transparent, bringing to the market its investment program, and we are in line with investments that we have forecasted for next years. And in this quarter, it has been no different. Now we have the consolidated results for the company. These are good results, 9.3% here recurring result for EBITDA compared to the prior year. Net income, 15.6%. Here, it was impacted by financial expenses because of the fundings that the company had to be able to provide support to its investment programs, and this was already in our strategic plan. And here, we highlight nonrecurring effects here, the voluntary dismissal program has an impact in the beginning. But in the long term, it will bring benefits to the company because it is a process where naturally replacing our employees and employees that are with us for a longer period of time, they get incentives to leave the company a new employees come in to help in our culture and our performance. Also, we have a free market customer arbitration. There were some questions about some contract clauses and this is being concluded now. And because of the maturity and the current stage of this process, the company considered to be necessary to have a provision of BRL 191 million or the outcome regarding this topic. This is not -- this does not have a cash effect as of now. But right now, we had to have provisions for that. And in the prior year, we had a few adjustments, nonrecurring as well because of RBSE remeasurement and also the remeasurement of post-employment liabilities. We should highlight as well that the provision for losses for the company because of delinquency and the company adjusted its criteria. According to ANEEL and the marketing the market benchmark. And so that generated expected losses reversal of BRL 232 million with a positive effect in this quarter. Moving on, we have here consolidated costs and expenses, which had an increase of 15.5% this quarter. This was very relevant, but it's important to highlight that we have seasonal effects. This is because of the investments that we had in this period in improving the quality of the network. And all of this is very important so that we can improve our service to clients and also to tackle possible contingencies. And now we are talking about El Niño that will be seen in the second half of 2026. In any case, we believe that we did have seasonal effects, and we do not to have a variation or see a reduction in this variation when we complete 12 months, and we compare 2026 to 2025. But in this quarter, we did have a specific impact, that was a onetime off impact and therefore, this variation was 15.5%, but the company's costs are being controlled because we have financial discipline, and we are balancing out the improvement of the network, the investment in the processes that might help the company to serve the clients better and we are keeping costs at a very disciplined level. Moving on, we have the debt profile. The company still has a high quality of credit. We are AAA in two rating agencies and AA+ at S&P Global. And here, we have our maturity schedule that has a very adequate profile for the upcoming years and leverage reached 2.58x in the second quarter of 2026, and we understand that considering our current investment plan, this leverage is right, and that corresponds to our expectation when we think that we have a tariff review in 2028. Therefore, our leverage has a growth up to 2027, but in 2028, it will come down because of the tariff review in our distribution company, but the company is still accessing the capital market in the frequent fashion, and it has great access to the market and also very competitive costs. On the next slide, we have our cash generation. We generate -- we have a strong cash generation even with the adjusted EBITDA, you see that the EBITDA is reflected in the cash and the operating cash here in this half of the year, close to BRL 4 billion. So if you double it, we are generating operating cash of almost BRL 8 billion in the year, and that's very strong to provide support to this investment program. And here, we also have the third-party capital that helps the company in the distribution segment. And here, we have this 5-year cycle from 2023 to 2028. Now we're turning to Cemig D and Cemig GT results. Cemig D has positive results, 21% up in EBITDA when compared to 2Q '25 recurring net income is in line with 8.9% down. But as we mentioned, also there was an impact of issues involving higher financial expenses because of the interest rates, which are high and also the natural debt to provide for our investment programs. I also talked about the tariff adjustments. We had an average impact of 6.5%. And the 4.9% correction in Portion B in here, there is an increase of 2.7% in residential market. We also talked about the ECL reversal estimated last year. It has to do with current delinquency of our consumers. This is very much controlled by Cemig D. And here, we have the energy market is down 1.6% when compared to the second quarter of 2026 to 2025, you see that the total power carried has increased a little bit, and we have 3.8% of drop in the captive market because we had large clients living Cemig network -- distribution network this year, and that did have an impact when you compare that to 2Q '25. And when we compare the different consumption customers, consumers classes, we have residential growing 2.7%. And we also can highlight the rural class with a reduction of 11% because of the rainy season which was greater in the second half of the year. Therefore, there is lower consumption by the rural segment. And Cemig DG has a relevant impact. It now represents 25.8% of captive market of Cemig distribution. Moving on, the company is very much disciplined in its cost. As I mentioned, our OpEx today is BRL 416 million lower than the regulatory limit in this first quarter of 2026. Operating efficiency. Also, this is very important. And we see great financial results, consistent results for Cemig D. And also, they are in line with operating efficiency, all the investments that the company is making, they have provided improvements in our quality indicators. Our DEC is 8.43 lower than the regulatory limit. So in the downward trend, FEC also 4.86 compared to 5.37 which is the regulatory indicator. That's the limit established by ANEEL. So we have good room here. And that is thanks to the investments that the company has been making in the past few years, which are bringing results in these indicators that prove that we have a good quality of service to our clients. Regulatory losses are still low and lower than the real losses. And we have already talked about the reversals for expected credit losses in this half of year. So the quality indicators for the company are in an upward trend, a positive trend. Now talking about Cemig GT. Also, we have great results, 10.6% vis-a-vis the prior year in EBITDA and recurring net income with a reduction of 11.4% because of the increase of financial expenses as highlights, we have increased revenue from sales to end customers, 124 megawatts average and also inflation adjustment on [ RBL ] revenue or plants that received by quota, there was a an adjustment of BRL 29 million because we have the cumulative IPCA inflation here. And all of them are related to these plants. Now we have a breakdown for Cemig generation and transmission in terms of the business for generation. Here, we have a positive result, both in EBITDA as well as in recurring net income, EBITDA up 13.3% and recurring net income also up but here, 3 to 6%. And average GSF here was better than what we had in 2025 and that has reflected in higher revenue that we have seen in '26 compared to the prior year. And for transmission, very positive results with added RAP and also the regulatory assets of transmission that allowed that our transmission results were 50% higher when measured by EBITDA compared to 2025 and recurring net income to 50% and BRL 190 million compared to BRL 120 million in the prior year. Moving on, Cemig trading results or BRL 180 million negative recurring EBITDA compared to the prior year. We talked about this provision of BRL 191 million. This is a onetime off result of this stems from a specific action related to a major industrial client, which has generated an effect of provision in the second quarter. This is not a cash effect right now. Right now, it's only a provision. So this is still being discussed. And this negative effect in this first -- in the second quarter stems from positions that have been settled and higher prices of energy purchased. This was already expected by the company and also the effects that have been related to submarkets, especially regarding the South. We understand that the trading company effects that generated this impact of minus BRL 180 million have been very much concentrated in the first half of the year, and we understand that the trading company results in the second half of the year, we'll have positive results compared to the first half of the year, which we already knew. This was already planned. We know it would have that type of effect, especially because of the company's position. But for the second half of the year, we understand that we are going to have a more favorable environment, both in hydrology and also because we have already settled positions that were needed for the year of 2026. On the next slide, we have Gasmig results still sound results. This reduction that we see both in EBITDA as well as in recurring net income for Gasmig, it was already expected because we had migration of clients to the free market. Therefore, we have a lower margin affecting the EBITDA and net income of the company. Also that had an impact of the reduction of the volume distributed of 17%. All of these factors combined brought this reduction in the results. Gasmig has a tariff review that should happen by the end of the year. We are very optimistic about the project and Gasmig should be bringing sound and consistent results to the group in the next quarters. Basically, these were the main highlights of our presentation. We understand that these were consistent and sound results and the different Cemig businesses. We understand that especially in the trading company, it was a more difficult half of the year, but we have a positive outlook for the next 6 months. And we will continue executing our investment program that will generate a lot of value to Cemig in the next few years, considering the tariff review that we have ahead. I turn the floor now to Carolina so that we can start our Q&A session.

Thank you very much, Leonardo. So right now, we will start our Q&A session. [Operator Instructions] our first question is from [ Marco Aurelio ] and the question is, "considering that there was an increase in tariffs only in 2028. And with the increase of the indebtedness and the debt cost, what will be the direct impact on the profit or the net income reduction for 2027? And what will be the impact in the shareholders' remuneration?"

It's important to mention that Cemig has always been a great dividend payer in the electric sector. This is company that we can say that it has been one of the best in paying dividends in our bylaws, by our bylaws, we have a minimum mandatory dividends at 50% of net income. So this is a relevant payout. We understand that right now, in 2026, this is the year where the company's results because of higher financial expenses will be relevant results, very positive ones, both for EBITDA as well as net income. And we believe that we will keep on bringing positive dividend yields, whether now we're in the next few years, we are going to have a tariff review in 2028, we will have a positive impact on results. But even in the next years, '26 and '27, considering the current payout of the company established by the bylaws of 50% of net income, that is a very attractive remuneration to our shareholders even considering an adverse scenario to all the markets. And we understand that this dividend yield will continue being relevant and positive for our shareholders this year and also in 2027.

Next question is from [ Ricardo Balsara ]. "how is your perspective for El Niño effects in the different areas of businesses? Are you going to have CapEx prepayment in the distribution and transmission companies to avoid possible incidents?" For this question, we will have our Chief Distribution Officer to answer Ernando.

El Niño, requires a robust planning, which we have for a maintenance plan. We have a contingency plan considering that we have the largest investment plan in history, we are executing our maintenance plan also the largest one in history, our OpEx. We have AMI meters, automation in electric systems. So for the second half of 2026, we are fully prepared for El Niño impacts. In addition to these investments, we have the penetration of our structure in the state as a whole to face this diversity. So in summary, we will have no impact in our budget because of El Niño.

Thank you, Ernando. Now to talk about generation and transmission. I would like to ask our Chief Generation and Transmission Officer, Demétrio to take that question.

For generation and transmission, starting by generation, we have a permanent routine to manage these assets that is based in risks we need to guarantee the availability of different pieces of equipment during harder demand. So we run periodic tests for all the plants to make sure that when they are demanded, they will be working. We do not have above the average rainfall with El Niño. So we should have more rainfall for the South, not for the Southeast region. So in our point of view, we do not need contingency plans that are just more elaborated than the ones that we already have to our large plants and reservoirs. For storms, for the small plants that have smaller reservoirs, we are reviewing our contingency plans to guarantee access to them and also to control flooding. That's what we have for generation. We are fine about it. For transmission, we do have assets of high resilience. This is thanks to the work that we have been developing for preventive maintenance, modernization, management based on risks, this contingency plan that we have transmission is very robust. We maintain vegetation at low levels in the right of ways. We also have weather forecast that will issue alerts in case that is needed so that we can tackle all the contingencies, if needed. We have devices all over the state. These are previously placed in the state of Minas Gerais in case of contingencies, we can return the lines at a lower period of time. So prevention is the key word here, and we are prepared for any problems that might happen in terms of contingencies, both for generation transition.

We have another question. Now regarding auctions. I will ask our CFO and IR Officer, to answer. And the question is "if we are interested in taking part in transmission auctions and then Sergio Lopes is going to talk about the auctions for batteries." Please Leonardo.