Comp En De Mn Cemig ADS American Depositary Shares

Good afternoon, everyone. I am Carolina Sena, 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 RR website at ri.com.cemic.com.br, where you will 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, choose Interpretation, and then select the language of your choice, Portuguese or English. If you're following the call in English, you may also select Mute Original Audio to mute Portuguese original audio on the back. All participants will have their microphones disabled during the presentation. After the presentation, we will start the Q&A session. We will now start our call with Reynaldo Passanese Filho, our CO, Andrea Marques de Almeida, CFO and IR Officer, Luis Claudio Correa Villani, Chief Information Officer, Marco da Camino and Conan Lopez Olido, Chief Generation and Transmission Officer, Marneita Deu Antunes, Chief Distribution Officer, and Sergio Lopez Cabral, Chief Trading Officer. For the initial remarks, we would like to turn the floor to our CEO, Reynaldo Passanese 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 R2.7 billion in investments in this first half of the year. And also, with great consistency in results generation, adjusted EBITDA of R2.2 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 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 Semiga, we have a non-cash impact for the quarter of 199 million. It's worthwhile mentioning that the EBITDA that we usually disclose is the IFRS. So in this EBITDA, the 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 sub-markets in our trading sector of negative 76 million. Our projections are that once we have the review of the criteria by the ONS and a greater interest change, 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 concessions as extensions for three power plants one for seven years and another for three years so this is a total of funds disbursement of 200 million rounds so i would say that this is This also shows our commitment to the company's sustainability. After all, we are talking about concessions that were due in 2037, and we are extending those for 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 200 million rows two of them seven years and one of them for three years. I would say that these are the main highlights I would like to start the call with. Now we'll turn the floor to Andrea, and obviously we are available to take any questions you might have, shortly. Thank you. 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 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 and 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 200 million. and especially in reinforcements and improvements for GASMIG as well. As Verinado mentioned, we have the Central West project, over 100 kilometers of gas pipelines and SEMICSIM. 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 photovoltaic plant, Advogado Eduardo Soares. We have a grant term of 35 years, capex of $464 million, and a 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 non-recurring 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 $21 million in another migration of our employees. to the premium plan, that was a reduction there again, and also exposure to the sub-market prices already mentioned by Reynaldo. Analyzing our IFIS EBITDA, talking about the non-recurring 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 in the profit-sharing program that were very relevant, $584 million in a 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 facts to the submarket exposures. And over time, we were showing you our monthly exposure. So 480 in April, 533 in May, 619 in June. But you see that the price difference is already coming down. We see in June a price difference of 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 of 76 million regarding the price difference here in the submarkets. Another positive result here, And when we look at managerial expenses, we have increased those below inflation with some effects here in terms of the EGVP 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 work in 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 just at EBITDA of 1.59, now already including all the debentures issuing the 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 six years so we are also evolving in this average turn 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 it at 3 billion, and it was well supported by our operating cash generation of 2.3 billion. The ventures that we talked about, the 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 CEMEX-D results, and we'll go over again what we already said about the holding. For CEMEX-D results, when we compare, again, the adjusted EBITDA effect not considering the non-recurring effects we had a growth of 39 mainly thanks to the reimbursement of the tariff subsidies as we mentioned now if you analyze the these results adding the items that are non-recurring obviously this effect was lower when compared to prior quarter. Now, for the energy market, for semi-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. Two 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 to Q24 compared to Q25, we see a significant growth of around 20%. very well for operating efficiency for semi-d once again we are working in this efficiency one of our focuses is the collection we are aiming to collect digitally or payments of course fixed 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 PICS. And also we have our ARFA, Receivables Collection Index, of around 99% showing that we are at a very good position vis-à-vis our collection and billing. indexes. Now, our OPEX, it is, of course, in compliance with our regulatory OPEX, and EBITDA as well is within the regulatory EBITDA. Very good results here, analyzing regulatory losses. There was a change in the calculation of losses instead of built 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 and 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 semi now for semi gt you will have the effect of contracts of 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 uh telling 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. 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 semi gt because of the effects exposure so now we have a positive effect in our adjusted net profit for samik dt we have already talked about the GSF auction success. Here we have some more details regarding the 200 million and the three plans that we were awarded. Irapé and Queimado are the two plans where we had contracts with sales price that were higher, over 350 reals per megawatts that were 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 three more years for Irapé and seven years more for Joaquim and Queimado. And also an important piece of news here for us. ANEL has recommended the approval of the concession extension request for Saccarvalium. This is 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 Tuesday and Tuesday. For Gazmig as well, we had great and positive effects. For Gazmig is in line, and that profit is much higher, especially driven by the efficient cost management. And also, we had the bench resistance that, allowed it to be funded, and this allowed us to have a 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 RSMEC Day. It's going to happen on September 10th, 2025. and we'll go into more details about our strategy and how we see CEMIG moving forward with all 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. Thank you very much. We will now start the Q&A session. To ask a question, click on the Q&A icon on the bottom of your screen and write your question to be on the queue. Upon being announced, a request to open your microphone will show up and you should open your microphone. We would like you to ask all your questions all at once so the questions that are not answered will then be answered by our website later on and we will now start the q a so your names will be announced so that you can ask questions live right now and when that is done a request to open your microphone will pop up on the screen Our first question is from Carolina Cazeneiro, analyst from Banco Safra. Please, Carolina, you may turn on your microphone and ask your questions.

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. course you have a robust investment plan but the cash situation of the company is very much under control you can give us a little bit more of visibility what's going to be your focus for the next transmission option if you're 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 plans that would be very interesting thank you Well, the best guideline is our strategic planning, our 59 billion reais 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 a unmanned 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 de Fazgor, Minas 3 Phase and more energy. So after we conclude this initial step to phase the needs of expansion to cater these two flows, the demand and supply, We then have a need of increasing resilience and automation. ANEL 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 investment and 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 ANEL's recommendation to have the renewal for quotas of stock car value. The same topic is being analyzed by ANEL. regarding our other two plants, and then Anel 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 would 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 State House of 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 rule that is very strict for us. So all our full investments will be done and our competitive advantages. And we understand that these involve to be here in our territory where we have the concession and 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. Thank you very much, Reinaldo. If I can ask another question, last week the Supreme Court ruled about PIS Coffins 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, 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. Well, this allows... the deduction of the taxes and honoraries that have been paid. And yes, this is positive. And as you said, Semigi 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. Thank you very much. Once again, we would like to stress that we are in our Q&A session. If you have a question, please write your question in our Q&A session, in our Q&A icon so that we can open the microphone. And if you ask your question. Our next question is from analyst Victor Cunha. Please, Victor, you may ask your question.

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 costs and the marginal costs 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 it.

Good afternoon, 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 decreasing our exposure. The short exposure in these two years you mentioned is still a gold's 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. That's clear. Thank you very much. Our next question is from Liliane Young, analyst from HSBC. Please, Liliane.

Please, Eliane, you may ask your question. Just open your microphone.

I can also read your question.

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 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?

Good afternoon, Liliane.

I can comment on those. Once again, it's too early. to talk about an efficient frontier of causes we have to be prepared to be talking about efficiency this is one of our mantras so 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. We will always be aiming for more efficiency, and if that, and from time to time, implies tariff modes, we will... because it's good for consumers as well that need to have tariff modes. We have to look for efficiency, and we know that every five 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 CDs, subsidies, charges, all of this discussion that we are following in this sector. And we know that the line that has increased the most and it 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 five 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 healthcare 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 healthcare 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 plans are guaranteed and for the healthcare plan and also pension funds and as well as aiming at some efficiency. 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. 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. our media conference call for the second quarter 2025 cemex results has ended thank you very much