Comp En De Mn Cemig ADS Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 18, 2025

Key Takeaways

  • Positive Sentiment: Management reported a BRL 2.7 billion investment program in the first half, funding new substations, grid reinforcements, generation works and the upcoming Midwest gas pipeline.
  • Positive Sentiment: Adjusted EBITDA reached BRL 2.2 billion, marking roughly a 15% year-on-year increase on a recurring basis, supported by tariff subsidy reimbursements.
  • Negative Sentiment: The RBSE methodology change and submarket price differentials created noncash impacts of BRL 199 million and a BRL 76 million trading loss, although management expects these to normalize in H2.
  • Positive Sentiment: Leverage remains conservative with net debt/adjusted EBITDA at 1.59× and cash balance of ~BRL 3 billion, providing ample capacity for ongoing investments.
  • Positive Sentiment: CEMIG invested BRL 200 million in the GSF auction to extend concessions on three hydro plants (two by 7 years, one by 3 years), underlining long-term sustainability.
AI Generated. May Contain Errors.
Earnings Conference Call
Comp En De Mn Cemig ADS Q2 2025
00:00 / 00:00

There are 1 speakers on the call.

Operator

Good afternoon, everyone. I am Carolina Cena, Superintendent of Investor Relations at Cemig. Welcome to Cemig's Second Quarter twenty twenty five Earnings Video Conference Call. We inform you that this video conference is being recorded and will be available on the company's IR website at ri.com. Semig.com.br, where you will also find the full package on this call.

Operator

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 in 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 and A session.

Operator

We will now start our call with Reynaldo Pasanesi Filho, our CEO Andrea Marcus de Almeda, CFO and IR officer Luis Claudia Correavilani, Chief Information Officer Marco Dacamino Encona Lapis Oligo, Chief Generation and Transmission Officer Marneta de 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 Pasanes de Figlio. 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.

Operator

Once again, this quarter, with growing investments, we already have BRL 2,700,000,000.0 in investments in this first half of the year. And also with great consistency in results generation, adjusted EBITDA of BRL 2,200,000,000.0, very sound result. This is our adjusted EBITDA with the highlights. So once again, our 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.

Operator

So we are at full speed in our investment plan. And with an adjusted EBITDA that is very sound, growing 2,200,000,000.0 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 CEMEA, we have a noncash impact for the quarter of BRL 199,000,000.

Operator

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, is another impact of the 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 76,000,000.

Operator

Our projections are that once we have the review of the criteria by the ONS and the greater inter exchange, 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.

Operator

And finally, our GSF auction. Again, we participated in this auction, and we were able to ensure the concessions extensions for three power plants, one for seven years and another for three years. So this is a total of funds disbursement of BRL 200,000,000. So I would say that this also shows our commitment to the company's sustainability. After all, we are talking about concessions that were due in 02/1937, and we are extending those for 02/1944.

Operator

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.

Operator

So another BRL two hundred million, 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 I'll turn the floor to Andrea. And obviously, we are available to REPRESENTATIVE:] take any questions you might have shortly. Thank Good afternoon, everyone.

Operator

I apologize, I have a code. But we, again, are following our investment plan. It's going very well. Out of these BRL 2,800,000,000.0 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.

Operator

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 in of BRL 200,000,000.

Operator

And especially in reinforcement and improvements for GASMIG as well, As Bernardo mentioned, we had a centralized project, over 100 kilometers of gas pipelines and Semigsin. 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 Maison Egea program where more energy and now this is our photovoltaic plant in Agiovogado Eduardo Soares. We have a grant term of thirty five years, CapEx of $464,000,000 and the potential of CO2 reduction that is very relevant for us.

Operator

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 'twenty four. 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 us was the reimbursement of the tariff subsidies that we have received via CDE, the energy development account.

Operator

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 21,000,000 in another migration of our employees to the premium plan. There 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.

Operator

But then because we had a reversal last year, and if you remember that, those were tax provisions reversals regarding INSS and the profit sharing program that were very relevant, $584,000,000 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 CEMI. 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.

Operator

So four eighty in April, five thirty three in May, six nineteen 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 this in the past quarter and a gross effect of BRL 76,000,000 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 EVP or the voluntary redundancy program, the effect was a little bit lower in terms of outsourced services.

Operator

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.

Operator

Now already, including all the debentures issuing, BRL 5,000,000,000 that we mentioned last quarter and already counting on the amortization of a prior debenture, and that helped us to reach an average debt tenure of six 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 it at BRL 3,000,000,000, and it was well supported by our operating cash generation of BRL 2,300,000,000.0.

Operator

The debentures that we talked about, the 5,000,000,000, we had the payments on other debentures that were amortized around BRL 2,300,000,000.0, also payments of interest on capital and dividends and also our activities on investments. Now analyzing CEMEX D results, and we will go over again what we already said about the holding. For CEMEX 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 semi distribution, there was a drop of 3.3% this quarter.

Operator

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.

Operator

So when we look at the progress to 2Q 'twenty four compared to 2Q 'twenty five, we see a significant growth of around 20%. Very well. For operating efficiency for CEMID D, once again, we are working in this efficiency. One of our focuses is the collection. We are aiming to collect digitally our payments.

Operator

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 fixed. And also, we have our offer receivables collection index of around 99% showing that we are at a very good position vis a 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.

Operator

Analyzing regulatory losses, there was a change in the calculation of losses instead of build 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.

Operator

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 SEMIG. Now for SEMIG 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.

Operator

And we know that we already 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 dropped. 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.

Operator

Here, we have some more details regarding the BRL 200,000,000 and the three plants that we were awarded. Irappe and Queimada are the two plants where we had contracts with sales price that were higher over BRL350 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 clients, and we are very happy to add three more years for Irappe and seven years more for Joaquin and Queimada.

Operator

And also an important piece of news here for us, Enel has recommended the approval of the concession extension request for SAKAR volume. This is very important news in terms of renewing our concessions per quotas. It's important to say that in Paj Joaquin, we also had a benefit of discount in the TUSD and TUSD. For GASMIG as well, we had great and positive effects. EBITDA for GASMEG is in line, and net profit is much higher, especially driven by the efficient cost management.

Operator

And also, we had the bench resolutions 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 our Semig Day. It's going to happen on 09/10/2025, And we will go into more details about our strategy on 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.

Operator

So we end the presentation now and we open the floor for the Q and A session and your questions. Thank you very much. We will now start the Q and A session. To ask a question, click on the Q and 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 show up, you should open your microphone.

Operator

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 and 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.

Operator

Our first question is from Carolina Carneiro, 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.

Operator

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. You can give us a little bit more of visibility, what's going to be your focus for the next transmission auction, 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 plants? That would be very interesting.

Operator

UNIDENTIFIED The best guideline is our strategic planning. Our BRL59 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.

Operator

Almost 15% of the load was unmet in the past. And also 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 unmet load and also to also cater to distributed generation. We now have almost five gigawatts of distributed generation that obviously needs a lot of investment. So these are known projects, Maize Energia, Minas Rifascar, Minas Rifascar, Rifas and More Energy.

Operator

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. Enel 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.

Operator

This will be the bulk of our investments. We also have 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 of per quotas of Saccar Vale.

Operator

The same topic is being analyzed by Enel regarding our other two plants. And then Enel 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'll go to the regulated market.

Operator

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.

Operator

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 our full investments will be done in our competitive advantages.

Operator

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 and a possible situations, they have to happen in Minas Gerais. Thank you very much, Reynaldo. If I can ask another question.

Operator

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.

Operator

This allows the deduction of the taxes and honoraries that have been paid. And yes, this is positive. And as you said, CEMIGI has already reimbursed clients for over ten 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.

Operator

This is positive. Yes. But we cannot calculate that without knowing the final ruling. Let's wait for that. Thank you very much.

Operator

Once again, we would like to stress that we are in our Q and A session. If you have a question, please write your question in our Q and A session in our Q and A icon so that we can open the microphone if you ask your question. Our next question is from analyst Victor Coia. Mr. Victor, you may ask your question.

Operator

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, 2526, but an increase in the short position for 2728. Can you share with us what was the rationale in this decision to increase the short position for 2728, 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.

Operator

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.

Operator

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.

Operator

Thank you very much. Our next question is from Liliani Yang, analyst from HSBC. Please, Liliani. Maiseliani, you may ask your question. Just open your microphone.

Operator

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?

Operator

Liliana, 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. So we want to improve the quality of services provided and at the same time, to look for more efficiency.

Operator

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 welcome it 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.

Operator

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 the 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.

Operator

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.

Operator

This is the post employment. That's a very relevant topic, 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 CEMIGI. 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.

Operator

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 health care plan and also the pension funds and as well as aiming to some efficiency. As there are no further questions, we end now our Q and A session. I would like to turn the floor to our CFO and IR Officer, Andrea Marcus 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.

Operator

Thank you very much, and have a nice afternoon. Our media conference call for the second quarter twenty twenty five CEMEX results has ended. Thank you very much.

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