Prepared remarks
Good afternoon, everyone. I am Carolina Sena, Cemig's IR Superintendent. Welcome to Cemig's Third Quarter 2025 Earnings Video Conference Call. This video conference is being recorded, and it will be available on the company's IR website where you will also find the complete details of our earnings call. We will now start Cemig's video conference call with Reynaldo Passanezi Filho, CEO; Andrea Marques de Almeida, CFO and IR Officer; Luis Cláudio Correa Villani, Chief Information Officer; Sergio Lopes Cabral, Chief Commercialization Officer; Sérgio Pessoa de Paula Castro, Chief Legal Officer; Carlos Camargo de Colón, Gasmig's CEO; Iuri Araújo de Mendonça, Cemig SIM's CEO. For their initial remarks, I turn the floor over to our CEO, Reynaldo Passanezi Filho.
Good afternoon, everyone. Welcome to our earnings call for the third quarter. It's always an opportunity and a pleasure to be able to bring to you our results and our efforts in another quarter. This is a quarter in which we have more difficult news. Of course, I would like to highlight some important topics that show the strength and resilience of Cemig's earnings. About specific news on the quarter, we had distribution results that were affected by large clients that left the network. They migrated to the basic network about trading. We tried to decrease some positions. Also, that involves the submarket prices that have affected the results. What's important, and you know that when we look at our net position, it is very favorable in the scenario that we have for pricing today. The same thing happened with generation because of the difference in the GSF and the need to offset that with the spot price. This is what I would like to highlight. And despite these topics, we moved on with a recurring EBITDA, proving the company's resilience, and we have confirmed the AAA rating by Moody's. We have two agencies now guaranteeing us a AAA rating, showing our resilience capacity to any type of scenario. We also had an award from a magazine called Veja Negócios, as the best energy company in Brazil in the top 30 awards. And we also had the approval of our health care plan for retired employees. So we finalized a collective agreement with the union and that allows us to look for a positive structural solution that will preserve a positive transition to all of us. Therefore, they can keep their health care plan and also we'll be able to guarantee the company's sustainability. And the final topic, and Andrea is going to go over the details, which is our investment program. We are, once again, making the largest investment program in the company. For this quarter, we have BRL 4.7 billion, a significant increase when compared to last year. I believe we have a very positive message here, and we are maintaining our investment plan. And that means very positive results for the tariff review situation when that comes. So here, we have BRL 3.6 billion in distribution by itself. If we multiply that by the WACC, we know that the results bring additional revenue of a little over BRL 500 million just for that nine months. So these are very cautious investments in regulated areas that when they get mature and the agency recognizes that we are going to have very positive results for the company. This is what allows us to have resilience today, and this is what allows us to have very positive results in the future, whether by these investments or by a very favorable position in the trading business in the near future. These are my initial remarks. Obviously, we are here to take your questions after the company's presentation. I'll turn the floor to Andrea, but I would like to stress the strength of this company and that we are very confident that we are going to move on with this investment plan and maintain the company's debt levels and the covenants and therefore, to keep on investing, keep on generating value. And this is going to get more mature according to the regulations and tariff regulations as expected. Thank you very much.
Good afternoon, everyone. It's a pleasure to be here with you today to discuss our third quarter earnings. Let’s talk about our investments. In the first nine months of 2025, we invested BRL 4.7 billion. This breaks down to BRL 3.6 billion in distribution, primarily focused on substations. This is a significant milestone, and we have some pictures of the substations from this quarter, along with 5,349 kilometers of low and medium voltage networks, which are crucial for providing quality service in Minas Gerais. In generation, we participated in the GSF credit auction with BRL 199 million, which helped secure the extension of our concession in several plants. We also invested BRL 149 million in expansion and maintenance. For transmission, our Verona project accounted for about BRL 30 million, and we continue to invest in reinforcements and improvements, which we will discuss further in relation to allowed annual revenue. Regarding Gasmig, the most significant project represents around BRL 180 million in investment. In Cemig SIM, we delivered new photovoltaic plants with 31 megawatts of installed capacity. Now, I would like to show pictures of the five new substations from this quarter: Andrelândia, Coronel Xavier Chaves, João Pinheiro, São Tiago, and Fronteira. These are our highlights in distribution. Moving to transmission, we improved operations in Taquaril, Três Marias, São Simão, Itajubá, Volta Grande, and Lafaiete, adding BRL 32 million in allowed annual revenue to our transmission business, which has produced positive results as well. Now, to the figures. As Reynaldo mentioned, we recorded BRL 1.5 billion in EBITDA, with a decrease of approximately 16.3% in our recurring EBITDA. I will address the recurring numbers and then the significant nonrecurring events from last year. In generation, we faced the consequences of a lower GSF, which necessitated purchasing energy to cover the deficit, impacting us by BRL 54 million. We also saw a reduction in our trading margin compared to the previous year due to ending open positions and fluctuations in spot prices, which affected distribution by BRL 136 million. In 2024, there was a change in methodology regarding our ADA, which reversed our provisions, unlike in 2025. This resulted in a negative delta effect in distribution. Additionally, as Reynaldo noted, some clients transitioned to the basic network, further influencing distribution. Regarding our net profit, the major investments we made are causing a significant depreciation impact, alongside the effects of rising interest rates and increased leverage, leading to a recurring net profit drop of around 30.2%. It's important to recall that last year we recorded nonrecurring effects, including BRL 1.6 billion from the disposal of Aliança and BRL 1.5 billion from the tariff review for the transmission business, which we do not see this year. Now focusing on GSF, when comparing the GSF of 2024, we observe its performance from July to September, with GSF figures decreasing from 0.8 to 0.7. Hence, we had to purchase energy to mitigate hydrological risks, along with higher energy prices this year compared to last. Turning to operating costs and expenses, we are growing below the inflation rate. We noticed increased spending in outsourced services, necessary for enhancing service quality through maintenance and technology improvements, including smart meters. Additionally, we need to invest in tree pruning and clearing pathways. We have seen a favorable performance in personnel as we bring in our teams to provide faster service in specific regions, notably in Minas Gerais. Regarding our capital structure, while we do require debt for our investments, our leverage remains at safe levels, currently at 1.76 for net debt over recurring EBITDA. This allows us to maintain our best credit ratings historically, as mentioned by Reynaldo. Our average debt maturity is now 5.7 years, although we are affected by high interest rates. For our cash flow, we began 2024 with BRL 2.3 billion in cash. Our cash from operations totaled BRL 3.4 billion, including a debenture issuance in May for BRL 5.1 billion and prior debenture repayments of BRL 2.4 billion. With dividends and IOC at BRL 1.7 billion and investment activities totaling BRL 4.5 billion, we ended up with BRL 2.3 billion in final cash. For Cemig D, we've noted a 4.7% drop in EBITDA primarily due to market reductions caused by less favorable economic activity and mild temperatures. The complete impact of client migrations to the basic network became evident in the third quarter. In the energy market, we saw a 4.4% decline, affecting all segments, including rural, commercial, and industrial markets due to the aforementioned migrations. Our operating indicators showed solid collection rates, especially through digital channels. We aim to enhance collection further through campaigns promoting our auto Pix payment method, which is both cost-effective and increasingly popular. Our receivables collection index is stable, and our regulatory OpEx and EBITDA align with regulatory standards. We are committed to addressing regulatory losses by installing armored meeting panels and smart meters to ensure compliance. For Cemig GT, the significant impact was the GSF, necessitating energy purchases for hydrological risks. Here, we also see results impacted by 2024 nonrecurring effects. Gasmig experienced a 6% market drop and client migrations to the free market, affecting its EBITDA as well. Finally, I would like to highlight some of Cemig's recognitions. Reynaldo mentioned our pride in being acknowledged as the best energy company in Brazil by Veja Negócios, among other accolades, including being recognized for our financial team in the infrastructure and energy sector, receiving the transparency award from ANEFAC, and achieving an ESG award. We have a long history of awards recognizing our sustainability efforts, and we take great pride in these achievements. I conclude my presentation here and will now hand it back to Carol to open the Q&A session and address your questions.
Our first question is from Victor Sousa, Genial Investimentos.
Questions and answers
Hello, can you hear us?
Yes, we can hear you, Victor. Go ahead.
My question is about Technical Note 53 that changes how you post losses in the distribution sector. I would like to understand if there is a possibility of republishing the level of losses that Cemig had. Now looking backwards here, I would like to understand if this change can end up generating any accounting retroactive effect regarding the application of this technical note if your concerned amount receivables, provisions, and other adjustments, or is this just a prospective impact, just an accounting impact? And another question still on this note. How would have been the level of losses for distribution if this technical note did not exist? So in the same comparison base, what would have been the performance of Cemig losses? Would they have increased, decreased, or they would have been the same? I think this is important to understand for the process of assessing the distributing companies.
Thank you, Vitor, for your question. Denis Mollica, our Strategy, Innovation and Sustainability Officer. Please, Denis.
Thank you for your question, Vitor. Regarding the method we use to calculate losses, even though it has been reviewed, it is not applied to past calculations. If we were to simulate it on previous losses, we would still remain within limits. Therefore, for practical accounting purposes, adjustments will only be made moving forward. As previously mentioned, we are staying within the regulatory loss limits, both before and after this technical note. We have significant actions in place to manage and mitigate our losses, and they are within acceptable limits with no impact on accounting. Additionally, we also expect a positive effect on the tariff due to the recognition of the impacts of the DG in our loss calculation method.
Our next question is from Luiza Candiota from Banco Itaú.
It is about your trading strategy. Analyzing the changes in the energy balance in this quarter compared to the prior one. I would like to go over the details of the rationale regarding the short exposure when we look at 2025, 2026, and 2028. What could be explaining this change that we see?
Thank you, Luiza. I'll turn the floor to our Chief Trading Officer, Sergio Lopes.
First, thank you for your question. We have been doing a great effort to close our positions. Of course, we have some marginal sales that we are executing with clients that are strategic, but our position is not to open more positions. We want to close, as Andrea has mentioned. For this quarter, we could close positions in these past months. And also, we have the impact of gold that ended up making us go to the market to buy energy, but we are not opening positions. We are rather than that closing them.
There are no further questions. We thank you all very much for your participation. And the superintendents of IR are available to take any other questions you might have. Therefore, we end Cemig's third video conference call. Have a nice afternoon, and thank you very much.