Prepared remarks
Good afternoon, everyone. I am Carolina Senna, Cemig's Investor Relations Superintendent. Welcome to Cemig's First 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. Before turning to the results presentation, we would like to inform you that the appointment of Alexandre Ramos Peixoto as the new CEO of Cemig has been approved as of yesterday. Alexandre Ramos Peixoto replaces Reynaldo Passanezi, to whom the company recognizes and expresses its gratitude for the work carried out. Under his management, Cemig conducted a consistent financial recovery process, resumed investment levels and developed a strategic plan worth approximately BRL 70 billion through 2030. During this period, the company has strengthened its infrastructure, expanded the number of substations, modernized the grid and eliminated historical bottlenecks. Under his management, Cemig resumed sustainable growth and achieved the highest market value in its history, increasing it from BRL 8 billion to BRL 45 billion. His departure stems from the term limit restriction provided for in the state-owned enterprises law No. 13,303/2016. It is precisely to give continuity to this trajectory that Alexandre Ramos Peixoto comes in, a career employee of the company with solid experience in the Brazilian electric sector. He's an engineer by training. He holds a degree in quality engineering and management from PUC, and a degree in management and strategic planning from the University of Minas Gerais, in addition to related specializations and an MBA in areas related to generation and planning in the sector. Throughout his career, he has worked at ANEEL, the Ministry of Mines and Energy (MME) and EPE, and at Cemig itself, where he served as Regulatory and Institutional Relations Officer. Since May 2023, he has chaired the Board of Directors of the CCEE. So now we will start the conference. And with us, we have: Andrea Marques de Almeida, CFO and IR Officer; Luis Claudio Correa Villani, Chief Information Technology Officer; Marco da Camino Ancona Lopez Soligo, Chief Generation and Transmission Officer; Marney Tadeu Antunes, Chief Distribution Officer; Iuri Araujo de Mendonca, Cemig SIM CEO; and Marcus Vinicius de Castro Lobato, Trading and Planning Superintendent. For the initial remarks, we would like to bring to the floor Andrea Marques de Almeida. She is going to be making the presentation.
Good morning, and good afternoon to all of you. It's a pleasure to be here again to bring you the results for Cemig, and we are very proud of that. We always start talking about the quarterly highlights. Cemig has the benefit of being a diversified company which is maintaining its results consistently. These are the operating results. And this quarter, it is just like the others. Of course, we reached results of BRL 1.79 billion in EBITDA and BRL 979 million in profit. I usually say that we have to balance out all the plates here, and we have worked on our investment plan of BRL 1.48 billion. We also have shareholders' remuneration, another important topic of our strategy, of BRL 658 million. And we had small acquisitions, PCHs Pipoca, Timóteo and Mesquita that we acquired in the quarter. We also discussed at the end of the year the post-employment agreement and all the impacts that we reported at the time. This agreement will allow us to have positive effects over time, and we can already see a reduction in our expenses in the amount of BRL 80 million, and that's an important highlight as well. Now we have a snapshot of the quarter. The total of BRL 1.48 billion is allocated to the main areas, and distribution is always carrying the highest share of our investments with BRL 1.28 billion. For distribution, we have the Mais Energia (Minas 3) program phase. We are delivering six new substations and one substation that was modernized within the Mais Energia program. We also upgraded 765,000 kilometers of low and medium voltage networks. In transmission, we usually grow through reinforcements and improvements, and it was just like that this quarter. We had investments of BRL 103 million, which added to RAP, the annual permitted revenue, and that was accretive for our cash generation portfolio. For generation, I think we had a smaller amount. Gasmig is still moving forward with its projects, with the Midwest project being the most relevant, and Cemig SIM is also contributing. Here we start seeing Cemig SIM as a relevant investment with seven new solar photovoltaic plants that added 19 megawatts of capacity to our portfolio. The quarter results are in line with the results of last year, considering the highlights of the distribution company. The positive highlight here is that we effectively had in May the recomposition (rebuilding) of Parcel B, which was 7.78%. So comparing quarter to quarter, this is the main impact in the distribution company, and we also had an increase in residential consumption, which is positive. In terms of challenges already known by the market, we experienced price effects starting in 2025, when energy prices became more volatile. As you know, we have positions that need to be closed over time, and with higher prices the positions closing ended up causing negative results in the trading company and the generation company. Also, the main effect was the GSF. If we compare year-over-year, we had a GSF of 0.92 in the first quarter of 2026. The purchase of energy to tackle the hydrological risk resulted in an impact on EBITDA of BRL 49 million. Now we go into the details of what I just mentioned. We have the level of prices, and clearly we can see the change in price volatility that started at the beginning of 2025. We started from January to March of 2025 with prices around BRL 59 per megawatt-hour, and then they rose. Last year we also had a GSF close to 1, which is no longer the reality in 2026, when we have a lower GSF and prices are much higher. We reached levels of BRL 382 per megawatt-hour, impacting the management of hydrological risk. That's an impact of BRL 49 million. Now turning into a zoom on our costs and expenses. The main recurring item has been third-party services. This quarter, we had higher expenses in preventive maintenance as well as corrective maintenance. And obviously, we have right-of-way clearing. All of these services are needed to deliver better quality of service to our clients. They accompany the investments we are making in the distribution business. This is to provide better services to our clients, and we'll go over that when we discuss our DEC and other indicators. Also as part of this large investment program, we have decommissionings, and we had disposals of assets which have been part of our asset management. We are disposing of assets that in the past had some use for Cemig but no longer do. Now talking about the impact of the post-employment restructuring that we had up to December of last year: if we compare growth including the post-employment effect, the growth has been 2.5% quarter-on-quarter. We will also be discussing how this increase can be seen in regards to network kilometers and substations, which is also important for the distribution company. Now we talk about our debt profile and all the work that we have been doing to match the profile of the debt with the profile of our investments. We know that we have five years of investments in the distribution company up to the tariff review that will happen in 2028. That's why we are increasing the average maturity to extend our debt. We reached 6.6 years of average maturity. Also important is that 76% of our debt is due after the tariff review recomposition in 2028. So that profile has been extended so that it matches the recovery timing of the tariffs we will have in the future. The last funding that we had in the quarter was a debenture combined with a loan of BRL 4,131 million. The last issuances have been made at rates lower than the sovereign risk, and we were able to add BRL 2.6 billion to the distribution company in this quarter. We reached leverage of 2.45x net debt over recurring EBITDA, which is very healthy. This leverage also includes financing of the investment program, but it remains at healthy levels for the whole program that will peak in 2028 when we have the tariff review. The cost is also reasonable: 89% of CDI. Of course interest rates are high for everyone, but this is a cost that's positive for the company. Now going over operating cash generation and how it has been used over the quarter. We start from EBITDA of BRL 1.79 billion, and after discounting noncash effects we reach BRL 1.6 billion. We have the effect of the CVA Portion A variation account, which had a relevant impact because of the higher price. The distribution company has a cash impact that will be recovered next year, dividends received, and working capital with a positive effect. Then we reach operating cash flow of BRL 1.5 billion and how we have used it over the quarter: income tax, social contribution, interest, leases and our investments, which is the most representative share here of BRL 1.6 billion. So the cash delta was negative, and we showed the cash availability from one quarter to another. Now going into the details of each business. As we said, Cemig D had a representative performance in EBITDA, an increase of 26.6%, reaching BRL 1.010 billion of EBITDA in the quarter, especially because of the effect I already mentioned of that adjustment of 7.78% for Parcel B, and also due to an increase in the residential market. This is significant for us. As we know, residential tariffs are higher, so that has a good impact on our revenue. Now here we have our energy market. We have been saying in past quarters that there is a migration in transported energy from some clients to the basic network. We expect this drop effect to normalize after the second or third quarter because the new consumption patterns will have been integrated. We do see a reduction in some segments. We also saw a period with a lot of rainfall and milder temperatures, and we saw rural consumption with a significant drop especially because of that rainfall period. We still see the effect of distributed generation (DG) impacting Minas Gerais. DG represents 26% of the market, and the captive market is very representative in our region. Regarding operating efficiency for Cemig D, we believe the main effects have been offset. We are working on efficient management, right-of-way clearing and everything needed to provide better service to clients, and our indicators are within regulatory limits as they should be. For operating efficiency, our indicators for Cemig D are within regulatory indicators for losses. For our spot price, we did have a change in criteria in 2025: the averaging window went from 24 to 35 months, and that's why we had a positive effect. Over time it balances out, so this was just due to the criteria change. Our delinquency is very low and we have positive indicators. We are very proud to bring these results. Our DEC of 8.75 is the best in our history, and FEC also shows positive performance, bringing better services and conditions to our clients. For Cemig GT, as I mentioned, it includes generation, transmission and a share of contracts coming from the trading company. The main issue, as I said, relates to management of hydrological risk. When we break it down by business: in generation we had hydrological risk and energy purchases at much higher prices; in transmission we benefited from lower IPCA. Our contract assets are remunerated by IPCA (inflation), and that's the impact in the transmission company. Now turning to the trading area: here we see the main challenge in the quarter. The main impact has been the closing of positions and contracts that did not deliver P90 and some contracts for which we are able to recover part of the amount at the end of the year because some positions have been sold and also because of some credit events, which the whole market is seeing. The main effect is really price. Cemig SIM is adding capacity to its portfolio and posted a significant increase in recurring EBITDA of around 100%. That's very positive to see Cemig SIM's growth and the addition of new operations that will bring more energy to our portfolio. Gasmig this quarter also posted an effect: as clients migrate to the free market, this margin is reduced, and that is the main effect we see in Gasmig. We expect to see this happen over time because there is continued migration of clients to the free market. Now we end the presentation, very proudly honoring our electricians. They are the heart of Cemig. We do exist because of them. They represent us, and they were the winners of the Rodeo champion team in Costa Rica. We went there for the competition; we competed, we were the winners and we had no safety failures. This is the main message. We want to be efficient, provide the best services to our clients, and deliver service safely. A special congratulations to our champions because they move Cemig's energy. Thank you all very much. Now we will open the floor for the Q&A session.
Questions and answers
I would like to understand how the discussion on the plants' renewal is going.
Hello, Andre. Thank you very much for your question. The discussion about the concession renewals for Sa Carvalho, Emborcação and Nova Ponte is going well. We have strong contact and interaction with the Ministry of Energy and ANEEL, and we expect to renew these concessions in the next few months before they are due.
How can we reduce hydrological risk with alternative energy so that we can address these efficiencies?
Good afternoon. Thank you very much for your question. To reduce hydrological risks, if we diversify our portfolio we can avoid dependency on a single generation source. Our portfolio is already designed with diversification: we have hydrological plants but also wind and solar components. So we do have GSF impact, but we believe that the exposure is lower than if everything were concentrated in hydro plants. Another way to manage that risk is to contract ahead of time, and we are paying attention to that. There was a reduction of GSF at the beginning of the year. The second half of the year could be more concerning if GSF remains low, but we already have an adequate reserve to avoid significant impacts over the year.
What can we expect from the next tariff review in 2028? And related to that, how do you view the increase of debt vis-à-vis investments, considering two-digit interest rates?
Talking about the tariff review, obviously we are making the most relevant investments according to our plans in the distribution company, and we are confident these investments will be properly recognized in the tariff review. Of course we will know the details in the future, but we take into consideration the increase of the asset base, depreciation, and we will see the impact on the rebuilding of EBITDA based on the next five years. We may reach an asset base of BRL 22 billion considering these investments. So, considering these investments, we will have a rebuilding of the base and a reduction in depreciation, and the EBITDA will vary accordingly in 2028. We are very optimistic about recognition of this investment because we are cautious in our investments. On leverage: Cemig is currently at a very healthy leverage level. We do believe that over the investment program leverage tends to grow as we carry out the BRL 44 billion program over the next five years. Leverage will tend to increase until 2028 and then decline with the tariff review of the distribution company. We expect it to remain at healthy levels. We have been rated AAA by Fitch and Moody's, which reflects our credit quality. Yes, interest rates in the country are high, but we expect returns on our investments that are higher than the cost, which is why we are focusing investments especially in the regulated sectors of distribution and transmission. We believe these investments generate value for shareholders and that the leverage level is comfortable for the company.
Which are the possible impacts with the change of the risk parameters of CFR in the price curve? Is that already impacting you at the trading level?
Thank you for your question. We are following this discussion closely. There was a public hearing and SMA is going to discuss the change of these parameters for next year. There is an initial assessment of maintaining them, but during the public hearing many contributions were made considering a possibility to reduce the levels of CFR. Considering that the system is more controlled today, simulations show it is possible to maintain adequate protection at a lower CFR, which would make the system less risk averse. If CFR changes, prices could be lower, and that would be beneficial for our positions because we still have open long positions for 2027 and 2028, which are closure years and would be more affected by spot price moves if this happens. We are observing this movement and it might be interesting for us to start closing those positions.
Could you talk more about the strategy of the company's trading branch? Considering that for 2026 we have a challenging GSF, what are the expected impacts in the market?
Thank you. 2026 is a challenging year for us. We discussed this in our Cemig Day because we expected margins in 2026 to be the lowest in our history, with recovery in later years. Because of historical prices, we contracted ahead of time and margins decreased. In addition, there are short-term elements that could reduce results, such as differences in submarket prices that were high at the beginning of the year; we expect them to drop for the rest of the year, but this is an impact. So there are factors that could make this year more challenging. Our view is that in the future these impacts will come down as the system evolves, and our margin will improve as market prices normalize. Regarding hydrological risk, we had a first-quarter realization that was worse than expected. The more challenging part usually appears in the second quarter. We believe we are planning so that in the second half of the year the impact will not be as severe as in the first quarter.
Can you tell us how the seasonal profile of our plants behaves — is it similar to MREs? And what is the status of the discussion on the CFR risk parameters?
Our seasonality is very close to MRE. We do have some differences in January where we may feel the effect a bit more, but overall it is very similar and compensated over the rest of the year. Regarding CFR, as I mentioned there is a perception from contributions in the public hearing that there is room for reduction. We received 45 contributions, and around two-thirds suggested parameters that are less risk averse. So there might be a review, and if so it would be beneficial for closing positions as I discussed earlier.
Thank you, Marcus. And we thank you all very much for your participation. The IR superintendents are available for any other questions you might have. We end the videoconference for Cemig's first quarter 2026 earnings. Have a nice afternoon.