Companhia Energética de Minas Gerais Q2 FY2026 earnings call

CEO Strategic Opening Message

• New CEO emphasized confidence in Cemig's long-term strategy, consistent results, and execution capabilities, rooted in disciplined financial management and a clear strategic plan. Customer service quality is the company's core priority, alongside strong financial performance for shareholders.
• Cemig is well-positioned for the upcoming full opening of Brazil's electric power market scheduled for November 25, 2028, as an integrated utility with scale, complementary business lines, and experienced teams to navigate sector transformations.
• The company will continue a large cycle of investments, particularly in distribution, with over BRL 22 billion earmarked for the 2023-2028 tariff review cycle to modernize and strengthen networks for new customer demands and sector changes.

Overall Operational and Financial Highlights

• The company reported consistent Q2 2026 results: recurring EBITDA of BRL 2.5 billion, secured BRL 4.6 billion in new funding in Q2 to support the investment program, and distributed BRL 631 million in interest on capital (BRL 0.22 per share) to shareholders.
• Full-year 2026 planned CapEx is BRL 6.7 billion; BRL 3.3 billion (49% of the full-year target) was invested in the first half of 2026, in line with forecasts. Investment breakdown through H1: BRL 2.6 billion in distribution, BRL 275 million in generation and transmission, BRL 227 million in Gasmig. Investments are on track to add to the regulatory remuneration base for the 2028 tariff review and improve service quality.
• Debt profile remains strong: Cemig holds AAA credit ratings from two agencies and AA+ from S&P Global, with a well-structured maturity schedule. Leverage reached 2.58x in Q2 2026, which management views as appropriate for the current investment cycle; leverage is expected to rise through 2027 before declining following the 2028 distribution tariff review.
• Strong operating cash generation: H1 2026 operating cash flow reached nearly BRL 4 billion, putting the company on track for ~BRL 8 billion in full-year operating cash flow, enough to support the large investment program alongside third-party funding.
• The voluntary dismissal program is a long-term efficiency measure: while it had a short-term negative impact in Q2, it will drive long-term benefits through workforce renewal and improved cultural alignment and performance.

Consolidated company: Recurring EBITDA grew 9.3% year-over-year; net income grew 15.6% year-over-year, impacted by higher financial expenses from new funding for investments, with a non-recurring BRL 191 million provision for free market customer arbitration. A BRL 232 million expected credit loss reversal from updated delinquency criteria had a positive impact on results. Total costs and expenses rose 15.5% quarter-over-quarter, driven by one-time seasonal investments for network resilience ahead of El Niño.

1. Cemig D (Distribution): EBITDA increased 21% year-over-year; recurring net income fell 8.9% due to higher interest rates and investment-related debt. It benefited from a 6.5% average tariff adjustment. Energy volume fell 1.6% year-over-year: residential consumption grew 2.7%, while rural consumption fell 11% due to heavy rains, and captive market volume fell 3.8% from large client departures. Cemig DG makes up 25.8% of Cemig D's captive market. OPEX is BRL 416 million below the regulatory limit, and service quality metrics are well below ANEEL regulatory limits, showing strong operational performance.

2. Cemig GT (Generation and Transmission): Consolidated EBITDA rose 10.6% year-over-year; recurring net income fell 11.4% due to higher financial expenses. Generation segment EBITDA grew 13.3% and recurring net income grew 3.6% year-over-year, driven by a better average GSF than 2025. Transmission segment EBITDA and recurring net income were 50% higher year-over-year (reaching BRL 190 million), driven by additional RAP from completed new investments, which added BRL 36 million in new quarterly revenue.

3. Trading: Reported negative recurring EBITDA of BRL 180 million, driven by the BRL 191 million one-time arbitration provision, settlement of existing positions, higher purchased energy prices, and sub-market price dislocations in the South. Management noted the negative impact was concentrated in H1 2026, with any negative net impact offset at the group level by positive gains in generation.

4. Gasmig: Reported lower EBITDA and recurring net income, a result already expected from client migration to the free gas market, which reduced distributed volume by 17% and compressed margins. It invested BRL 92 million in H1 2026, with 33.5 kilometers of new gas network built in Q2.

• Full-year 2026 investment execution is on track to hit the BRL 6.7 billion planned CapEx target, with 49% already completed in the first half of the year.
• Negative results at the trading segment are expected to be limited to H1 2026, with positive results expected in H2 2026 due to favorable hydrology and completed position settlements, and significant positive results expected by 2028, reaching a BRL 1 billion to BRL 1.8 billion annual run-rate.
• Dividend remuneration is expected to remain attractive for 2026 and 2027, maintaining the company's historical strong payout in line with the bylaw-mandated minimum 50% of net income payout, even in an adverse market scenario.
• Gasmig is expected to return to consistent, strong results for the group after its tariff review scheduled for the end of 2026.
• Leverage is expected to increase through 2027 during the investment cycle, then decline after the 2028 distribution tariff review adds new revenue and increases the regulatory asset base.

• Higher interest rates and increased debt to fund the large 2023-2028 investment program are raising financial expenses, putting near-term pressure on net income before the 2028 tariff review.
• Unprecedented sub-market price dislocations in the South Brazilian energy market created near-term losses for the trading segment during 2026 position settlement.
• El Niño is expected to bring increased rainfall and storm risk to parts of Cemig's service territory in H2 2026, requiring robust contingency preparation for generation, transmission, and distribution assets.
• Ongoing arbitration for free market customer contract disputes required a BRL 191 million non-cash provision in Q2, with the final outcome of the dispute still pending.
• Generation and transmission concessions (including Sá Carvalho, maturing in 2026, and two additional concessions maturing in 2027) are awaiting final federal approval for renewal, though management is optimistic about a positive outcome.

Q: With the next tariff hike not coming until 2028, rising debt, and higher debt costs, what will be the impact on 2027 net income and shareholder remuneration? / A: Cemig has a long track record of strong dividend payouts, with a bylaw mandate for a minimum 50% payout of net income. While 2026 results see pressure from higher financial expenses, results remain positive, and dividend yields will stay attractive through 2026 and 2027 even in an adverse market scenario, with a strong positive impact on results expected after the 2028 tariff review.

Q: What preparations have you made for El Niño, and will it require extra CapEx for distribution and transmission? / A: Distribution has already scaled its maintenance and contingency plans as part of its ongoing large investment program, and is fully prepared for H2 2026 impacts with no extra budget needed. For generation and transmission, existing risk-based preventive maintenance and robust contingency plans are sufficient; extra preparation is only needed for flooding access at small hydropower plants, and transmission assets are already highly resilient with pre-positioned restoration equipment.

Q: Will Cemig participate in upcoming transmission and battery auctions, and what is the outlook for data center opportunities? / A: Cemig evaluates all auctions with strict capital allocation discipline, and will only bid if projected returns are attractive for shareholders. Currently, the highest value for capital comes from reinvesting in existing regulated transmission and distribution assets. Cemig is in talks with market players to evaluate data center opportunities cautiously, and will only pursue opportunities that deliver clear value to shareholders.

Q: What is the outlook for the trading segment after the Q2 negative result, and how will Cemig move past this period? / A: The H1 2026 negative result was fully expected, driven by required position settlement and an unprecedented South sub-market price dislocation. All negative impacts at trading are fully offset by positive gains at the generation segment, so there is zero net impact on the group. Management has reduced overall positions, expects positive H2 2026 results, and projects significant full-year results of BRL 1 billion to BRL 1.8 billion by 2028.