Executive Summary / Key Takeaways

• Historic Performance and Strategic Clarity: Companhia Energética de Minas Gerais (CIG-C) has undergone a profound transformation, achieving record-breaking EBITDA of BRL 11.3 billion and its highest net profit and annual CapEx of BRL 5.7 billion in 2024. This turnaround is underpinned by a clear strategy focused on Minas Gerais, significant investments in regulated sectors, and a relentless pursuit of efficiency.
• Robust Investment Program and Financial Health: CEMIG is executing its largest investment program in history, with BRL 2.7 billion invested in the first half of 2025 and a forecast of BRL 6.3 billion for the full year 2025. The company maintains a strong financial position, evidenced by an AAA credit rating from Fitch Ratings and a comfortable leverage of 1.59x net debt over adjusted EBITDA, supported by successful debenture issuances.
• Technological Advancement and Operational Excellence: CEMIG is strategically investing in technological differentiators such as ADMS, SAP S4/HANA, and smart meters, alongside distribution regionalization and the "Minas three phase" program for agribusiness. These initiatives aim to enhance service quality, improve operational efficiency, and drive cost savings, strengthening its competitive moat.
• Dividend Consistency and Future Outlook: Management is committed to its dividend policy of paying 50% of net profits, projecting attractive returns for shareholders. While leverage is expected to increase temporarily due to the investment cycle, it is projected to decline post-2028 tariff review, signaling a sustainable growth trajectory.
• Competitive Leadership and Market Adaptation: CEMIG is a market leader in energy trading in Brazil, actively adapting to evolving market dynamics like distributed generation and free market migration. Its diversified portfolio and regional expertise provide resilience against market volatility and competitive pressures, positioning it for continued leadership.

CEMIG's Strategic Evolution and Market Dominance

Companhia Energética de Minas Gerais (CIG-C) stands as a diversified utility powerhouse in Brazil, deeply embedded in the generation, transmission, distribution, and sale of energy. Incorporated in 1952, CEMIG has evolved into a pivotal player, with its operations expanding to include gas distribution and a suite of energy-related services. The company's journey since 2018 marks a period of significant strategic transformation, moving from a BRL 954 million investment base to a projected BRL 6.3 billion in 2025, representing an 18% increase from 2024. This turnaround has been characterized by a disciplined focus on efficiency, regulatory compliance, and the divestment of non-strategic assets, culminating in record-breaking financial performance in 2024.

CEMIG's overarching strategy, encapsulated by the mantra "focus in Minas Gerais and win," dictates that 100% of its investments are concentrated within its home state, leveraging existing competitive advantages and synergies. This commitment extends to a bold BRL 59 billion investment plan from 2019 to 2029, with the majority directed towards regulated sectors like distribution, transmission, and gas. These investments are not merely about expansion; they are foundational to addressing unmet load, catering to the burgeoning distributed generation market, and enhancing grid resilience and automation, as mandated by regulatory bodies like ANEEL and the Ministry of Energy. The company's strategic positioning is further solidified by its leadership in the Brazilian energy market, serving over 10,000 consumer units in the free energy market, a testament to its innovative digital platforms like Energia Livre Cemig, the country's first energy e-commerce.

Technological Edge: Powering Efficiency and Future Growth

At the heart of CEMIG's strategic evolution is a robust commitment to technological differentiation and innovation, crucial for enhancing operational efficiency and service quality. The company is actively implementing advanced IT systems, including a new Advanced Distribution Management System (ADMS) and SAP S4/HANA. These systems are designed to improve the integration between information technology (IT) and operational technology (OT), streamlining processes, and ultimately leading to greater efficiency and superior service delivery. The appointment of a new Chief Information Officer in May 2025 underscores this strategic emphasis on modernization.

The tangible benefits of these technological advancements are multifaceted. For instance, the ongoing installation of smart meters is a key initiative aimed at reducing regulatory losses and improving collection efficiency within the distribution segment. Digital collection channels, including Pix, now account for approximately 67.5% of CEMIG D's collections, significantly lowering costs and boosting the receivables collection index (ARFA) to around 99%. These innovations not only drive cost savings but also enhance the reliability and responsiveness of the energy grid, directly contributing to improved customer satisfaction and operational metrics like the DEC (Duration Equivalent of Interruption per Consumer). The company's "Cemig Inova lab" program, described as the largest open innovation program in the energy market, further highlights its dedication to exploring new technologies and maintaining a forward-looking stance in the rapidly evolving energy landscape.

Segmental Performance: A Diversified Engine of Value

CEMIG's diversified portfolio across distribution, generation, transmission, trading, and gas provides a resilient foundation for its financial performance, enabling it to deliver robust results even amidst market volatility.

Distribution (Cemig D)

Cemig D, serving approximately 96% of Minas Gerais, is a cornerstone of the company's operations. In Q2 2025, its adjusted EBITDA grew by 39% (excluding non-recurring effects), significantly aided by the reimbursement of tariff subsidies via the CDE (energy development account). However, the energy market experienced a 3.3% drop in Q2 2025, primarily due to the migration of industrial clients to the free market and the rapid development of distributed generation, which saw a 20% growth from Q2 2024 to Q2 2025. Despite these shifts, Cemig D maintains strong operating efficiency, with regulatory losses within limits, supported by continuous investments in smart meters and inspections. The company's next tariff review is scheduled for 2028, and management is focused on efficiency and automation to prepare for it.

Generation and Transmission (Cemig GT)

Cemig GT manages a diverse portfolio of 36 hydro plants, 2 wind farms, and 10 photovoltaic power stations, alongside an extensive transmission network. While Q2 2025 EBITDA showed a reduction due to lower commercial margins on trading contracts for 2024-2025, the net profit benefited from the repayment of bonds, reducing FX exposure. A significant strategic win in Q2 2025 was the successful participation in a GSF auction, securing concession extensions for the Irapé and Queimado power plants for seven years each, and Pai Joaquim for three years, extending these concessions to 2044 with a BRL 200 million disbursement. Furthermore, ANEEL has recommended the approval of the concession extension for Sá Carvalho, which would involve a shift to the regulated market without disbursement.

Trading/Commercialization

The trading segment, while contributing to the diversified portfolio, faced headwinds. In Q2 2025, it recorded a negative BRL 76 million due to "difference among energy submarkets," a concern management is actively addressing. Projections indicate this impact "tends to be close to zero" in the second half of 2025, contingent on a review of ONS criteria and greater interchange. The company is exploring mitigation strategies, including optimizing client purchases in production regions and advocating for less conservative energy agency policies to reduce inter-submarket price differences. CEMIG's leadership in the free energy market, serving over 10,000 consumer units, highlights its strong competitive position in this evolving segment.

Gas (Gasmig)

Gasmig, the exclusive distributor of piped natural gas in Minas Gerais, demonstrated stable performance in Q2 2025, with EBITDA in line and net profit "much higher," driven by efficient cost management and successful debenture issuance for funding. The company is undertaking its "largest investment program in the group" with the Central West gas pipeline project, which is expected to be concluded by the end of 2025, aiming to expand its client base and service new regions.

Financial Fortitude: Record Performance and Prudent Capital Allocation

CEMIG's financial performance in 2024 marked a historic achievement, with the company reporting its highest-ever EBITDA of BRL 11.3 billion, highest net profit of BRL 7.12 billion, and highest annual capital expenditure of BRL 5.7 billion. This robust performance reflects a significant turnaround, with a 500% to 600% increase in these key indicators since 2018. Non-recurring events, including BRL 1.5 billion from the transmission company's tariff review and BRL 1.6 billion capital gain from the sale of Alianca Energia, significantly bolstered 2024 EBITDA.

The company's liquidity and capital structure are exceptionally strong. CEMIG holds an AAA credit rating from Fitch Ratings, the highest possible, reflecting its sound financial health. Its net debt over adjusted EBITDA leverage stood at a comfortable 1.59 in Q2 2025, even after a BRL 5 billion debentures issuance. The average debt tenure has been extended to 6 years, and the debt profile is 100% Real-denominated, eliminating FX exposure. As of Q2 2025, CEMIG maintained BRL 3 billion in cash, supported by BRL 2.3 billion in operating cash generation. The company's TTM Gross Profit Margin is 19.45%, Operating Profit Margin is 17.88%, and Net Profit Margin is 17.11%, demonstrating strong profitability. Its P/E ratio is 5.99, and it offers an attractive Dividend Yield of 8.54%.

Competitive Positioning: Outmaneuvering Rivals in a Dynamic Market

CEMIG operates within a highly competitive energy landscape, primarily in Brazil, where it contends with major players like Eletrobras (EBR), CPFL Energia (CPL), and global entities such as Duke Energy (DUK) and Engie (ENGQF). CEMIG's diversified service portfolio, encompassing generation, transmission, distribution, gas, and energy trading, provides a unique value proposition compared to competitors that may be more specialized. For instance, while Eletrobras, as Brazil's largest power utility, often demonstrates greater operational scale, CEMIG's integrated capabilities and strong regional focus in Minas Gerais allow for effective competition in operational execution.

CEMIG's strategic emphasis on localized expertise and customer proximity, particularly through its distribution regionalization and "Minas three phase" program for agribusiness, provides a competitive edge against broader, less localized strategies of rivals like CPFL Energia. While direct quantitative comparisons of all competitors' financial performance are not publicly detailed, CEMIG's TTM P/E ratio of 5.99 compares favorably to Duke Energy's P/E ratio of 20.12, suggesting a potentially undervalued position relative to its U.S. counterpart. CEMIG's robust infrastructure, including its extensive hydroelectric and transmission networks, acts as a significant barrier to entry for new players, ensuring sustained revenue and market share. This infrastructure also provides enhanced reliability in energy delivery, fostering stronger customer loyalty.

However, CEMIG faces vulnerabilities, including potential dependencies on regional regulations and supply chain dynamics, which could lead to higher operational costs. The ongoing migration of industrial clients to the free market and the rapid growth of distributed generation also present competitive pressures, impacting CEMIG D's captive market. Despite these challenges, CEMIG's proactive approach to innovation, such as its leadership in the free energy market with digital platforms, positions it to adapt to evolving customer demands and maintain its market standing. The company's commitment to ESG principles, evidenced by its 20th consecutive inclusion in the B3 Corporate Sustainability Index (ISE B3) and recognition as one of the ten most sustainable companies on B3 in 2025, further strengthens its brand and appeal in a market increasingly valuing sustainability.

Outlook and Guidance: Charting a Course for Sustainable Growth

CEMIG's management projects a future of continued growth and value creation, underpinned by its ambitious investment program and a clear strategic roadmap. The company forecasts BRL 6.3 billion in investments for 2025, an 18% increase from 2024, with over 75% allocated to regulated network infrastructure in distribution, transmission, and gas. These investments are expected to mature and yield financial results post-2028 tariff review for Cemig D. Management is confident in achieving over 90% of its BRL 6.2 billion investment target for 2024.

The company's dividend policy remains steadfast at 50% of net profits, with management anticipating attractive returns for shareholders, including a projected dividend of $0.0300 with an ex-dividend date of October 6, 2025. While leverage is expected to increase to between 2x and 2.5x net debt over adjusted EBITDA by 2027 due to the intensive investment cycle, it is projected to decrease in 2028 following the Cemig D tariff review. This strategy balances significant capital deployment with a commitment to shareholder returns and maintaining credit quality. For the trading segment, management anticipates that the negative impact from energy submarket differences will "tend to be close to zero" in the second half of 2025, supported by regulatory reviews and improved hydrological conditions.

Risks and Challenges: Vigilance in a Complex Environment

Despite its strong performance and clear strategy, CEMIG faces several pertinent risks. Regulatory changes, particularly concerning concession renewals and tariff methodologies, could impact future profitability. The ongoing discussions regarding the potential privatization of CEMIG by the Minas Gerais state government introduce an element of uncertainty, as the process hinges on legislative assembly decisions and potentially a referendum.

Volatility in energy submarket prices, as experienced in Q2 2025, poses a challenge to the trading segment, although management is actively pursuing mitigation strategies and expects normalization. Legal challenges, such as the injunction against the auction of four small-scale power plants and past collection lawsuits related to pension plans, represent contingent liabilities. However, CEMIG has demonstrated a proactive approach to these risks, including filing appeals and engaging in negotiations with unions regarding health care plans to ensure financial sustainability. The company's diversified portfolio and strong operational efficiency serve as crucial buffers against these inherent industry and regulatory complexities.

Conclusion

Companhia Energética de Minas Gerais (CIG-C) has successfully executed a remarkable transformation, positioning itself as a financially robust and strategically focused utility in Brazil. Its commitment to a massive investment program, particularly in regulated infrastructure within Minas Gerais, is designed to drive sustainable long-term growth and enhance service quality. This strategic clarity, coupled with a relentless pursuit of operational efficiency and technological innovation, forms the bedrock of its competitive advantage.

CEMIG's ability to consistently deliver strong financial results, maintain a top-tier credit rating, and adhere to a generous dividend policy underscores its appeal to discerning investors. While challenges such as market volatility and regulatory uncertainties persist, the company's diversified business model, proactive risk management, and leadership in emerging energy segments like the free market and distributed generation provide significant resilience. CEMIG's journey from turnaround to a growth-oriented, technologically advanced leader in the Brazilian energy sector presents a compelling investment narrative, with its strategic vision and operational prowess poised to power future shareholder returns.