CIG

Business Context and Reporting Period

This Form 6-K filing by Energy Company of Minas Gerais (CEMIG) covers material events and financial results for the third quarter of 2023 (ended September 30, 2023). CEMIG is a Brazilian utility company operating in electricity distribution, generation, transmission, and natural gas distribution. The filing includes an earnings release for 3Q23 and notices regarding asset divestitures, regulatory clarifications, and shareholder communications.

Key Financial Metrics (3Q23)

Segment Performance:

• Cemig D (Distribution): Adjusted EBITDA increased 6.9% to R$835.6 million, driven by a 13.3% tariff adjustment effective May 2023 and improved operational efficiency.
• Cemig GT (Generation/Transmission): Adjusted EBITDA surged 122.5% to R$745.0 million, aided by successful energy trading strategies and a reversal of impairment provisions on assets sold.
• Gasmig (Gas): EBITDA rose 42.0% to R$231.2 million.

Material Changes vs. Prior Period

• Revenue Growth: Net revenue increased 2.2% year-over-year, primarily due to higher electricity supply revenue (+14.4%) and transmission revenue components, partially offset by lower gas supply revenue (-18.8%).
• Cost Reductions: Total operational costs decreased 2.2% to R$7.80 billion. Notable reductions included electricity bought for resale (-8.4%) and gas purchased for resale (-32.6%).
• Profitability: Net profit rose 4.6% to R$1.24 billion. Adjusted net profit was R$1.23 billion, compared to R$1.03 billion in 3Q22.
• Divestitures: The company concluded the sale of its equity interest in Baguari Energia (R$421.2 million net receipt) and Retiro Baixo Energética (R$217.5 million net receipt), aligning with its strategy to divest minority interests.
• Asset Sales: Executed a Purchase and Sale Agreement for 15 small hydroelectric plants (SHPs/HGPs) for R$100.5 million.

Guidance, Outlook, and Risks

Management Commentary and Outlook:

• Strategic Focus: Management reaffirmed a strategy of optimizing the portfolio and capital allocation, focusing on core businesses in Minas Gerais.
• Investments: Total investment in the first nine months of 2023 was R$3.3 billion (48.6% increase vs. 9M22). Key projects include the Boa Esperança and Jusante solar plants (80% complete) and Gasmig's Centro-Oeste pipeline project.
• Concession Extensions: Cemig GT expressed interest in extending the concessions for Emborcação and Nova Ponte hydroelectric plants, which expire in 2027.

Risks and Contingencies:

• Privatization/Federalization Speculation: The company received official letters from the controlling shareholder (State of Minas Gerais) regarding discussions on federalizing state-owned companies to address state debt. CEMIG clarified it is not participating in these negotiations and has no new material information to disclose beyond media reports.
• Regulatory Environment: Tariffs are subject to annual adjustments and periodic reviews by ANEEL. The 2023 tariff adjustment resulted in an average increase of 13.27%.
• Financial Risks: Net financial expenses increased 96.3% to R$214.9 million, driven by higher loan costs, monetary updating of debt due to inflation (IPCA), and foreign exchange variations.

Key Facts for Investor Verification

• Dividend/Interest on Equity: A gross value of R$417.97 million (R$0.19 per share) was declared, payable in two installments in June and December 2024.
• Debt Covenants: The Net Debt to Covenant EBITDA ratio stood at 1.04x as of September 2023, well below the 2.50x limit.
• Rating Status: Fitch reaffirmed CEMIG's corporate ratings at BB (global) and AA+ (Brazil) with a stable outlook.
• Operational Metrics: Energy losses were 10.57%, compliant with the regulatory limit of 11.00%. The client base grew 2.0% to 9.17 million.
• Share Performance: Preferred shares (CMIG4) closed at R$12.41 in September 2023, a 17.9% increase year-over-year.