Companhia Energética de Minas Gerais - CEMIG - Q2 2024

Transcript

Carlos Eduardo Garcia (CFO)

Good morning, everyone. Thank you very much for being here. This is a very important moment for the company. This is the chance that we have once a year to be here with all the management of the company, our equity investors, and financial area, but we believe this is a single opportunity, so we can be with you. It's important to be here with investors. It's a very important moment for the company. We are having consistent results. It is very clear that the market is happy about the company's results, but this is very consistent for the past few years, and we can seize this opportunity. We want to talk more to you and be here available, and be able to talk more about our strategy. Let me talk about the results. Once again, consistent results.

The company in the last years is sometimes 5% lower than the market consensus, sometimes 5% over. This is very consistent. That makes a big difference. This allows us to have consistency and robustness in our results. We have interest on equity in another quarter, over BRL 430 million in June. Without considering the extraordinary dividends, we are among the one of the main dividends payment company, and with the additional dividends that we have posted in the last month, clearly, this is. We are clearly the highest dividends paying company. Also, we have here a BRL 1.9 billion operating cash generation. We will talk more about that. Despite of the results being in line, these non-recurring positive events are not neutral.

They will be generating more cash to the company, or they have reduced the company's risk related to some topics that were in our balance sheet, so we strengthen our situation. We believe that the non-recurring effects, and this is a huge example, they come from actions of the management that have generated results and reduced the risk and as a side effect, that also improve our base for dividends payment. Finally, investments that were posted in the tariff review. This was a very important one. We can highlight that, and further on, we will be hearing the opinion of other directors. Maybe, Marco Tulio can talk about tariff review.

We doubled the base for CEMIG Transmission to BRL 2.6 billion, and in this quarter, we are in the process that all transmission companies that have similar bases to CEMIG follow, which is to reconcile the cash flow that was approved by the approved regulator and the cash flow that we use in our projections when we invested and re-registered these assets in our balance sheets, in our financial statements. We think this is a fair review. All our investments have been accounted for, and we do have the capacity of doing investments at a very low cost. We have a scale, and we are very optimistic, and we are reconciling here to check the effects of this review, and they will be accounted for in the third quarter.

So we are in this work of reconciling the investments, but we believe this was a very positive tariff review for the company. Then we'll talk more about transmission investments. They are very relevant with the return rate that we understand to be very attractive, generating value to our shareholders. Now, moving forward, this is our investment program. Ronaldo talked a little bit about this, also, Marcio and, Fernando Vassallo, about our investments in the past few years. For investments here, you can see, we are very much in line for... We have invested in the first quarter, almost 40% of total investments for the year, and we have a catch-up in other businesses.

But even with investments in generation that is lower than what was forecasted, we are confident that we might be doing investments that were higher than our target. I think we are going to reach BRL 4.4 billion. And also in transmission, distribution, generation, we believe that we will be meeting the forecasted for the year, as well as gas and a little bit less in generation, because I think part of this investment might be transferred to 2025. But total, we should be investing close to BRL 6 billion this year. Very relevant when we consider our history. We used to invest we invested BRL 1 billion in 2018. Now we're going to invest BRL 6 billion in 2024, but when compared to last year, we see 40% higher.

The company adjusted itself to the level of investments that is much higher than what we had in the past. As Ronaldo reminded us, part of this investment is already contracted. Now, moving forward, here we have consolidated results for the second quarter. As we mentioned, consolidated EBITDA almost 30% higher than last year, including non-recurring items, and in line with last year, both in the net profit as well as in the EBITDA, when we exclude the non-recurring effects... and then last year, the trading company results for a lot of reasons, it was very positive. It's still positive this year, but last year, because of the convergence of factors that were positive, it brought exceptional results, allowing the non-recurring EBITDA to be close to BRL 2.3 billion - BRL 2.4 billion. But it's good to highlight the recurring as well.

So the review of profit sharing distribution, we were able to revert BRL 600 million because we still already have a chance of winning the more BRL 800 million that are provisioned in our balance sheet. This is also thanks to the actions we have taken, the voluntary dismissal program, almost 400 employees that enrolled in the program, that also have a very quick return. In less than a year, we can have the payback of the program. With the employees that are here for longer, they receive an indemnity, and then when we can hire employees that are beginning their career with lower wages, and here we recycle our team. It helps changing our, the company's culture. We believe that this is a very important investment.

Now, the issue related to PIS/Cofins, we have returned BRL 6 billion in fiscal gains that we had in this lawsuit, and with this refund, we were able to reconcile our updating criteria of that obligation, therefore reverting BRL 400 million, that is, refers to net profit of BRL 271 million. Another non-recurring effect that is significant, that there is a lawsuit that involves a trading company with a large client, and we are appealing, but we have provisioned in this quarter, but we did not give up. We believe that we might win it back, and this is up the update that can generate cash. CEMIG, few years ago, appealed against the criteria related to workers' legislation. This is the Workers' Meal Program, and just now, we were awarded that lawsuit. So these are neutral. If...

They're not neutral, they are positives as well. And also the hedge, because of the FX that went up in the last quarter, we did see an effect in our financial statements. And remember that the company's hedge has to do with the bonds that have the final installment of $380 million now, at the end of the year. Now, moving on, costs and operating expenses. If we remove the voluntary dismissal program, our obligations were up 1.7% year-on-year quarterly and quarterly comparison, lower than the inflation. And as Ronaldo mentioned here, we... Expenses for third parties are also services improving and we're increasing actually, and this is our concern of really serving the clients.

We see that society now is demanding a better service, and our challenge is to spend on the right place, to spend more in the maintenance, operation and less in other processes, in a way that the company's costs are still disciplined, growing in a disciplined fashion, with no pressure in the operating efficiency of the company, and improving quality of service to clients. And at the same time, also related to financial obligations, we have over BRL 200 million expenses last year. We are working internally to reduce those. That means that with investments, we are able to reduce our financial compensations because we start providing better quality services, and then we can also decrease the fees that we pay to clients.

Therefore, we're able to bring down in 6 months around BRL 38 million in fees related to regulatory compensations, and this is because of now Resolution 1,000. This is important, and we are continuously working in reducing this indemnity penalties. This is the cash flow of the company. We generated a lot of cash, and we have a lot of investments to be made. We generated BRL 3.5 billion in this quarter, in this half of year, between BRL 7 billion-BRL 8 billion of annual cash generation. This is what we generate in terms of cash annually, and we ended the cash with BRL 3 billion in the first half of 2024, but we will be using that in our operations and investments that will be done for next months. This is the consolidated debt profile. This is close to 1x the EBITDA.

But in a constant fashion, now we go to the market. We have to bring funds to the market. So we went to the market to look for resources, and our distribution generates between BRL 3 billion and BRL 3.5 billion in cash generation annually, so we have investments of BRL 4.5 billion. That is, we are going to source funds from the market constantly. This is already increasing, and it will be increasing up to the next half review, close to 2.5 times in 2027. But we believe that we are very comfortable, and our objective now is to turn the debt profile more adequate. There is a more concentrated growth in 2025 and 2026, and we want to turn this average term of debt that is more adequate to the upcoming issuances with...

This is the company's objective. This is CEMIG's. The results, it was a good result. We will look at the next slide, the volume of sale of energy. But we see that in regards to the prior quarter, those, these results were great, whether including recurring events or not. That's a good result, and we- There was a month here where the results included the tariff adjustments that happened in May 28, but we understand that CEMIG D is at another level now. It had an EBITDA close to BRL 1 billion in 2018, and now it's an EBITDA close to BRL 3.5 billion, without considering the ramp-up that we will have in 2028 with a tariff review. This is the energy market.

We grew 2.9, even with DG growing 33%, and we had an improvement here of 2.9%. If we exclude DG, the market would grow more. The industrialized market is not as elastic in terms of temperature, like Rio and Northeast, but even then, it was a significant growth. And you can see that transported energy improved to 6%, a small reduction in the captive market. But even with the residential growing 7% and the other classes being reduced because of the competition of DG or GD, and also retail market. But even then, in a total, our market was a market that we understand that had an improvement in 3%, and it even with the pressure of GD, it was a relevant growth. This is our operating efficiency.

Considering non-recurring effects, it was 22% lower than the regulatory one. But even excluding non-recurring events, we had OpEx within the regulatory OpEx, 2.4%. But remember, last year, the EBITDA ratio here was 10% lower than the regulatory. We mentioned at the time that that was temporary, and our commitment was that within the year, we have our EBITDA that is higher than the regulatory, and that 10% gap is already down 2.4%. And we believe that for the next quarters, we'll be able to have an EBITDA higher than the regulatory one, as we have done in the prior years, since 2021, and OpEx also under the regulatory limit. This is a commitment, and they are very important for us. We want to be within the regulatory coverages.

Even being a state-owned companies, we have some extra costs that private companies do not have, such as post-employment benefits. That's very specific for the company. We pay that. This brings an additional expense to the company, but even with these additional costs, they are covered by our tariffs. Here, we have CEMIG GT results. Once again, last year was an exceptional year for the trading company, but even in excluding the non-recurring effects, we see that the results were very close in 2024 compared to 2023. Last year, as we said, was a year where we had energy restriction in the Northeast, therefore, we were short in the Southeast market. We were able to acquire energy at a very low price, and that increased the margin of the trading company.

In addition to that, the contracts with clients had a greater margin than this year. We had already announced that to the market. The prior year, CEMIG Day, when we presented the margins for the next years, we were already showing that 2023 was an amazing number, number. 2024 also would be a great number, but not as in 2023. Of course, CEMIG today is a trading company that, when compared to the market, is an outlier. We have superior results when compared to the average of the market, considering the company's expertise and also our characteristics of being not only a pure trading company, but also being a generating company. That allows us to have margin levels much higher than our competitors.

Here, we have our EBITDA per segment, and this is the beauty of being a, a company with a number of businesses, and we'll talk about gas in the next slide. But this was a quarter that was very good for distributing company. Generation was basically in line. Here, we transferred here the contracts for the trading company, which had a lower result than last year. Last year, as I just said, had an exceptional result, but we believe that BRL 143 million, if we were to annualize this result, we would have, a result that would be over BRL 600 million. But first quarter was much higher than that. We believe that, and the trading company will be delivering now results that are very positive as well. And then our gas business.

Reynaldo Passanezi Filho (CEO)

We have a worse result, 7.1%, but here, there are two factors. One, the industrial market had a reduction because of a big customer of GASMIG reducing their consumption, and this affected the GASMIG revenue. And the regulatory assets are off balance. This is called compensatory parcel. It's out of the balance sheet. And last year, they were able to offset that, to build BRL 24 million of this regulatory asset, which made the result last year to be higher. But annualizing it, the EBIT is greater than BRL 900 million, which is extraordinary, a great result. A company that is not leveraged, it is a cash cow, a company with a concession until 2053, with a whole market to be tapped into.

We are gonna hear more about that when we speak more with the VPs and the officers and the CEOs of the different companies of the group. Here, we have the commitments. It's delivering on our commitments. This is how we are executing our strategy. I mentioned to some of you, if you access the CEMIG website, and if you look at 2021, the CEMIG Day, our presentation in CEMIG Day, if you look at our strategy and what we've achieved so far, you will clearly see that 2021 was not just lip service. We did execute our strategy.

We said that we invested in regulated assets. We said that we were going to invest in the distribution company, divest from distressed assets where we didn't have any control, that we would get more operating efficiency, and we were able to deliver on all that. These are the commitments achieved, the ones in progress, and the future challenges and opportunities, where we included technologies for energy transition. We'll have an opportunity to speak more about this during this CEMIG Day. So to conclude, this was a quarter with very solid results for the company.