Companhia Energética de Minas Gerais - Earnings Call - Q4 2024

Transcript

Speaker 0

Good afternoon, everyone. I'm Carolina Sena, CEMIG's Investor Relations Superintendent. Welcome to CEMIG's Fourth Quarter 2024 Earnings Video Conference call. We inform that this video conference is being recorded and will be available on the company's IR website, where you will also find the company's presentation. We inform you that if you need simultaneous interpreting, the feature is available by clicking on the globe icon located on the bottom of the screen. Upon choosing interpretation, select the language of your choice: Portuguese or English. Should you choose to follow the call in English, you may also select Mute Original Audio. We are now starting CEMIG's video conference with Reynaldo Passanezi Filho, CEO; Andrea Marques de Almeida, CFO and IR Officer; Cristiana Maria. Bottom of the screen. Upon choosing interpretation, select the language of your choice: Portuguese or English.

Should you choose to follow the call in English, you may also select Mute Original Audio. We are now starting CEMIG's video conference with Reynaldo Passanezi Filho, CEO; Andrea Marques de Almeida, CFO and IR Officer; Cristiana Maria Fortini Pinto e Silva, Chief Legal and Regulatory Officer; Marco da Camino Ancona Lopez Soligo, Chief Participation Officer and also Generation and Transmission Officer; Sergio Lopes Cabral, Chief Commercialization Officer. For the initial remarks, we turn the floor to our CEO, Reynaldo Passanezi Filho. Thank you. Good afternoon, everyone. It is a pleasure to be here in this video conference earnings call to bring you the 2024 results. I would like to bring to you a message on our highlights. These are our main highlights. For us, this is a historically very important result.

2024 gave us the highest EBITDA, the highest in CEMIG's history, the highest net profit as well of our history, the higher annual CapEx of CEMIG's history, and also the best rating in history, which is triple-A by Fitch Ratings. I would say that here you can see the strength of transformation of the company's change, our turnaround when we compare this company in 2018 and what we have been able to reach and all the figures. You will see in our EBITDA, net profit, CapEx. Here we are talking about 500-600% of increase in any of these indicators. For us, this just confirms absolute wonderful results. Not only is it spectacular, but also historical results. Once again, I say that we have reached BRL 11.3 billion in EBITDA. This is a significant growth.

When compared to the prior year, we reached BRL 5.7 billion in investments, which also has a very positive effect. We know that investments that are concentrated in regulated sectors, that has a great effect on the company's profitability when we are becoming more mature and also working on the investments. We reached a triple-A rating. Our issues have been made with interest rates that are, in terms of the spread, very good, the lowest in all time. Just this year in 2024, we concluded another step of our divestment program. We sold Aliança Energia. We had a very positive impact in the tariff review for transmission, which was of BRL 1.5 billion in CEMIG's transmission results.

This one, for me, is one of the charts that I like the most because I think all of this turnaround that we were able to do also allowed us to guarantee the company's sustainability and increased our investment capacity, as well as improving the quality of service to clients and to go back to being a driver in energized development. Because when we talk about infrastructure, electric power, we are talking about an input base that is crucial for the development of the state and the country. In our case, it's very much concentrated in Minas Gerais. Here, we invested in 2018, BRL 954 million. Last year, 2024, we invested BRL 5.7 billion. Once again, 34.8% of investment growth. That's the annual average growth. This is our perspective. You see a very high amount of investments.

Here today, it's very important to say that if you look at this chart, you will be able to see that it took a while to really take off because we had to improve the company's efficiency. We had to bring the company into the regulatory standards, also the regulatory PMSO, also technical and commercial regulatory losses. We did have to go over all the divestments, and that also takes time. We had to prepare the strategic plan, the old growth program, to be successful in our biddings. If you look at 2018, 2019, 2021, we had not taken off then.

All of a sudden, you see this growth, the strong growth, of course, since 2021, showing the whole process of preparing and moving forward in the company's turnaround and allowing the company to be more sustainable financially because it is within the regulatory standards and because we no longer need to invest in non-strategic areas for CEMIG. Here, we are talking about all our minority stakeholding. You know that very well. We divested from those. We were able to reach that level, and we believe that the level will be moving forward in the future. You know our investment program is a very bold one. Actually, we add to that BRL 59.1 billion from 2019 to 2028. This figure for me is wonderful, which is to invest four times QRR, the regulatory depreciation.

We had invested below the QRR, but last year, we invested four times our QRR. For this year, we will still have a number of transformations. We are working still on our growth program to build substations. Also, we will be growing and developing networks, especially three-phase ones. We have a special highlight now, a special attention to the agribusiness, which is the MINUS three-phase program. It also aims to improve the quality of the services for the agribusiness. We are back to investing in infrastructure and gas with a gas pipeline to the midwest of the state of Minas Gerais. We are also investing in GD and transmission. I highlight some important transformations in terms of efficiency. I believe they will have the same pattern. It will take a while to take off, but when it takes off, it is really a huge transformation.

I see a very positive transformation in information technology. Next year, we should start with a new DNS. I think this is going to have a wonderful effect in terms of cost and in terms of improving in the quality of services. We also have been able to move forward in terms of supply logistics with new distribution centers all over the state. More recently, we announced the regionalization, which has the main objective here of decreasing the distances. That is to become more efficient and also to be closer to clients and to be able to improve the quality of the services we provide. Therefore, we are very pleased with this year's result that proves this transformation moment of the company. When you look at it as a whole picture, in the big picture, we see the transformation. These are my initial remarks.

Of course, we will be available to take your questions later on in the Q&A session. Thank you very much for being with us. I will move forward. Thank you, Reynaldo. As Reynaldo well said, we delivered a lot to our clients, to our society, and a lot also to our investors with our triple-A. Also, we delivered to our stockholding investors. This was the highest yield in the electric sector, 15%. Our shares increased to 43% of preferred shares in the year, BRL 7 billion of market value increase. If we have approved the BRL 1.8 billion in the next shareholders' meeting, we will be distributing BRL 5 billion in dividends. In fact, we are in line. We have had great results, and we are always in line with our peers in the electric sector.

This is a trademark as well with our investors and also our stock investors. In terms of sustainability, in addition to being a company with a 100% clean matrix, we have wonderful results. We have included for the 25th consecutive time in the DJSI, now up six points when compared to the previous year. We are also included in the Sustainability Yearbook 2024 for S&P Global. In the A-list of CDP as well for Climate 2024, which is an index that measures transparency and they analyze transparency criteria. We had the top score in 10 of the 16 criteria analyzed. We also adhered to the Utility for Net Zero Alliance, another great achievement in our sustainability pillar, in addition to our SMIG RAC.

Not only SMIG RAC, but we also have IA RACs, our renewable energy certificates that we are issuing with our own generation or with the generation that we buy in our contracts, which also generate value for the company. We generate value for society as well. All of these are amazing achievements in our sustainability pillar. Now, turning to the results, and Reinaldo basically gave you an overview, but I will go over some details to show what happened. We ended the year really with a record of BRL 11.3 billion in EBITDA, up 32% vis-à-vis the prior year. We did have non-recurring relevant effects that add BRL 3.6 billion, among them some that have already been mentioned, BRL 1.5 billion from the tariff review from the transmission company, also BRL 580 million for reversal of INSS over the profit-sharing program, and non-recurring events. Also, the sale of Aliança.

We had non-recurring events in 2023, the sale of Baguadienne Retiro Baixo, which corresponded to around BRL 300 million. All of these events have been non-recurrent and relevant from one year to another. In terms of recurrence and also regarding negative postings for this year, we were already expecting a drop in the trading company margins. They were already forecasted, and they represented around BRL 600 million in the drop of EBITDA when compared to these years. Turning to net profit, of course, the same effects can be applied. Of course, on the net profit, we have effects of increase because we are investing more. We also had effects of payment of higher taxes because we have higher net profits. Therefore, we pay more taxes.

We have effects in terms of FX exchange because we had the overall bonds that were settled by the end of the years. This is also an important effect when we compare 2024 to 2023. Highlights for the fourth quarter, also for the holding company. We ended with an EBITDA of BRL 1.9 billion, very relevant in the fourth quarter of 2024. Important operating indicators, everything that we have been doing in the distribution company, and believe that Reynaldo has mentioned how important that is for delivering good service to our clients. This has been, in a way, we can see it in the operating indicators. One of them that's very relevant is the perceived DEC. We have been able to see a reduction of 2.5 hours in this DEC indicator, which is very important for us. It's a great achievement for our fourth quarter.

Now, for GT, we also had relevant achievements. Some of them are also related to the bidding process. There are a number of improvements that are regarding our bidding process, logistics, purchasing, stock reduction. In this case, we had unlocked BRL 808 million that will be flowing through the next months to improve investments and improvements in the transmission business. Also, in our CEMIG Renováveis Windpark, we will have the installation of six new wind turbines, and we should estimate recoverable revenue of BRL 11.3 billion. When we compare the EBITDA from the fourth quarter of this year to the fourth quarter of the prior year, we did have a drop in the margin of the trading company here, BRL 225 million drop in terms of margin.

We did have the same non-recurring effect last year because of the sale of Baguadienne Retiro Baixo, which affected positively the EBITDA last year because it did not have this year. There was an increase in PMS. I usually say that this is a positive PMSO because we had an increase in the pathway cleaning because that improves our DEC. We spend more, but this is something that we need to do to improve our operating indicators. That was offset by our post-employment for around BRL 40 million. This is more or less, these are the effects on the EBITDA. On net profit, we did have an impact of BRL 300 million of financial expenses because of the Eurobonds that we settled, that we paid for at the end of the year. We ended with a net profit of almost BRL 1 billion.

Now, looking at our expenses, I mentioned some of them. We did have an increase, but it was below inflation. As I mentioned, we did have expenses such as outsourced services, which had to do with tree pruning and cleaning of pathways. That improves some of our indicators and some also related to IT, but nothing that is of major concern. This is the debt profile. We end the year with BRL 9.9 billion. This is a real denominated debt. We no longer have FX exposure. We have a landmark here in terms of sustainability. The debentures from last year and the ones that we just issued, they are sustainable debentures. This is another relevant landmark. Despite the slight increase in the leverage, you see that it is very good.

We know that over the investment program, this will increase, but it always increases in a safe fashion over our path up to 2028 when we have the rebuilding of distribution EBITDA. Our debt cost is also very much within the standards, around 12%. These are according to the market's percentage. It is okay in terms of our profile. Our cash flow, our operating cash flow, and really cash here, we ended 2023 with BRL 2.3 billion in cash. We did have cash from operations that were very relevant, BRL 5.9 billion, BRL 4.5 billion in loans and debentures. We had Aliança divestment, a very significant amount that we received, BRL 2.7 billion. We had proceeds that were paid, also dividends paid, and also investment activity and payments of loans and CVA. All of that has been very relevant over time.

We ended the year with BRL 2.4 billion in our cash. I will turn the floor to Carolina. She is going to go into the details on each company of the group. Thank you, Andrea. Thank you very much, Andrea. Now, moving on to CEMIG D results. When we compare the third quarter of 2023 with the fourth quarter of 2023 and fourth quarter of 2024, we had an increase in our EBITDA of 19.2%. Remember that in 2024, in the second quarter, we detached the loss indicator, and we committed ourselves to end the year within the regulatory limits. This happened in the fourth quarter, bringing better results. When we compare the fourth quarter of 2023 and 2024, we also had an improvement in our ADA.

When you look at the market, the fourth quarter and the hydrology was favorable in November and December with more rainfall. We did have a reduction in the energy demand in the rural area, which neutralized those effects. In any way, we were able to have significant results for net profit, not as a large growth, but that was affected by higher income. We also have already talked about this. It's also increases because of the caps of the depreciation. We have a higher depreciation over the quarter. As I mentioned, when I look at the captive market and the free market, we see that the free market is still growing. That shows that part of the captive clients have migrated to the category of free clients recently, the retail traders.

We are leaders in Brazil, not only in number of clients, but also in the amount of transacted energy, showing that this investment also allows the growth of the industry in Minas Gerais. On the other hand, the captive, as I mentioned, because of migration, it had a reduction of some categories and also because of hydrology. Temperatures in 2024 compared to 2023 were lower. Therefore, we see that in the third quarter of 2024, we had a strong residential growth because of high temperatures in here. The opposite is happening. We had a slight reduction of 0.6%. Our state, our concession area, is an area that has solar projects of micro mining, many generation, distributed one.

If we did not have that effect of the micro and many of the EG, we would have grown a higher amount, as I mentioned in the beginning, and that affects the financial results of the distributing company. In 2021, the company was within the limit for losses. This is very important for the company. This is a commitment that we have year after year. In 2024, we not only were within the regulatory limits, but also we had a good result showing a good work of the company. This is a very important indicator. There are a number of actions that allow us to be within these limits. I would like to draw your attention to the 384,000 customer inspections now here and fighting delinquency and collection. We see over time how the company has changed the proportion of digital channels in collection.

This is very important because it has a lower cost. In 2024, 67.02% came through these new channels with a highlighted two peaks. Therefore, we have 50% reduction in tariff costs. Another indicator that we have, it is what we call ARFA, the Receivables Collection Index, how much we are being able to collect in the last three years. We are 2024, 2023, very close to 100%. That shows how important it is to have the collection of those. On the side of OPEX and the regulatory EBITDA, this is another achievement. In the past, the company was operating with the OPEX that was above the tariff limit. We were able to reach that with a lot of work, dedication, operating efficiency. Over the years, we are meeting that limit, that compliance. We ended the year with BRL 156 million lower than the regulatory OPEX.

Removing the non-recurring events that we had in 2024 and the distributing company was the program that we had for this miss. Also, the profit share and distribution for EBITDA has also improved a lot. We are still a little bit off, but we are working to bring that back to the regulatory EBITDA. For CEMIG Geração e Transmissão, we already mentioned, and I here bring to you when I compare the fourth quarter of 2024 to the 2023 one, we already knew in the market. When we shared that with you on CEMIG Day, the margins of the trading company in 2024 would be lower when compared to 2023. Remember that we started a movement of bringing the trading activity to the holding company, but still 40% of the contracts are still under CEMIG Geração e Transmissão. In 2024, we end up having lower margins and lower results.

In addition to 2023, as Andrea mentioned, we had a non-recurring event, which was the sale of Baixadinho Retiro Baixo, according to our strategic planning, and that improved our results in 2023. In CEMIG Geração e Transmissão, we had a reduction because of these two main effects that I just mentioned. This is a very important slide because we have part of the trading activity and that activity that is in CEMIG Geração e Transmissão and the holding. Here we break it down by business. Here, when we compare the quarters per business, we can see that there was an improvement in the distribution EBITDA, as I mentioned, and generation. When we compare 2023 to 2024, we had adjustments here. Trading was down. We also had Baixadinho Retiro Baixo. Transmission, and Reinaldo already talked about that. We were very successful in the tariff review for the transmission company.

There was an increase of RAP and Gasmig and also had a reduction compared to prior year. There was a reduction in the cubic meter of the industrial category, which had negative impact. This is a very important differential. The diverse portfolio of the company is what allows us to have this consistent result. That is what we really should take into consideration when we compare our CEMIG to other segments. Now, going over Gasmig, which I already talked about, it had a reduction of cubic meters for industrial clients. We had lower EBITDA and net profit, but it is important to mention that Gasmig is now back to making significant investments, and it is developing a pipeline for Divinópolis, the Midwest of Minas Gerais, which also will allow us to cater to new clients with this new project.

Now I'll turn the floor back to Andrea, and she's going to talk about the results of our strategic plan. I think it's important here to say that in addition to the financial results, we have the results in all the pillars. Right now, that gave us a very good overview. I will be brief. Everything that we have been doing in distribution, and we talked about a number of indicators here, the regionalization of distribution to understand the reality of clients so that we are closer to them and so that we can deliver to each client in an individualized fashion. Also, CEMIG Agro and the improvement indicators that we are going for. Now, the DEC, when we had an improvement of the rural DEC of eight hours. These are improvements, not only numbers.

The numbers as well, but some of them are greater improvements that follow our strategic pillars in terms of innovation and technology, ADMS, as mentioned. Also, as for HANA, we are still implementing it. And the platform that is available for our clients of the retail trading company is a digital platform. We do not say it here, but we have a program called CEMIG Enova Lab. This is an open innovation program. I would say this is the largest one that we have today in the energy market. We are very proud of it. The modernization, the maturity, we know that our transformation, digital transformation program is not stopping here. We did have very relevant deliveries this year, and that sustained the company. We look for new technologies, and we need to really be connected to them. Also, sustainability. This year, we have planted 1 million trees.

We met the number. We are going to go beyond it, but we did meet the number. We also launched a program that is called Equal CH and Environmental Awareness Program for value creation. Inventory management is something very important. All the logistics work, how to cater to inventory reduction, reducing logistics and inventory. We were able to bring that down in BRL 40 million. Inventory logistics is a huge work, and we are working on it. We are aiming to be closer to suppliers and closer to clients as well. All that work is very significant in the company. Our liability management work. We talked about tax provisions reversed for the INSS one, but also we had the Superior Labor Court decision that was very important that it was in favor of CEMIG.

This is work that is being done by our legal team. They are all here with us. Also, significant work in health and safety. We had a reduction in the total frequency rate of occupational accidents. The work that we are doing in CEMIG at all strategic pillars is very relevant. We can bring it all together. It is difficult to put them all in a single page, but we are very proud of everything that we have done so far. Of course, we still have commitments for the future. We still have divestments to be made, digital transformation, which is still being developed. We will be renewing concessions. There are auctions in terms of capacity reserve. Obviously, bringing in new technology. New technologies also for electric transition. We are looking at those, and we are connected to the future.

We thank you all very much for your attention. We are available to take your questions. Thank you. Good afternoon. Now we are going to start our Q&A session. We would like to please ask you to ask your questions all at once and wait for the companies to ask questions. Please send them via the Q&A icon on the bottom of your screen. For a bolder dynamic, your name will be announced so that you can ask your question live. At that moment, a request to enable your microphone will pop up in your screen. Our first question is from Carolina Carneiro from BTG Pactual. Please, Carolina, you may ask your question. Good afternoon. Thank you very much for this opportunity. I have two questions. First one, talking about efficiency.

Over the last year and also over 2023, you have taken a series of measures that really improved the margin. We were able to see in the lines of PMSO all the evolution. Recently, you have seen in some newspapers also that you are negotiating a possible migration of healthcare plans. Can you comment on that, please? How are the negotiations with the union? If you can also give us an update on other possible divestments of assets. I turn to my second question. We have seen that another listed company that is under the control of the Minas Gerais administration has received a notice from the Secretary of Development to start discussing the possible privatization of the company. Did you also receive that kind of notice?

I would like to understand if for CEMIG, this is also ongoing in there. Thank you. Catalina, our first question is going to be addressed by Cristiana Fortini about the healthcare plan. I will turn the floor to the other officers. Thank you. Hello. Good afternoon. Good afternoon, everyone. About post-employment, specifically regarding the healthcare plan, we had a significant achievement in the last year. The labor court was in favor to CEMIG. Thanks to we had two collective agreements. According to those, the benefit of post-employment for a healthcare plan would be indefinite in terms of time. That is, the company would have the owners for the healthcare plans with no limit of time. We have a discussion ongoing, very specific ones. We have a discussion that is still in a court, and it should be judged by next week.

Obviously, we are open to negotiation. We are very much interested in negotiating with the unions and towards something that will not repeat what we had in terms of success in the labor court, but also something that allows us to get closer and to negotiate with the unions. About the healthcare plan, what we can tell you is that we had a positive ruling favoring CEMIG. In 2024 also, there is an opportunity for our active employees to migrate their healthcare plan. We had an important adherence here, and today we have most of our employees already migrated to a healthcare plan that has greater sustainability. It is still protecting our employees. It is still guaranteeing the health of our employees. In terms of its financial sustainability, it is much healthier for the company. The migration process happened in the beginning of 2025. Anything else?

Now, the next question related to divestments. I will talk, I will turn the floor to Marco da Camino. Catalina, good afternoon. Thank you very much for your question. We are, and we are still working on divestments that have not been concluded of TAESA, Belo Monte, and also on the consolidation of some minor stakeholding for such a sale or acquisition, Oca Cachoeirão, and others. It will be informed in due time, as you always have been. That's it. Thank you, Marco. Now I will turn the floor to our CEO, Reynaldo Passanezi Filho. Good afternoon, Carol. If I well understood, as the question about privatization, right? Yes, we have been receiving notices, and we are talking to the controlling shareholder, the Economic Development Secretariat. They are asking questions in terms of the rules that apply in a possible process of control transfer.

We are supporting all the questions that we receive from the Economic Development Secretariat and as a representative of Minas Gerais administration. Thank you, Reinaldo. Our next question is from Guilherme Lima from Santander. Thank you. Please, Guilherme, you may ask your question. Good afternoon, everyone. Thank you for taking my question. I would like to make a quick follow-up in the post-retirement or post-employment, I believe. You will have a discussion and a final ruling next week. You are already talking to the union for a possible negotiation and agreement, or you wait until you go to court. How is the union behaving in this negotiation? Another question is regarding the volume of exposure in terms of differences of submarkets. You mentioned in the release 820 megawatts with a negative effect of BRL 20 million.

I would like to understand that volume in the first quarter of 2025. How do you expect this will affect the prices? About post-employment question, the company not only is open to negotiations as it has always been during the lawsuit that ended with the ruling of the labor court and also after the victory that we had in the Superior Labor Law. We are not waiting the ruling next week to negotiate. We are already contacting the union, and we are available to receiving the proposals that the union may want to send our way. Our next question regarding energy trading is going to be answered by Marcos Vinicius. He is the Superintendent of Planning for the trading company. Please, Marcos. Good afternoon, Guilherme. Thank you for your question. Yes, we do have that exposure to price differences.

You follow the portfolio that we have with the resources of renewable energy in the southeast and northeast, but the higher amount in the northeast. We do have an exposure annually of around 800 average megawatts. That is seasonalized. In the first quarter, we have something close to 700 average megawatts that is under that exposure. Yes. Thanks, Marcos. Now we are going to move towards the end of our video conference of the fourth quarter of 2024. I will turn the floor to our CFO and IR Officer, Andrea Marques de Almeida, for her final remarks. Please, Andrea. I would like to thank you all very much for being with us for your questions.