Companhia Energética de Minas Gerais

Ladies and gentlemen, thank you for waiting. Welcome to CEMIG's fourth quarter 2020 earnings conference call. We inform that all participants will be in listen-only mode during the company's presentation. After that, there will be a Q&A session when further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. And I would like to turn the floor to the Superintendent of Investor Relations, Mr. Antonio Vallis. Please, Mr. Vallis, you may proceed. Good afternoon, everyone. We now start CEMIG's fourth quarter 2020 earnings call and webcast. And we have with us the CEO, Reynaldo Papanesi Filho, the CFO and IR officer, Leonardo Giorgi de Magalhães, Chief Generation and Transmission Officer, Paulo Motenriquez, Chief Distribution Officer, Marnay Tadeu Antunes, Chief Legal and Regulatory Officer, Eduardo Soares, Chief Commercial Officer, Dimas Costa, Chief Semectar after Mauricio Dallin. This broadcast can also be followed by the following phone numbers 5511-3127-4971 for Brazil or for the U.S. 1-516-300-1066 as well as on our website at ri.temig.com.br. To start the presentation, I would like to turn the floor to our investor relations and my officer, Leonardo de Magaliz. Good afternoon, everyone. Thank you very much for being with us in this conference call for the results of 2020 specifically and also the fourth quarter of 2020. we are still in a very challenging environment. And in this environment, we understand that it's a mixed characteristics of an integrated company with relevant participation and generation, distribution, and transmission of electric energy brings us a strategic advantage. And we understand that that's very important and proves that the resilience of the company, even in this difficult time, environment in 2020, and we do have sound results, and we'll talk about them during this presentation. On slide number three, we have a few highlights. Our EBITDA was almost 30% higher than 2019, almost $5.7 billion, and even the adjusted EBITDA with non-recurring events, it had a growth of 7.1%, just as the same our net profits which was down vis-a-vis 2019, and 2019 was the year when we have pathos and caffeine pathos with a huge effect on our results. So because of these events of 2020 and 2019, Omega has a growth of 14%, which is very significant when compared to the prior year. And just as the same, this improvement in the financial results was significant thanks to operating indicators improvement. It was the best decade, the best DEC was in 2020 of 9.57 hours It was the fifth year of our concession after the contract renewal. It was a very important year of the company to meet the regulatory GEC, and we are celebrating not only this result but also the improvement in the service to our clients in the distribution segment. Also, we have reduced the leverage lower than 1.5 to 1.28 times. at the end of 2020 and it's very comfortable to face our financial debt and in 2021 with a high risk perception and an uncertain scenario we understand that this transitory but our cash right now allows us to feel confident to go over this moment at this difficult moment and the last event that we highlight here is the sale of light And despite happening now in January, we should bring it to this call because it was this management commitment with stakeholders and shareholders. We were talking about selling our shares in light and we already disposed of those stakes in january and that generated a significant cash for the company of 1 billion 372. on slide number four we can see that all this improvement in the financial life of the company also has seen us a better risk perception and that resulted in our credit ratings all of them improved upgraded our ratings in 2020. And this was a year where almost no companies had rating improvements, and some did. And the three agencies, both in the domestic scale as well as in the global scale. And we understand that we are still optimistic for 2021 because we believe that this movement will keep on going, considering the current financial liquidity company of the results that we have as well. On the next slide, number five, we are going to go into details in terms of our quality indicators. The main ones are the DEC and FEC. On the top, you see the regulatory limit for 2020 was 10.44. We were at 9.57, almost one hour less than what NL demands in terms of interruptions. for our clients, and as I said, this was a reason for celebration here in the company, and about the frequency of interruptions, the FEC, the one that the regulatory agency established as 6.67, and we were almost 30% lower than the regulating agency's limit, and so it shows that we were successful, both in the structural and financial ...in the continuous improvement since 2020 in solving our clients. Now turning to slide number six. This is another important event. This is the GSF agreement and we understand that before electrical sector, it was a major achievement because now we will be able to have operations done in CCE, and to me, because of this agreement, we extended some important concessions for us, and here, Embarcacion and Lava Ponte, which were due in 2025, and now with this GSF agreement, they will be renewed or extend for two more years, so this 2027, ensuring, therefore, a more... better cash flow, the certainty that we will have cash flow for the next few years and therefore that brings down the risk perception of the company. Here we have this effect, the monetary financial effect for the concession extensions and the lot D concessions which are in the last line, they still depend on NL's regulations but they should be extended for seven more years and The total here is $1.3 billion. We know that these are still transition amounts, but some companies already had approval in 2020, and the company will then wait to have those announced regulations for 2021 to then have the approval in its governance bodies, and that will represent approximately, considering the current figures, and we understand once again these are temporary, it should be close to 1.3 billion. We think this was an important achievement for the industry, for the sector, and for Semigi. We believe this is great news for the company. When we think about the value creation of the company for the next years, and here specifically, in energy generation. Now on slide number seven, we have our investment program. We invested in 2020 almost a two billion reals And I should highlight here distribution with almost $1.4 billion. But we should talk about 2021 as well. We understand that we have an opportunity to make relevant investments in our distributing company, improving our capacity to cater to clients and also to develop the state by offering energy, to have energy available to the industrial sector. in our state and we are projecting investments close to 3 billion in 2021 and this cash comfort allows us to have such a relevant program and then remember that next year in 2022 the 22 is an important year for us in 2023 we are going to have another tariff review for systemic distribution so We believe that for next year we'll have $2.3 billion in our distributing company, but also with relevant investments in transmission generation and also cash injections in here, GT, I would say, because we want to grow in that sector as well. Now on the next slide. And then here, fighting delinquency. we ended the year. We were very much concerned about delinquency in 2020. Here in the study, you see how our collection was last year. And you see that in April, our collection had a hard time. We just collected 89% of our revenue. But after that, we started having improvements in our collection. and we ended the year close to 97 percent of collection this year revenue and this is very close to our historic rate and we understand that the final result uh stemmed from several actions from the company in 2020 we had to do less disconnections because of the pandemic and the economic effect of the pandemic on the brazilian families we had 668,000 disconnections, but for 2021 we expect to have 1.7 million disconnections. We believe this is a very important figure. It will help us bring down delinquency, but we always have to consider that we will be analyzing the pandemic effects on the economic activity this year. We understand that in this situation, second quarter of this year will still have major effects. But after that, we understand that it will be important to have that negotiation process with our consumers and disconnections. Also, we'll aim to reduce delinquency in 2020 We had taken several actions to have payment installments, cash payments, and we developed several mechanisms to help us reduce delinquency. And these new means of payment were very successful in 2020. We ended with ADA of $135 million, very good result piece of 2018. practically half of the prior year, even in a challenging year. And here we have some highlights of relevant amounts, close to $230 million that we were able to negotiate with Minas Gerais state government that we are going to offset with ICMS in 2021-22. So this is a real guarantee to offset the late credits. And this is going to generate additional cash flows in 2021 and 22. Slide number nine. We talked about the transmission company. It did have a huge impact on our results in 2020, a little bit because of the tariff review with the new regulatory asset base, and also with the result of $338 million in 2020, it was $127 million, $111 million worth on shareholders' assets. practices in the transmission sector. CEMIG was the only distributing company with other assets that had tariff review. Even other companies in the sector, not distributing companies, the other companies in the sector that mentioned business with old assets of older concessions, they did not have tariff review. And CEMIG was the only one with tariff review. And starting this year, 2020, we had the results of tariff reviews for all transmission companies with tariff reviews, and we had to standardize those accounting practices. And because of that, the accounting practice that CEMIG is adopting now in 2020 is very close to the transmission companies with new concessions where you record the revenue as you build the asset. along with the construction margin of these assets, just as the other transmission companies with new concessions on a quarterly basis, the regulatory results and the results in compliance with IRFIS, we are going to do the same. Here we'll publish a specific note. with the results under this new practice and without that practice so that everyone can follow up and analyze the process and see how our financial statements are. So basically we had an important effect here of $338 million and in practice with this new methodology, We will see that the results of the transmission companies, as we have investments, we will be posting revenue every month or every quarter, and that will have a positive impact in the shareholders' equity of CEMIGA's transmission. Turning to slide 10, here we have a proposal for allocation of almost $2.9 billion, and So, we will propose dividends of $1,482 million of dividends. $553 million will be in interest on equity and $929 million in complementary dividends, adding up to almost $1.5 billion and an important yield here, which is close to 8%. We understand that this is very relevant and we'll be paying our shareholders in an adequate way. Also, we will request the shareholders meeting a stock bonus of almost 11.5% because of our profit reserves going over the capital stock and we'll have to propose that. So at the same time, we'll bring in, we'll submit this proposal of a stock bonus of 11.5%. And moving on, and this is my last slide before i turn the floor to valley who's going to go into the details of 2020's results and comparing those with the prior year but let's talk about sustainability now that's very important for samig the esg practices are in the company's dna and samig isn't about john sustainability index since the beginning it is the only company uh in the world that is not in europe that is in the the Dow Jones Sustainability Index. And there are very few companies of Brazil in this index, and one of them is Semig. And we are also in another index of sustainability that are important. And here are some of our ESG initiatives that are relevant. And we should highlight one of them that we believe is very important, that starting in 2020, and winded our activities of Igarapé, which was oil-powered. With that, 100% of our electric matrix is renewable. This is very important for the company. In addition to other initiatives of energy efficiency, also volunteering programs and our commitment with the society, and we are always involving all the communities and the areas. We surely want to be a responsible company. So we conclude now the initial highlights for 2020. Now turn the floor to Valis to go into the results of 2020 when compared to 2019 and also the fourth quarter. Thank you very much, Valis. So let's just start with the analysis of the results. I would like to start on slide number 13, mentioning the main effects that we had in the results in 2020 and some of them in the fourth quarter. For San Diego holding, the consolidated result shows a significant increase in the equity method, almost 185% higher, which was $356 million in 2020, fee-to-fee $125 million in 2019. For the negative distribution, we had a drop in the electricity distributed volume of 1.1%. In the captive market, there was a reduction of 5.3%. transmission for free clients had a growth of 4.4%. Here we have some effects of migration of free clients and also effects of distributed generation and we'll explain that in a while. Also, we need to remember that in the third quarter we had a reversal of a ADA $231 million. And I think we should make an important highlight here for CEMIC distribution. OPEX for CEMIC was within the regulatory target. That is, the expenses, the operating expenses for CEMIC distribution was lower than the regulatory expenses that are covered on the tariff. This was also the first time that CEMIC distribution reached this efficiency level. For SMEG GT, the main effect in here was because of the Euro bond and its marking to market and our foreign currency denominated debt. We had a positive effect in 2019 and in 2020 this was almost zero effect. So that also affects the comparison in the year. Leonardo mentioned we also had the periodic tariff review for transmission that with the standardization of the accounting practices has generated a positive effect in the results of 621 million RELs. On slide 14, a chart with a breakdown of the mark-to-market of our ear bond debt. In order to make the best analysis here, we have to take into consideration the market-to-market of the hedge instruments, which are two, the swap that is protecting us in the FX variation of interest, and the cost spread that is protecting us in the FX variation in the principal. Together, these instruments had an appreciation in 2020 of one one billion 258 million rounds in addition to that big because of the payment of interest in 2020 we have received 495 million rounds from settlements because of the swap in a way that the hedge effect was only four million higher than the total principal amount of the stat, which was 4 million rounds again. On the slide 15, we have a comparison of EBITDA and iProfit, both IFRS, as well as the adjusted. We bring these adjustments so that the comparison is easy to understand. And here you have the chart with the main effects. In 2019, we had relevant effects such as this COFINS approval. We did have a very positive effect of the credits of peace, PASAP and COFINS, tax and ICMS, and also we have tax provisions. And with that, adjusted EBITDA, you can see here, that was in 2020 for the adjusted for 0.25 have reversal of the provisions in semi-distribution. So the EBITDA in adjusted for 2020 was forbidden 875 made in row. 5,694,000,000. So the adjusted increase was 7.1%. And in the same adjustments in the net profit, we can see a growth of net profit of 14%. That is in recurring terms, that's very strong results in 2020.

I think it froze.

Well, now turning to slide 16, we have the results for the fourth quarter. These are consolidated results as well. The adjusted EBITDA was up 23.7%. And that profit, the adjusted one in the fourth quarter, had an increase of 18.6%. Epida and that profit for Semiga GT, based on the adjustments we have mentioned, Semiga GT had a growth, a relevant growth in the Epida, but with the This can be explained basically by the weaker result that CIMIG-GT had in the quarter. And you remember that in the second quarter, CIMIG-GT had to negotiate with clients, particularly the free clients. They were redistributed with time after that, but we did have an impact in the second quarter. And you can see that because if you look at the fourth quarter, CIMIC-GT results, both the counting results and adjustable results also were very good. If you compare CIMIC-GT with the fourth quarter of 2019, EBITDA had a growth of 46%, and that profit had a growth of over... 83%, so you already see that there are better conditions for Samiga GT in the fourth quarter. For Samiga distribution in the full year, in the adjusted result, we had a slight drop in the EBITDA of less than 1%. We ended in the adjusted of R$22,113,000,000. That's very relevant for CIMIC distribution, specifically in a pandemic year, and that profit in the adjusted had a growth of 10%, which is a robust result as well. On the other hand, in the fourth quarter of CIMIC distribution, on slide number 20, we see that there was a drop both in the EBITDA as well as in the net profit. In the fourth quarter, we did not have any relevant effect, and neither in 1990. But what happened is that the provision for ADA in the fourth quarter