Companhia Energética de Minas Gerais

Good afternoon, everyone. Thank you for being here and this call with us. For us, it's always a pleasure to bring to you our results. I also would like to thank to have here with us all of you in our CEMIG day where we brought to you our strategic planning. We had a wonderful attendance. in our CEMIG day and that's where we presented the main drivers of the company and I repeat here in a very direct way our main objective is to focus and to win and I think this sets up the tone of our main objective which is to focus on the businesses that Timmy knows its core business is distribution generation and transmission and trading within the state of Minnesota. And to win and to be a recognized company with the best service to customers and clients in that area. Therefore, divest from any other businesses. This is a A main message that we carried out then, and I repeat it now, we do have a bold investment program of $22.5 billion up to 2025, a huge increase in investments, especially in distribution, and also a bold program of divestment in the amount, estimated amount of $9 billion. So this is... our staff. I think that we're bringing to you here another quarter of very positive results. And that goes hand in hand with our objective, which is to focus in these areas, to resume investments, to look for more efficiency. And we see a positive quarter in other segments, trading, gas, transmission, distribution, also We had a 1.8 billion EBITDA, and I just said 1.6 billion in the quarter. I think this is a very positive figure. Leonardo and Valis are going to go into the details shortly, but this is another quarter of consistent results, positive results, and also that shows that we have a good path for the year. because we do have an additional recognition that should happen this year, which is the GSF recognition. And here we also have figures that are close to being approval with the agency of over $1.3 billion, also during 2021. So we have a quarter with consistent results, an important... that should happen during this year that is higher than $1.3 billion. We now have a tariff adjustment that is going to be... I believe we are going to be the company with the lower levels of tariff adjustments because of our prior efforts regarding the credit of GIS and COFINS and ICMS because of that double charging. And we are returning that to our consumers. And we move on in our transformation process. I think we have a lot of initiatives that are ongoing. And once again, I'm repeating myself, but this is how we are working. Focus to win. We're investing in the clients, digitization. efficiency. We have the product that is called PHMI. This is a project that we are starting in an omni-channel. We would have a single provider to cater to the customers and all of that would be integrated. The systems before were not integrated, and the objective here is to integrate all the service channels to clients using machine learning, AI. So this is very positive. I believe it's going to be really a model for the country. If you were just starting, the process is being executed, but we do have a transition period here in which obviously is to train people, train new professionals, but here we do have a very positive perspective of improvement in customer service. So that on the side of the customer, I'd like to highlight that this project, the HMIS, is ongoing and this is a transformational project. We also have recovery, in our investment level. Here, this is still under the speed that we would like to have, but that is because we are reviewing our contracting model. We have a consulting service that is reviewing all our contracting models for suppliers and also because we are concluding this major reorganization of investments and distribution with a possible launching of a program that is going to call minus three phase, that is to work on a gradual replacement, especially on the rural grid, which is a monophase grid, and to turn it into a three-phase, and it is being very well received. We have thoughts with the city's administrations, and I think this will boost the agricultural area in Minas Gerais, and therefore this area is going to be focused in the agribusiness, the rural area. And this is a project that is in conclusion stage, and the objective is to turn the face of the agribusiness and the state, to change it, And on the side of the generation project, we wish to go into wind and solar projects. The objective here is very important. This is a new direction from the water matrix to go into our own projects into wind and solar. This is an innovative model. and we believe that we are going to gain traction over the year. So as far as investments are concerned, with the minus three phase and the approvals of the wind and solar projects with the conclusion of the reviewing of the contracting models, we are launching other bases so that we can actually meet our strategic planning in terms of takes We have published two material facts. The first one about Taeza. We are in the process of divestment for Taeza. We are going to have an auction by the end of July. And Renova as well. We have resumed our work. We are talking to banks, suppliers. We do have a positive scenario there. It was a risk. And with the approval of the bankruptcy protection plan, and now with the resuming of the works, we have a positive perspective to conclude this process, and it's very much needed. So for me, these are two initiatives that have very positive results. For digitization, we start now to work with six PIX for direct deposits. And we are making a huge effort for an integration architecture to integrate IT and OT. And the objective here is to have market solutions, not only our own solutions. So these are initiatives that have the objective of changing, transforming this company and making it or allowing us to change lives with our energy to provide better service to customers and obviously generate value, a lot of investment as a phase of remuneration, and that is crucial to generate value for our shareholders. And I conclude here the initial remarks with some efficiency initiatives. We have... our voluntary redundancy program, which is open. And two, three weeks ago, we have also launched the proposal or a solution for Semigi Health. We are negotiating with the union to change a little bit the health care plans. to have a more basic health care plan, and to work on the post-requirement topic. And as you know, it has an actuarial deficit of $3.3 billion. So these are the initiatives and the topics in which we are working on. And we are always following the strategic, we're supposed to look for more efficiency, more digitization, focusing on customers and focusing on our core businesses. I think that's what I wanted to mention in the beginning. And once again, this is another very positive quarter. And not only the consistency in terms of past results, but Above it all, regarding future perspectives that we are maturing, we are working on through these initiatives, and I'm sure all of that will turn the MIGI into a company with greater sustainability in the long term. These were my initial remarks, and I'll be open to take your questions later on. So now I turn the floor to Leonardo. Thank you, Reynaldo. Thank you all very much for being here with us in this first quarter of 2021 conference call. So just like Reynaldo said, this is another quarter of consistent results to make it during 2020 has proven to be resilient even in a pandemic environment. Our results for 2020 and all the quarters, we understand that they met the market's expectations. We were able to improve our operating efficiencies And the result in this quarter, more or less 20 years, sorry, 20 days ago, we had our summit day where we had at the end of the meeting to talk about our guidance and our expectations of results for 2021. And we understand that the results for the first quarter match our results expectation and also what the company talks about in terms of strategic planning, operating efficiency improvement. And here we can highlight the main topics that we understand that have to do with what discussed two weeks ago in our meeting with investors, our summit day. Here we have the highlights, and Valis is going to go into the details about them later on. we have a significant EBITDA of almost $52 billion, $1.845 billion, much higher than 2020, and even adjusted for non-recurring events. In 2019, we had some adjustments related. Actually, in 2020, we had adjustments related to light, and they had some non-recurring events in the first quarter of 2020 bringing it down, and even adjusting it, we had a result of 22% higher. And even in this year, although in the first quarter we had an effect that was high, and we understand that this is going to be reverted in the next quarter's net profit, just as the same, $422 million affected by the FX variation, not the EBITDA, but the net profit. Yes, it was affected, but even with these effects, we have the adjusted net profit at 36.5 on year. Our quality indicator, that's important because we are bringing to you positive results and we continue having improvement in the quality of service. We had in 2020 the best DEC in our history, 9.57 hours. And the DEC for the first quarter is still improving compared to what we had presented by the end of the year in an annual report. year, considering the year DEC was 9.55, and considering that we also had here the funds coming in from life, but basically we had one season and 300 of payments in debt, and we still have a fund cash position, and we understand that this is important so that the company can fulfill its bold investment plans for this year and next year before the tariff review. And also in terms of the debt management, in our liability management of the bonds, we understand that we have cash and at the right time we can offer the market to buy partially these bonds. So it's important to have these funds strategically in our cash. On the next slide, Here we have the EDC. I have mentioned the best one in history. This is what we have to meet by now this year is 10.08. In the yearly measurement, we have 9.55. So we continue improving our operating efficiency and the quality of our service to customers. Our FEC is 25% lower than the regulatory levels. We are at a very good rate here. We have a small effect vis-à-vis 2020, but we understand this is seasonal, and we still have a very good indicator when we see what the legislation demands. On the next slide, we have our losses. On Investors Day, we mentioned that by the end of 2022, we intended to reach the regulatory limits for losses. and understand that this is a process, and several initiatives have to be taken by the company. In terms of the first quarter, we basically had no changes. We have a gap of more or less 1.2% that Semigi has to reduce in terms of losses to meet the regulatory level, but we're still confident that with the measures that we are taking internally, the company will be successful, and by the end of 2021, we will have a gap between total losses and regulatory losses much lower than 1.2, and by the end of 2022, we should meet regulatory losses covered by our tariffs, our rates. That's a slide about our delinquency and how you're fighting it, and consuming a distribution area in the first quarter of With the worsening of the pandemic, the state was in the purple wave, which is the most severe in the state. Therefore, that could have an impact in our collection. And because of that, the company has taken a whole set of measures, internal measures, making it easier for them to pay, encouraging them to pay cash, creating different means of payment as options. such as debit card, credit card, automatic installments, 12 payments in the credit card, 12 installments in the credit card. We also implemented PIX, which is an online transfer. So with all these initiatives, our collection in the first quarter was 97.37, even higher than 2019, which was the year where we did not have the pandemic, and higher than 2018 as well. Therefore, we are able to maintain our collection in a level that we understand to be adequate, right, and in normal terms for our concession. For that, also, we increased 60% the number of disconnections, 330,000 concessions of service. This was much higher than what we had in 2020. This was just in the first quarter. But we did not forget the low-income clients for them. have been suspended. But at the same time, it created conditions for these customers to renegotiate their debts with the company. We understood that we were successful with these measures in the first quarter, and that was reflected in the collection index and also in our PDD and our receivables. Here we had a greater accuracy in the provision criteria so that we could REFLECTS IN THE BEST WAY THE ESTIMATED LOSSES IN THE COMMERCIAL AND RESIDENTIAL AREAS, BUT WITH THAT WE HAD A PROVISION THAT WAS LOWER THAN 50% OF THE PROVISION AMOUNT IN THE FIRST QUARTER WHEN COMPARED TO THE FIRST QUARTER OF 20. ON THIS SLIDE, AS RENALDO MENTIONED, THIS IS OUR VOLUNTARY REDUNDANCY PROGRAM. IT'S A LITTLE BIT DIFFERENT FROM Last year, we had a volunteer redundancy program where they would pay a penalty out of their FTTS. Now it's a little bit different. Now this redundancy program is upon request, and now we are offering them a multiple for each year. work. Therefore, we encourage employees to enroll in the program. We understand this is important for the company. It allows us to have a benefit even switching an employee that might leave the company because he or she retired and hiring a new employee. This new employee has a much lower cost and that is important in our operating efficiency so that we can reach our regulatory EBITDA by the end of 2021 as promised in Arsenic Day. This is our objective for the year. Valis is going to talk about that. We already reached this regulatory EBITDA in this quarter, but our commitment is that by the end of 2021, we would meet our regulatory EBITDA, that our EBITDA regulatory objects was already matched. The next slide is about the GSF, which Ronaldo also mentioned. Here in Semigo, we have $1,146,000,000 to post financial assets in terms of results for 2021. That is because of our expectation regarding the GSF agreement. It will extend to important confessions for us and Borgeson and other funds. They will be extended in two years. would end in 2025, and now we can have cash generation in these plants for more two years. This is an important cash generation for us and allows the company to manage its liquidity in a way that's going to be ready to come up with a proposal for a granting bonus in order to extend these concessions as needed and according to the regulatory guidelines. schedule, of course. And here we have, for instance, Allianz, 137 million assets to be posted. And these 137 million are regarding to just the biggest portion. So we have 1,333,000,000 of non-recurring effects that will be posted in 2021 and will have an important impact in the company's results and also in this proposal for dividends payment over the year. Moving on, This is our last slide before we go into the details about the results. We published our divestment at Taiza. You already know about our interest of divesting Taiza in 2021, and this is our schedule. Of course, this is a tentative timetable, but if everything works out, we believe that by August we can rectify this auction that would allow us to conclude the process within 2021. This would bring some efficiency to the company. But in any way, we understand that sales is within our strategic planning of being investing and focusing on investments where we have the control mainly within the state of Minas Gerais. So this is our tentative. And it's still depending on some corporate approvals, but we do believe that we'll be able to make it. Now we are going to turn to our results. In details, I will turn the floor to Velez, our superintendent in industrial relations. And he's going to go into the details of the figures. Velez, please. Thank you, Leonardo. So now let's turn to the results analysis itself. I just would like to highlight some effects that were more important and that have affected the results in this first quarter so that it will be easier to understand the presentation. In the consolidated figures for the holding, we had a positive effect and the equity method results of 45% growth from $82 million in the first quarter of 2020 to $119 million in the first quarter of 2021. And this was mainly thanks to positive effects and positive results, and also impairment reversal in Guayan. For the mixed distribution, we had also a very relevant increase in the volume of electricity distributed. the captive market had a drop of 1.7%, and transport for clients was up in 9.7%. Also here, we had a migration from pre-clients, and I will talk more about that shortly. Our OPEX and SEMEGA distribution, as Leonardo mentioned, and our COL also mentioned, is within the regulatory target. And for SEMEGA GT, the main impacts was the market to market of the Euro bond that has generated a negative effect in the first quarter of 2021 of 619 million net of taxes. So here we have the explanation or the details of the negative effect of the market to market of the Euro bond. So this was because of the dollar behavior the real had a depreciation therefore generating that negative effect of 751 million reals and with the increase of the interest rate future interest rates that also impacts negatively in the hedge so the impact in the financial results at the end was negative of 939 million and the negative impact in the net profit was of 619 million, as I had mentioned. But as you know, the dollar, the FX exchange rate for the dollar ended at a level of 5.697. And today the dollar is already at 526. So the real already had an appreciation from then to now. So if we were to close that today, we would have an improvement of 600 million reals as well. And this chart shows how sensitive that real bond debt is according to the dollar variation. So at every 10 cents up or down, we vary our debt in around 150 million reals. If it reaches 5 reals per dollar... will be at $7.5 billion, and that is in the quarter closing with $5.697, we reached $8,546 at March 31st. Now talking about the EBITDA and the net profit in the first quarter, we see that we had an increase of 133.2% in our IFRS EBITDA, and according to our EBITDA adjusted for non-recurring tax, it was almost 23%, $1,349,000,000 in the first quarter of 20 to $1,658,000,000 in the first quarter of 21. Just as the same, our net profit adjusted by the non-recurring tax had a growth of 36.5% from $589 million to $804 million. And on the bottom of the page, we have all the facts. One of them are the adjustments to fair value for life, which we had last year, and we did not have this this year. So we had to work on to show the adjustments so that you would understand the comparison. Another interesting or important effect is the effects of exposure in the uro-bond, and these are the more relevant effects. Turning to the results for CMAD-GT, as we mentioned here, we did not have any non-recurring effects, so the EBITDA IFRS, neither in the prior quarter and 1Q20, 1Q21 had effects, so we can just have a direct comparison. and the EBITDA was up 8.4% for Seneca GT from $688 million to $746 million. Net profit, really, the effect variation did have an impact because there are dollar-denominated debts, and the analysis is better understood in the adjusted results. So the net profit had a growth of 12.4%. the adjusted net profit from $274 million in the first quarter to $308 million in the first quarter of 2021. The adjustments, once again, are down below in this chart. And before talking about the evident net profit of Sanigi VT, I would like to talk a little bit about Sanigi distribution. I'm sorry, we would like to talk about the market, which had a strong recovery in 2021, don't we? Here, considering the build market, if we see end consumers and transported energy, there was a growth of 3.3% in the total of distributed energy. And as I mentioned, the transported energy for free clients was up 9.7% in the period while the sale for end consumers. was down 1.7%. It's important to highlight that here we had 181 gigawatt hour in the first quarter of migration of free or actually captive clients to free clients, and that affects a little bit the comparison. And the transported energy, if we make that adjustment, would have grown 7.9% and the sales for end consumers, although instead of having that reduction of 1.7%, it would have decreased. growth, growth, 0.9%. But even more important is the evolution, performance of distributed generation, and that is not considered in the sales floor and consumers or transported energy. But the energy coming from distributed generation increased 120% from 125 gigawatt hour in the first quarter of 20 to 430 gigawatt gigawatt hour and the 4Q21. That's a very relevant growth. So today, distributed energy, distributed generation already represents more than 3.5% of the total energy that goes through our system. So it is very relevant. And as you know, this has significant impacts for semi-distribution tariffs. And that's why we believe to have a discussion about these subsidies by having a tariff policy. And this discussion should be a national one for a national tariff. And finally, I would like to say that we know that residential consumers have been very resilient. And also because of what we are going through with the pandemic. So residential was up 3.2%, but really resilient. The main driver in here for the increase in the electric energy consumption and semi-distribution is industrial consumer. It's very relevant, a very relevant player, and it was up 8.4%. The commercial clients had a reduction of 12.2%. And as we usually say, the EBITDA, both EBITDA and net profit for systemic distribution was very positive, very strong in the first quarter of this year. We did have growth, which was very significant, relevant, however you look at it. And the main non-recurring effect that we had here was a reversal of tax provision related to the profit-sharing programs. of $79 million in the EBITDA and $52 million in the profit. If we make these adjustments, we had an increase of 34.5% in CEMEX EBITDA, CEMEX distribution EBITDA, from $495 million to $666 million. And in the case of the net profit, we had an increase of 72.6% from 197 last year to $340 million in the first quarter of this year. About costs and operating expenses, we had a total increase considering energy purchase and other costs, nonmanageable costs and PMSO. We had an increase of 14.3%. Looking at only the PMSO, there was an increase of 8.3%. that was because of outsourced services. And we believe that this was a one-time off with the increase of some expenses such as communication and trees pruning that we hadn't done much last year or in the beginning of last year. And so we had to go this year. But as you will see, this is within the regulatory limit. And other expenses here, most of them have increased Because the increase, because of the cost of energy purchase for resale, from $2.8 billion to $3.1 billion in the first quarter of this year, and charges also increased a lot, almost double, from $365 million to $747 million this year. In terms of operating efficiency, and here I'm comparing with the regulatory office as we already mentioned here, our distributing company still has a more efficient performance, more efficient than the regulatory level in the first quarter in 53 million euros. And this is thanks to the PMSO, which was 157 million lower than the regulatory level. But we also had other expenses like the post-retirement, the voluntary redundancy program, and our CEO already mentioned that we are working on it. We are also working on our health care plan, and we have also ideas for the pension plan. So basically that's it. We had an OPEX, that's an attribution of $712 million, And the regulatory OPEX is of $765, so we are $53 million lower than the regulatory OPEX. About the regulatory EBITDA, we also had a performance that was better. It was $124 million higher than the regulatory EBITDA. That's basically because of our OPEX. We had also other changes in the revenue, which helped us to have a realized EBITDA or our actual performance. that was higher than the regulatory EBITDA. So we are $124 million higher than the regulatory EBITDA of $621 million. In terms of debt, we have a very comfortable debt profile. Here in terms of maturities, because of our cash. We ended the first quarter with cash of 60 billion, 181 million real. And with maturities up to the end of the year of 823 million, next year 1.2 billion, 2023, 816 million real. We are very comfortable in the short term, except for 2024. That's when we have the maturity. for our Eurobond. This is a huge wall. And as Leonardo mentioned, we are working. Actually, we are planning to have a liability management for this bond in the mid-term. The debt cost increased a little bit because of the CDI increase. As you know, part of our debt is linked to the CDI. So there was a slight increase. And here, the leverage, as I mentioned, we have a leverage that is very comfortable. So total net debt over EBITDA is at 1.1 times. That is a very good level. And total net debt over equity plus total net debt of 24.6%. Very comfortable leverage. I love them. Finally, before turning to our Q&A, I would like to talk about our cash flow. Our cash by the end of 2020, as you know, was already very robust, $5.8 billion. We generated cash, operating cash of $943 million. We had here reimbursements. to consumers of credits of FITS and PASEP. Those were already in last year's tariffs, $178 million. We paid loans and the finances that we're doing the first quarter, $1.3 billion. We did not have any funding. As you know, we also had the sale of lights. As you know, we do not have any additional funds shares or stock at light. And we also had $366 million in investment. So we went from a cash of $5.8 billion cash by the end of last year to $6,181,000,000 by the end of the first quarter. Leonardo, would you like to talk about the management's priorities? Yes, Valis. Very briefly, we always like to show this slide because it summarizes the main company's initiatives that will add value. Some of them are already matched. Some are partially matched. Others are ongoing. And they are part of our agenda. So it's very important to stress that because some of these initiatives, for instance, The post-retirement programs, we mentioned in Semiga Day that in the short term, we would start the process of negotiation with the unions. And this already started. We started negotiations about the health care plan. We are looking for restructuring of this plan, reducing our actuarial risk, and also expenses recorded in our balance sheet. So negotiations are ongoing. and we can expect that in the short term that we will have negotiations about the pension plan. These initiatives are on our agenda. They are part of our daily activities, and we understand that this year and in 2021 we will continue working so that we can work on all of them. We know all of them are very important for our strategic planning, for everything that we have discussed with the market initiatives that we understand that were important to the company. They involve debt management, operating efficiency, and other structural topics that involve the retailer energy trading as well. So thank you very much. And as Alice mentioned, we will now open for the Q&A session. Is that right, Alice? Exactly. So please, let's open the Q&A session. Thank you very much. We will now start our Q&A session. To ask a question, please press the star one. To remove your questions from the queue, please press the star two. Please wait while we collect the questions. Our first question is from Arturo Perreira from Bank of America. Mr. Arturo, please. Good afternoon. I have a question about the distribution results. On the line where you talk about reimbursement of EIS and Coffin credits to consumers, you did post that in the revenue of FEMIC-D. And then we see the same amount in your cash flow. So my question is that if there's 178 million have affected the EBITDA of the distributing company in the quarter. Thank you. Hello, Arthur. Thank you for your question. Actually, the effects that involve the reimbursement of these amounts, they do not have any effect on the results. What happens is that our tariff was reduced in $700 million that we included in the tariff review to return to consumers. But as we return these amounts to consumers, these are just accounting adjustments. Our regulatory revenues for our concession contracts was not affected because of the $700 million that we are returning on the tariff. So in summary, this $178 million does not affect the EBITDA. The EBITDA that you see, the regulatory EBITDA, according to the concession contracts, is only a cash effect where we return into the tariff. That is, we collect a little bit less in the tariff, but on the other side, we are reducing our liability with consumers because we have that share that we have to return to them regarding those 10 years. That's great. Thank you. Once again, to ask the question, please press the star 1. Next question from Andre Sampaio Santander. Mr. Andre, good afternoon. I just have a follow-up on the prior question. I would like to understand, considering your answer to him, if we were to work on the results of the distributing company as a whole, the expectation from now on, so that we can have an idea, are we going to have efficiency or there is something that we cannot foresee in the future, like you don't think that this is going to last in the future? I don't know if Reynaldo wants to mention, to talk about this. Andrea, thank you for your question. Andrea, the guidance was published more or less two weeks ago and this guidance, the base of our strategic planning is continuity of the operating efficiency of the company, reduction of non-tax missile losses, and improvement in our collection plans and our collection program, reducing the PDD. And based on all these initiatives of the company, we published the guidance for TAMIC distribution, which is where we had an EBITDA for this year between $2,544 and $2,518. And we understand that this quarter was 155 close to 670 nearly. We are maintaining our expectation to meet that guidance, obviously considering this range 2.544 to 2.581 because of our market expectations and our measures also for efficiency, operating efficiency. I don't know if I addressed your question, but our guidance, I think, is a good base here for what we expect in terms of 2021. Just adding to that, whenever we disclose a number, the OPEX is always going to be lower than the regulatory OPEX we have published. a plan with improvement of efficiency, and this does not include the post-retirement. Everything that we might have in terms of positive results in the negotiations of post-retirement are not considered in these projections. Excellent, Renato. Thank you. I would like to remind you that to ask a question, please press the star 1. Please wait while we collect the questions. Once again, should you wish to ask a question, please press star 1. If there are no further questions, we turn the floor back to the company's management for the final remarks. Very well. Thank you all very much for being here with us. I will see you in the next quarter in our next call. Take care. Thank you. Good afternoon, everyone. Thank you. Thank you all very much. Thank you. The conference call for CEMIG has ended. Thank you all very much for your participation and have a nice afternoon.