Companhia Energética de Minas Gerais

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Note that if you need simultaneous translation, this tool is available with a globe icon where it says Interpretation located at the center lower part of the screen. If you select it, choose the language of your preference, either Portuguese or English. For those hearing the video conference in English, there is the option to mute the Portuguese audio by clicking Mute Original Audio. I'd like to turn the floor to Carolina Sena, Superintendent of Investors Relations. Carolina, you may go ahead, please. Thank you. My name is Carolina Sena, Superintendent of Investor Relations at CEMIG. We are beginning the transmission of the earnings conference call pertaining to the third quarter of 2022 with the attendance of Reinaldo Passanesi Filho, CEO, Dimas Costa, Chief Commercialization Officer, Enrique Mota Pinto, Chief Legal and Regulatory Officer, Leonardo Jorge de Magalhães, CFO and IR Officer, Marneite Tadeu Antunes, Chief Distribution Officer, and Tadeu Carneiro da Silva, Chief Generation and Transmission Officer. For the opening remarks, I turn the floor to our CEO, Reinaldo Passanese Filho. Good afternoon. Good afternoon, Carol and everyone. Once again, it's a pleasure for us to hold this conference call with the opportunity of discussing with all of you another quarter of consistent and solid results that CEMIG achieved. These results are consistent, they're solid, and they verify the suitability of our strategy. It's a strategy of focusing in Minas and winning, making investments in the activities that we know in the territory that we know, which is Minas Gerais, and doing that with financial discipline, discipline when allocating funds, and at the same time seeking the highest efficiency. So the results, once again, prove the success of this strategy. So we'll start With investments, I believe you can see clearly the recovery of the company's investments, investments listed here on the screen, adding up to 2.2 billion BRLs year to date in the first nine months. So if you look at it here, It's more than two times what the investment was in 2017 and 18. You can see that in nine months, we've invested more than twice as much as we invested on average in 2017 and 18. So I'd say this is a clear demonstration of an acceleration of the investment program. This year will open in the distribution area more than 40 substations with a historical average of six. And of course, this has an extremely positive effect of value generation by increasing our remuneration base and as a result, increase the company's revenues. Also in generation, we have approved, and there's a slide about it, another 220 megawatt peak in investment projects. So we have a program that is being implemented. It's in implementation. It shows the numbers you saw, the 2.2 billion. And we have new projects already enabled, and all of them with strong value generation with clients associated. So here we're talking about the approval of two major projects in photovoltaic plants, Boa Esperança with 100 projects, peak megawatts, and Giussanti with 87. MCMIGSIM in distributed generation, more than 30 peak megawatts in investments in nine photovoltaic plants. So here we're talking about something that is coming, an execution of more than one billion BRLs in this generation project. So as far as investments, I think this is the message to invest with capital discipline, with the adequate allocation in distribution, transmission, distribution of natural gas, and in the regulatory market with known amounts, known returns, and in distributed Generation and generation always with capital discipline and already linked to the destination of that power to one client or many clients who are known. So all of this is already pre-sold. That is in terms of capex. Now, in OPEX, in operational efficiency, our mantra of being below the regulatory OPEX is something we have been able to achieve Since last year, we are remaining below the regulatory OPEX and that's our commitment. Our commitment is to always be below this regulatory OPEX in distribution and in transmission and also below regulatory losses. And all that is to guarantee an EBITDA that is above regulatory EBITDA. So the capacity to generate cash through efficiency, and this cash is then invested in projects with a strong capital discipline and that will also add value to the company. So this is the overview of the strategy, a lot of capital discipline in the allocation of CapEx, a lot of efforts for the gain of efficiencies, in operations and maintenance. And this goes for distribution, transmission, where we know the numbers better. And our goal was to always remain below regulatory levels. That's the same for generation. And finally, the strategy is completed with our divestment process of leaving minority shareholder positions that takes too much time of our leadership and that has also consumed too much capital. So that's the strategy that's also been successful. As all of you recognize, we divested in light and renova, reduced the stake we had in Santo Antonio, and this process will continue. So, Carol, I would say These are my comments in the sense of reinforcing what our strategy has been and is being to focus in Minas and when with a strong capital discipline, always seeking efficiencies and focusing our efforts on activities where we understand we have competitive edge and can generate value to all shareholders and obviously to all stakeholders, to society, in the sense of a public service of highest quality. These are my opening remarks. Thank you. Thank you, Reinaldo. Continuing with our presentation, I turn the floor to Leonardo Giorgi, our CFO and IR officer. Good afternoon. Thank you very much for attending our conference call. With the earnings of the third quarter, Reinaldo talked about the results that we believe and understand that it's consistent. And talking about this, CEMIG has always been a reference in ESG practices, ESG is in our DNA. And what we want to highlight this quarter is the issue of the renewable energy certificates that we believe are important certificates that we are distributing to our clients of CEMIG-CIM. It's the CEMIG-CIM REC that certifies the renewable energy source of our energy and that clients of CEMIG receive. And this improves the reputation, the value of this green energy that we're supplying our clients. The beginning of electrification of part of CEMIG's vehicle fleet and these new investments that we're making in Jusanti and in Boa Esperança which are in compliance with our target to invest in renewable energies. This matrix is 100% renewable today. 97% of it is hydro power, but our expected investment is to change this matrix. It's going to remain 100% renewable, but with a share of solar power and wind power in our portfolio. Now moving forward, we'll get into the next slide and talk about the results directly connected to the third quarter. So the highlights are on slide number eight, where we show that we continue transferring commercialization contracts to CEMIG holding, contracts from CEMIG GT. This is a strategy we released to the market a while ago that we would be in a continued process of transferring the trading contracts to Semig Holding because we understand there's a series of benefits there and we remain in this process. And we've generated 452 million in EBITDA in the first nine months of 22 due to the transfer of these contracts from Semig GT to Semig Holding. Semig D, we understand, have achieved great results. We'll talk more about it in a while. an adjustment for the provision for Delta receivables. We believe the methodology is now closer to the methodology used by the market in terms of provision and asset down. And we have also reached 9 million consumers. We're very proud of reaching this number, always focusing on quality and agility in service. And once again, our quality are in decline. Our quality indicators are within the regulatory standards that we can say historically are the best indicators of the company. As for CEMIG-GT, the positive impacts of our results due to an agreement related to our investment in Santo Antonio, where the company received 200 million BRLs in its cash with a profit effect of 136 million, due to a negotiation with Andrade Gutierrez about past credits, this effect was very positive, and there's always the foreign exchange effects that was the highest effect in the third quarter, close to one billion reais, and a negative balance of 68 million BRLs in the third quarter. When we get into the details of the nine-month results, we see, we understand the results are very positive, but just at EBITDA, when compared to year on year, we see that we have almost 20% of EBITDA increase. The EBITDA of the first nine months is higher than 5 million BRLs and net profit adjusted for non-recurring events is also a very positive 50% increase compared to 21. And another highlight that we'd like to talk about is that the profits for the year of 21 that is the base for dividends, was benefited by some non-recurring events, the recognition of the effects of the renewal of concessions, the increase and the extension of concessions due to the GSF agreement that also led to a positive effect in the results. And this year of 22, even with the provision of the tax FASEP Cofinzo on ICMS that generated an effect of 1.3 billion in our results in 22, our profit is very close. So the company's cash generation ability is great and we understand that considering the results presented until November, we're very optimistic with the year's results and our capacity to pay attractive dividends to our shareholders. On the next slide, we start the discussion about the quarterly results with a little bit more detail, and I'll ask Carolina to continue with the presentation with more visibility and detail on the effects that have affected the results of the third quarter of 22. Well, thank you, Leonardo. Moving on, the specific results of the third quarter, we continue to see the effect of the migration of the trading activity to eight, the MiG-8. The presentation is consolidated, but we always have this highlight to remind you, especially when we get into the MiG-ZT slides. And looking at the items that affected the results, the non-recurring items still have a positive effect in 21 with the re-agreement of GSF. So excluding these effects, we can see that we had an increase in cash generation of 4.6% and recurring net income of 56%. As for the company's operational costs and expenses, when we compare quarter to quarter, we see an increase of 15.2%, especially related to post-employment, due to the actuarial reports that is annual. So this retirement benefits effect is recurring, and it has been increasing our costs and expenses. This is an important item for the company, which we have already addressed in the life insurance side, and we're working to address the other items that are part of this retirement benefits, the health plan and plan A, of the company's retirees. We also had an increase in personnel expenses. Our salary adjustment at CEMIGI occurs in November. So November 21, we had the effect of 11.08% in the salary adjustment. And this increase affects the cost of 22. And we also had a one-time-off increase in costs for investments in 2021. We also had an increase of $55 million in third-party services that we say it's an important expense because it brings revenue to the company. Since the increase in this expense occurred due to greater investment in the quality of services provided, we're implementing the IBM system, consolidating all of the company's communication channels, which will bring improvement in communication with our clients, as well as the expansion of the collection agents. Now for our consolidated cash flow, we can consider the company's operation cash generation was of nearly 6 billion. This is extremely important for the moment we are able to deliver a robust, the company's robust investment program as we release to the market in 21. We're talking about 22 billion in investments in the state of Minas Gerais. We also had during the year the restitution of fiscal things in the tariffs, payment of dividends, and payment of loans, without mentioning that, well, stressing what we mentioned before, with investment of 2.3 billion in 2022 alone. So even with all these cash views, we're closing the cash in the quarter, close to 5 billion, showing the company's robust cash generation, which will contribute to deliver our investment program. Now as for our debt profile, we can see that the company's leverage has been decreasing since 2018. Our leverage is below one time in the nine months of 22. Even with the increase of the cost of debt, and remembering that we have Eurobonds maturing in 24, so when we look at our debt profile, We already had the liability management in 2021 with a buyback of 500 million. So there's 1 billion maturing in 24. And we have already informed the markets that we intend to have another liability management process by 2023 with another buyback of 500 million. So we're keeping track of the opportunities in the market to continue with our liability management. As for the results of CEMIG-D specifically, this quarter, we already have an average increase of 8.8% of the tariffs. CEMIC distribution results adjustment is in May, but there was a delay this year, so we do not see any effect of this adjustment in the second quarter. The effect is all coming up now in the third quarter. It's important to highlight that looking at CEMIC, these results recurring, we had an increase in cash generation of 9.8%, even with the loss to GD. And in this third quarter, we're closing at 6.1% of revenue loss due to the migration of captive clients to GD. And in net income, excluding non-recurring events, we have a recurring net income growing 16%. And within the effects and adjustments in this quarter, where the highlight is the adjustment of the PCLD methodology and the tax provision for the indemnity for time of service. As for the energy market for CMIC-D, we can see that it remained flat, quarter on quarter, with the growth of transport and migration of captive clients to the free market, and within captive, the reduction was biggest in the rural customers, but Many of them migrated to commercial due to a reclassification of the registration set forth by ANEL. As I mentioned before, DD impacts our distributor. We are closing the nine months of the year at 6.1 of our market. And even with this loss to DD, CEMIC-D continues to deliver relevant results for the CEMIC group. As Reynaldo mentioned, since 2020, we've been able to remain within regulatory limits, considering regulatory EBITDA, regulatory OPACs. In 2021, we were also within the regulatory loss threshold, and this is very important, a commitment the company has with the market and with consumers. So by remaining within the regulatory limits, in addition to avoiding the loss of cash, we improve service provision. Since we carry out more inspections, we replace conventional meters with smart meters, regularize illegal connections. All of these initiatives have helped us meet these limits for energy losses. to remain within this regulatory target set forth by ANEL. As for delinquency, that's another very important topic at CEMIG Distribuição. We like to point the collection via digital channels. The digital channels have been growing in the company significantly. This change in the collection mix already represented until the third quarter of 2022. almost 6 million BRLs in savings, especially the growth of PIX, or P-I-X, and automatic debit payment. Our collection index of the accounts that we call ARFA remains very close to 100%. And on the delinquency fighting project, we had two important points this quarter, the change in the accounting criteria, but most importantly, It's the reinforcement that we have in the collection tools. So with that, we are able to reduce this expense for the company. As we also mentioned, we are within all of the regulatory targets for CEMIG-D. We're below regulatory OPEX, above regulatory EBITDA, and also within limits in losses. And as you can see, this is a commitment that our management has taken and is delivering, which brings excellent returns and improvements for the company. Moving to Semig GT's earnings results, when we look at the recurring results, we see a drop of 9.2%, but this third quarter, we had some effects that contributed to this drop, and a lot of them is the migration effect. of CEMIG-GT's activities to CEMIG-H. This migration started in 2021, and in the third quarter of 2022, 249 million were transferred from the trading activity to CEMIG-H. And looking at the profits, we see a growth. So within non-recurring activities that impacted this, we talked about it because H was also affected. which is the re-agreement of the hydrology risk in 2021. And when we look at the size of side of income, we also have the FX effect. Now this next slide, we have information about GASMIG. GASMIG semi-consolidates 100% of its results. And we can see a reduction in cash generation in 2022, but most of it too, to the smaller thermal dispatch from 2022 when compared to the two thermal power plants that GUSMIC owns. So when we look at GUSMIC's results, it has been delivering solid results. We always share that GUSMIC's recurring EBITDA annually is of around 600 million. And this decrease in 2021, as we saw, it was a poor hydrology year until the second quarter. there was a higher thermal dispatch and there was a higher demand for cubic meters of gas. But the recurring results continue to perform within expected. And now for this next slide, I'll turn the floor to Leonardo Giorgi, where we have the commitments that we made and we'd like to reinforce it with the market. Thank you, Carol. So it's the last slide. As we can see, GASMIC, even with the reductions of power distribution is still a good result. And here on this slide, we always like to present the commitments that we've made with our investors and stakeholders on the evolution of the company's management. We have the commitments that have already been met, such as the MIG remaining within the main efficiency regulatory indicators, a financial efficiency and quality of the service that we provide to our clients. And the partially met is divestment in non-strategic assets. We've been able to divest at Light and Renova. We reduced our share in Santo Antonio. We understand that those assets, most of this target has already been met and restructuring of the retirement benefits We are halfway through the restructuring process. So in the short to medium term, we expect to present you with good news about the effects that this will have in our P&L. Digital transformation and technology investments, the highlight being our agreement with IBM that's already having positive effects in the quality of the service we provide to our clients. And the ongoing commitments are the renewal of concessions. That's something we follow very closely. We're attentive to the possibilities related to the renewal of our concessions, the two largest ones. Our investment in generation of renewable sources, wind and solar, that's part of our strategy. And the retail trading aspect and the opening of the energy market in Brazil, where CEMIG understands that there is an opportunity for value generation. That's what happened in the opening of the free market in the 1990s. And here we believe it's another opportunity that CEMIC has. And we're keeping an eye on it so that we can generate synergies and continue with our trading activities to be able to make the most of the opportunities when this market opens. So that's basically what we had to present, summarized, earnings of the third quarter, we understand that, as we said, the results have been very consistent and we are now available to take any questions that you may have about the earnings results and the company's operations. We will now begin the questions and answers session. We kindly ask you to ask all of your questions at once and wait for the company's response. Note that in order to ask a question, we request that you send them through the Q&A icon at the bottom of your screen. For the dynamic pattern, your names will be announced for you to ask your question live. And at this time, a request to activate your microphone will pop up on your screen. If you do not wish to open your microphone, please write no microphone at the end of your question and our operator will read your question. So, our first question, André Sampaio, sell-side analyst, Santander. We will open the audio for you to ask your question. Please, you may go ahead. Good afternoon. I have two questions. The first, about the level of leverage that really has decreased greatly, and I'd like to hear from you if we could expect an increase in terms of payment of dividends. This space is going to be used for the growth in the investment plan. And the second question about the timeline of what still has to be sorted. So we have the divestment process and the solution of the retirement liabilities. If you can talk a little bit about the timeline for these two items. Thank you. André, thank you for your questions. About your first question, our strategy, we understand that we have a robust investment program for the coming years, as we believe. Most of them in the first years are investments within regulation in our distribution and transmission concessions, and we understand that the way for us to fund these investments in a sustainable way maintaining our leverage close to our policy, that would be two times our EBITDA, we understand that maintaining this policy of 50% of payout is the best option. So we understand that if we maintain the dividend payout of 50% as we have in our bylaws, with the important investments we're making in renewable energies and CENIC-D and the transmission concession, We allow leverage to remain at levels we believe are adequate. And this dividend that last year was close to 8.5% the dividend yield, we believe this is adequate to properly remunerate our investors. So we understand that this strategy makes sense. Investments that generate revenue, that create value, maintaining leverage in proper levels and paying dividends properly. The 50% of payout, we believe it won't be more than that. That's not what we're planning. More than 50% of payout, we understand, but the 50% is adequate. About the timeline of when we're going to present the results of the retirement benefit issues, we've been talking a lot about this for a while, but there are structural aspects that involve discussions with consultants, legal discussions with unions that represent the interests of active and retired employees. So this process takes some time. But just as we did in 2021, we have already reverted the balance in the issues about life insurance. We paid 50% of the cost for retired employees that has already brought a positive result. In 2023, we believe we'll also have positive results related to the pension plan, migrating their participation in a new plan. We believe this is important. By the end of 23, we believe we'll be able to present these results in our P&L. And the retirement benefits involving pension plans, we believe that in 2023, we'll start presenting positive results. Of course, it depends on how the negotiations go, but we understand that we have reason to be optimistic so that next year we'll start to see positive results already. As for divestments, as we mentioned before, some assets where we had more difficulty selling, we were able to sell, such as Renova and Light. Now we have Taiza that we manifested interest in selling for a while. And we also expect that in the next year we can accelerate this process. But it's hard to give you a forecast of when this is going to happen. But now we're talking about capital reallocation. Taesa is a very relevant asset. It's a very good asset. A company with a great reputation in the market. And if we have the opportunity to sell those assets and reallocate the capital for our new investments, we understand that it makes sense. And it is within our strategy, although there is difficulty defining it now about a timeline for this process, considering all the specificities involved in the sale of an asset of this size. I don't know if Reynaldo has anything to add, but I understand that these are our basic assumptions on these topics. I think that's it, Leo. M&A is not something that we can anticipate, but the fact is that all these assets, the Decision to divest is public.

Excellent.

Thank you. Remembering that to ask a question, please click on the Q&A item at the bottom of your screen. Your name will be announced for you to ask your question live. If you do not wish to open your microphone, please write no microphone at the end of your question so that our operator can read your question. If there are no further questions, we close the Q&A session and I'll turn the floor to the company CFO and IRO Leonardo Jorge de Magalhães. I would like to thank you all for your participation at our event. Once again, we understand our results have been good and we are optimistic for the company's future. We understand that quarter on quarter the company is delivering its commitments to the market We expect that we will soon be able to hold our CEMIC day. We're defining the date and the conclusion of the strategic plan. We'll be able to talk about this strategic plan to the market in detail, seeking to show the market with clarity what our objectives are. We understand that in these past few years, we've been able to deliver a lot, of our targets and commitments, and we're optimistic that we'll continue to do so in coming years. And for that, we understand that CEMIG Day is an important day. It's when we'll be able to talk closer to the investors, all of the company's leaderships, and we will soon be able to announce this date, and we would like to count with your presence there. Thank you once again for your participation in our earnings call. The next third quarter of 2022's conference call is now closed. The Investor Relations Department remains available to answer any doubts and questions you may have. Thank you to all participants. Have a great afternoon.