Comp En De Mn Cemig ADS American Depositary Shares

Good afternoon, everyone. I'm Carolina Sena, CEMIG's Investor Relations Superintendent. Welcome to CEMIG's fourth quarter of 2024 earnings video conference call. We inform that this video conference is being recorded and will be available on the company's IRR 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 Pazanese Filho, CEO, Andrea Marques de Almeida, CFO and IR officer, Cristiana Maria Fortuny Pinto and Silva, Chief Ego and Regulatory Officer, Marco da Camino and Colonel Lopez Solido, Chief Participation Officer, and also Generation and Transmission Officer, Sergio Lopez Cabral, Chief Commercialization Officer. And for the initial remarks, we turn the floor to our CEO, Reynaldo Passanese Filho. Thank you. Good afternoon, everyone. It is a pleasure to be here at this video conference, 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 historical, very important result, 2024. gave us the highest EBITDA, the highest in CEMEX history, the highest net profit as well of our history, the higher annual capex of CEMEX history. and also the best rating in history, which is AAA by fixed 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, APEX. Here we are talking about 500-600% of increase in any of these indicators. So for us, this just confirms absolute wonderful results. Not only spectacular, but also historical results. Once again, I say that we have reached $11.3 billion in EBITDA. This is a significant growth when compared to the prior year. We reached $5.7 billion in investments. which also has a very positive effect. We know that investments that are concentrated in regulated sectors, that that has a great effect and the company's profitability when we are becoming more mature and also working on divestments. We reached a triple A rating. Our issues have been made with interest rates that are in terms of the spread of Very good. The lowest of all time. This year in 2024, we concluded another step of our divestment program. We sold Alianza Energia. And also, we had a very positive impact in the tariff review for transmission, which was of $1.5 billion in the mix of 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're 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 Minas Gerais 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. And our case is very much concentrated in Minas Gerais. Here we invested in 2018 954 million reals. Last year, 2024, we invested $5.7 billion. Once again, 34.8% of investment growth. That's the annual average growth. And this is our perspective. You see a very high amount of investments in a year 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. So we did have to go over all the divestments, and that also takes time. And we had to prepare the strategic plan. The old growth program should be successful in our biddings. So if you look at 2018, 19, 20, 21, we had not taken off then. And all of a sudden, you see this growth, strong growth, of course, since 2021, showing the whole process. of preparing, 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. And we divested from those, and then 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 59.1 billion reals. from 2019 to 2028. And 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'll 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. And also, it 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. And I highlight some important transformations in terms of efficiency. And I believe they will have The same pattern. It will take a while to take off, but when it takes off, it's 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. And more recently, we announced the regionalization, which has the main objective here of decrease the distances and that's 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 When you look at it as a whole picture, in the big picture, we see the transformation. These are my initial remarks. And 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. So I will move forward. Thank you, Reinaldo. So as Reynaldo well said it, we delivered a lot to our clients, to our society, and a lot also to our investors with our AAA. And also we delivered to our stockholding investors. This was the highest yield in the electric sector, 15% of our shares increased, 43% of preferred shares in the year. It was $7 billion of market value. If we approve the $1.8 billion in the next shareholders meeting, we will be distributing $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. Also, we are included in the Sustainability Yearbook 2024 for S&P Global. And 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 tool. achievement in our sustainability pillar, in addition to our CEMIG REC, not only CEMIG REC, but we also have IA RECs, 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. and we generate value for society as well. So all of these are amazing achievements in our sustainability pillar. Now turning to the results, and Reynaldo basically gave you an overview, but I will go over some details to show what happened. So we ended the year really with the record of $11.3 billion in AVIDA, up 32% vis-a-vis the prior year. We did have non-recurring relevant effects that add $3.6 billion. Among them, some that have already been mentioned, $1.5 billion from the tariff review from the transmission company, also $580 for reversal of INSS data. over the profit-sharing program and non-recurring events, also the sale of Allianz. We had non-recurring events in 2023, the sale of Baguadilla and Retiro Baja. which corresponded to around 300 million RELs. So all of these events have been non-recurrent and relevant from one year to another. Now, 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 600 million in the drop of EBITDA when compared these years. Now, turning to net profit, of course, the same effects can be applied, of course, on the net profit. And then we have effects of increase because we are investing more. Of course, we also had effects of payment of higher taxes. because we have higher net profits. Therefore, we pay more taxes. And also, we have effects in terms of FX exchange, because we had the euro bonds that were settled by the end of the year. 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 $1.9 billion, very relevant in the fourth quarter of 2024. Important operating indicators, everything that we have been doing in the distributing company and believe that Reynaldo has mentioned how important that is. for delivering good service to our clients. This has been, in a way, you know, we can see it in the operating indicators, and one of them that's very relevant is the perceived DEC, and 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 a bidding process, logistics, purchasing, stock reduction. In this case, we had unlocked $808 million. that will be flowing through the next months to improve investments and improvements in the transmission business. And also in our CRR, Wind Park will have the installation of six new wind turbines, and we should estimate recoverable revenue of $11.3 billion. So 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, $225 million drop in terms of margin. We did have the same non-recurring effect last year because of the sale of Baguari and Hichiro budget, which affected. positively the epita last year because they didn't have this year and also there was an increase in pms so once again i usually say that this is a positive pms so because we have an increase in the pathway cleaning and because that improves our dc we spend more but this is something that we need to do to improve our operating indicators but and that was offset by our post-employment for around $40 million. So this is more or less, these are the effects on the EBITDA. And on net profit, we did have an impact of $300 million of financial expenses because of the euro bonds that we settled, that we paid for at the end of the year. So we ended with a net profit of almost $1 billion. Now looking at our expenses, I mentioned some of them. We did have an increase, but that was the low inflation. And as I mentioned, we did have expenses such as outsourced services, which had to do with tree pruning and cleaning of pathways. And 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 9.9 billion reals. Now this is a real denominated debt. We no longer have FX exposure. And also 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. And despite of 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 time. That's up to 2028 when we have the rebuilding of distribution. And our debt cost is also very much within the standards, around 12%. And these are according to the market's percentage. So it is okay in terms of our profile. So our cash flow, operating cash flow, and really cash here, we – And in 2023, with $2.3 billion in cash, we did have cash from operations that were very relevant, $5.9 billion, $4.5 billion in loans and ventures. Also, we had an alliance of divestment, a very significant amount, that we received $2.7 billion. And then we had... proceeds that were paid, also dividends paid, and also investment activity and payments of loans and CDA. All of that has been very relevant over time, and we ended the year with $2.4 billion in our cash. So now I'll turn the floor to Carolina. She's going to go into the details on each company of the group. Thank you, Andrea. Now, Thank you very much, Andrea. So now moving on to mix the results when we compare the quarter of 2023, 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 in loss indicator and we committed ourselves to end the year within the regulatory limits. And this happened in the fourth quarter, bringing better results. And when we compare the fourth quarter of 2023 and 2024, we also had an improvement in our ADA and when you look at the market Hydrology was favorable in November and December with more rainfall. And so we did have a reduction in the energy demand in the rural area, which neutralized those effects. But in any way, we were able to have significant results for net profit. Not as a large growth, but that was affected by a higher income. But we also have already talked about this. It also increases because of the gaps in the depreciation. So 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, and 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... Transactive energy showing that this investment also allows the growth of the industry in the United States. And 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 23 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%, and our state, our concession area, is an area that has solar projects of micro and mini generation distributed one. If we did not have that effect of the micro and mini of the EG, we would have grown significantly. 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, and this is a commitment that we year after year, and 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, and there are a number of actions that allow us to be within these limits. And I would like to draw your attention. to the 384,000 customer inspections. Now here in fighting delinquency and collection, we see over time how the company has changed the proportion of digital channels in collection. And this is very important because it has a lower cost. In 2024, 67.02% came through these new channels. channels with a highlighted two peaks. And therefore, you have 50% reduction in tariff costs. And another indicator that we have, it's what we call ARFA, the Receivables Collection Index, or how much we are being able to collect. In the last three years, we are 24, 23, very close to 100%. And that shows how important it is to have the collection. 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, so we were able to reach that with a lot of work, dedication, operating efficiency, and over the years we are meeting that limit, that compliance, and we ended the year with $156 million lower than the regulatory OPEX. Removing the non-recurring events that we had in 2024 in the distributing company was the program that we had for dismissal and also the profit share and distribution for EBITDA was also improved a lot, but we are still... a little bit off, but we are working to bring that back to the regulatory habitat. For Semig GT, we already mentioned, and I here bring to you, when I compare the fourth quarter of 2024 to the 23 one, we already know in the market, when we shared that with you on Semig Day, that the margins of the trading company in 2024 would be lower than And 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 semi-GT. So 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 Baguari and Retiro Baixo. according to our strategic planning, and that improved our results in 2023. So in semi-GT, 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 And 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 23 to 24. We had adjustments here, trading. was down. We also had . Transmission, and Reynaldo already talked about that, we were very successful in the tariff review for the transmission company. There was an increase of RAP. And GASMIG also had a reduction compared to prior year, and 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, and that's when what we really should take into consideration when we compare arsenic to other second ones. Now, going over , which I already talked about, it had a reduction of cubic meters for industrial clients. And we had lower EBITDA and net profit, but it's important to mention that GovMedia is now back to making significant investments, and it's developing a pipeline for Divinopolis, the Midwest of Indonesia, which also will allow us to cater to new clients with this new project. And 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, they gave us a very good overview, so 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, semi-agro and improvement indicators that we are working going for, and also the DEC, when we had an improvement of the rural DEC of eight hours. So these are improvements, not only numbers. The numbers as well, but some of them are greater. The forces that follow are 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 companies, the digital platform, we don't say it here, but We have a program called SEMIGI Nova 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 digital transformation program is not stopping here. We did have very relevant deliveries this year, and that sustained the company, and we look for new technologies, and we need to really be... uh connected to them also sustainability but this year we have planted one million trees so we met the number we are going to go beyond it but we did meet the number and we also launched a program that is called echo change and environmental awareness program for value creation of inventory management is something very important, and all the logistics work, how to cater to inventory reduction, reducing logistics and inventory. We were able to bring that down, $40 million in inventory logistics. It's a huge work, and we are working on it. but we are aiming to be closer to suppliers and closer to clients as well. So all that work is very significant in the company, our liability management work. We talked about tax provisions reversed, so the INSS one, but also we had the Superior Labor Court decision that was very important, that it was in favor of Semini, and this is... work that is being done by our legal team they're all here with us also significant work in health and safety we had a reduction in the total frequency rate of occupational accidents so the work that we are doing in samig at all strategic pillars that's very relevant and we can bring it all together and it's difficult to put them all in a single page but we are very proud of everything that we have done so far and of course we still have commitments for the future We still have investments to be made, digital transformation, which is still being developed. We will be renewing concessions. There are auctions in terms of capacity reserves, and obviously bringing in new technology. New technology is 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. And good afternoon. So 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 at the bottom of your screen. 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. Please, Carolina, you may ask your question. Thank you very much for this opportunity. I have two questions. First one is talking about efficiency. Over the last year and also over 2023, you have taken a series of measures that really improved the margin. And we were able to see in the lines of PMSO all the evolution. And recently, we have seen in some newspapers also that you are negotiating a possible migration of healthcare plans. Can you comment on that piece? How are the negotiations with the union? And if you can also give us an update on other possible divestments of assets And then 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. So did you also have, did you also receive that kind of notice? And I would like to understand if for CEMIG, this is also ongoing in there. Thank you. Well, Catalina, our first question is going to be addressed by Christiana Fortini about the health care plan. Then I'll turn the floor to the other officers. Thank you. Hello. Good afternoon. Good afternoon, everyone. Good afternoon. About post-employment, specifically regarding the healthcare plan, we had a significant achievement in the last year, and the labor court was in favor to send me. We had two collective agreements, and 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 illness for the healthcare plans with no limit of time. So 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. And obviously, we are open to negotiation, and 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 union. So about the health care plan, what we can tell you is that we have a positive ruling favoring CEMIG in 2024. Also, there is an opportunity for our active employees to migrate their health care plan. We had an important adherence here, and today we have most of our employees already migrated to a health care plan that has a greater sustainability. It's still protecting our employees. It is still guaranteeing the health of our employees, but in terms of Its financial sustainability is much healthier for the company. The migration process happened in the beginning of 2025. Anything else? Now, the next question related to divestment. I will turn the floor to Marco Soligo. 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 state holding, such as sale or acquisition, Oca Cachoeirão, and others. you will be informed in due time, as you always have been. That's it. Thank you, Marco. And now I will turn the floor to our CEO, Reynaldo Passanesi. Good afternoon, Carol. If I well understood, a 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. and 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. 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. And how is the union behaving in this negotiation? Another question is regarding the volume of exposure in terms of differences of the markets. You mentioned in the release, 820 megawatts with a negative effect of 20 million. I would like to understand that volume in the first quarter of 2025, and how do you expect this will affect the prices? about a 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. And 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 a higher amount in the northeast. And we do have an exposure. annually of around 800 average megawatts, and 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 Giammida-Marx, for her final remarks. Please, Andrea. I would like to thank you all very much for being with us, for your questions. We are here all year around. and with the whole IR team to share our results and everything that is happening in the company, our challenges and opportunities. To share all that with you, please feel free to make contact and to talk to us, and we are open to talk to you at any time, whether by the team or the conference calls that we will be at. So have a nice afternoon, and thank you very much.