Energy of Minas Gerais Co (CIG) 2014 Q1 法說會逐字稿

[inaudible] investor relations [inaudible] we are now starting [inaudible] participation [inaudible] our CEO [inaudible] director of investor relations [inaudible] follow this [inaudible] but [inaudible] now we hand it over to our director [inaudible] director for investors [inaudible]

Yeah, it's a pleasure to be here. We've just met to [inaudible] our first quarter 2014 [inaudible] results for us.  They [inaudible] demonstration of how right we are in [inaudible] quarters [inaudible] have our CEO [inaudible] talk about our [inaudible] later on [inaudible] may have, and then we will [inaudible] CEO will remain with us for this first part of the transmission [inaudible] questions [inaudible] might have [inaudible] our results, and I would like to hear from him. What message would you like to convey [inaudible] highly pleased to be here and disclose our figures. And we [inaudible] results show [inaudible] and our [inaudible] we are [inaudible] addition to our [inaudible] indicated [inaudible] you can see there, and also [inaudible] what's really relevant here?

Well, first, we can see that we have a very well-balanced business portfolio. We have investment in distribution, generation, in transmission. We have acquired [inaudible] and [inaudible] as you see [inaudible]

Yeah [inaudible] for last, but it's important that we highlight the fact that the results [inaudible] strategies. The strategies that we have been pursuing for [inaudible] and it's [inaudible] very important [inaudible] provisional [inaudible] operating [inaudible] we -- very correctly, we focused on multi-generation [inaudible] top objective [inaudible] have taken part [inaudible] transmission [inaudible] to acquire transmission and generation [inaudible] substantial [inaudible] very positive [inaudible] correctly investing in alternative energies [inaudible] we have [inaudible] some portfolio [inaudible] the top [inaudible] if we come to opportunities [inaudible]

Our portfolio in generation is [inaudible] very substantial increase in EBITDA [inaudible] we've been together in our [inaudible] conditions for next year as we're having June, July for [inaudible] major objective [inaudible] 2015 [inaudible] we'll gain more and more [inaudible] in our [inaudible] energy some years ago, but [inaudible] nowadays, we are in position to [inaudible] photovoltaic [inaudible] that you [inaudible] photovoltaic [inaudible] stadium of [inaudible] also in the stadium [inaudible] in Rio, and we are very firmly together in [inaudible]

For the third time, we have [inaudible] very substantial recognition. For example [inaudible] reserves [inaudible] reserve [inaudible] also [inaudible] index [inaudible] see the evolution of [inaudible] natural gas sold from 2009 all the way to 2013. You can see the [inaudible] gross revenue, up 15% from the year before [inaudible] 7% growth in terms of volumes sold in this quarter, as compared to the same quarter as 2013. You can see that we are very strongly trying to make it feasible to supply homes here in [inaudible] and also another big city of Minas Gerais [inaudible] and also, even more importantly, we have decided together -- we took this decision together [inaudible] government to supply [inaudible] plant that's now operating in [inaudible] Minas Gerais.

We took [inaudible] that's now operating in [Obiraba]. That's [inaudible] Minas Gerais. We took [inaudible] proximities of [inaudible] on the western part of the state. That involves a BRL2 billion investment for gas pipelines. We [inaudible] one of the most -- one of the wealthiest regions of the state, commerce, industry, and mostly home clients, because of the [inaudible] that this will bring [inaudible] very satisfactory results, we are working with a very high-level company, with a high-level expertise. We are -- we believe that we are [inaudible] last five years. This is the panorama of our company today.

In [inaudible] days ago, four days ago, we [inaudible] we had the judgment -- you remember when that [inaudible] measured or provisional measure was issued, we -- we were, together with the government, in the willingness to reduce [inaudible] for the end consumers, but unfortunately we had some problems, because we believe that three of those 20 plants -- we [inaudible] rights over them [inaudible] to [inaudible] an attempt by the government to hold back, but we [inaudible] against an industry, and the judgment was -- they can [inaudible] took place two years ago, and with the results being [inaudible] one of the judges required [inaudible] review of the [inaudible] all the way to June, but [inaudible] very important that you understand that although we have a very good position [inaudible] this first quarter, it's part of it explained by [inaudible] plant, but it's [inaudible] to understand all our efforts over recent years when we decided to invest in a very broad portfolio with [inaudible] other assets, that allows us to get now where we are, where we stand today.

[inaudible] is part of the [inaudible] process [inaudible] but it's important that the [inaudible] several negotiations [inaudible] that have and are still taking place [inaudible] and this is the message [inaudible] leave with you today. Our [inaudible] is solid, and we [inaudible] have lots of sources of happening in the future.

I now request [inaudible] for [inaudible] you may have [inaudible] very positive message [inaudible] CEO [inaudible] coming in the near future, and also explaining the correctness of our strategies. As our CEO said [inaudible] you'll see the figures today that reflect that. So thank you, Mr. CEO, and have a nice afternoon.

Yes, we'll now focus our analysis [inaudible] first quarter 2014 [inaudible] the methods of our CEO. What led to [inaudible] this is the result of a good [inaudible] in recent years. It's not just a result of one quarter that is [inaudible] adds up to over many semesters with correct strategies that have now delivered these good results you can see [inaudible] increases in cash, earnings, profits [inaudible] result of [inaudible] commercialization, very successful, not only [inaudible] for over 10 years, when we started to incorporate the free trade environment, we took correct decisions. We made an option [inaudible] and we expected to have our average price a little above what the market has, and all these decisions are now cumulating in all the benefits that we can see today.

But this has been growing all the way from mid-2012 [inaudible] we had, you know, some concern about the [inaudible] pertaining to electricity. We wanted to [inaudible] extra capacity for generation, and that was -- we had [inaudible] with that decision. And you'll see [inaudible] when -- of the advent [inaudible] provisional executive order [inaudible] this is part of our strategy. It's part of our benefits that now result from this overall strategy of commercialization.

Nobody could really predict spot prices as they are happening now, but we have clear indications that it would be going up probably, and this [inaudible] and led to the results we see now. We have [inaudible] very strong position in the free market [inaudible] has [inaudible] 32%, I guess, market participation of 25% [inaudible] substantial number of extra [inaudible] even better possibilities for the future [inaudible] 20% in the semester for the operational [inaudible] but [inaudible] shows [inaudible] was [inaudible] energy bought, because [inaudible] higher spot price and [inaudible] given by the federal government to [inaudible] consumers.

If we had included these expenses associated with the subsidies, these figures would be much higher with much more trouble to our end consumers, but this [inaudible] is just conveyed to [inaudible] subsidy goes straight to our end consumer.

In all our items, we had gained personnel, payroll [inaudible] commitment to reduce [inaudible] this commitment [inaudible] market to reduce payroll and reduce operational expenses and we really achieved a reduction of BRL148 million [inaudible] real gains in terms of personnel [inaudible] will continue into [inaudible]

Participation or [inaudible] consolidated [inaudible] can say -- well, we've had [inaudible] performances with [inaudible] performances above BRL2 billion, but as we can see from these figures [inaudible] revenues from generations [inaudible] expectation is very positive for the rest of the year, isn't it?

Yeah, good afternoon, [Doctor Hola] and the other participants. For sure, [Doctor Hola]. More than two million [inaudible] or EBITDA in one only quarter is very good [inaudible] from April 2013, we had an impact [inaudible] in 2014, but in a sustained way, the company maintained substantial growth in its cash generation [inaudible] than has been happening over recent years consistently.

Yeah, practically, we have recovered all the losses that we incurred with provisional [inaudible]

Yes, it's much higher now. And most of the cost [inaudible] energy [inaudible] later on, we don't get that [inaudible] this is -- this going to be part of the 2015 [inaudible] so if we included what we could readjust in the future, this EBITDA would be even higher. This shows extreme consistency in our operations.

Yeah, EBITDA, consolidated EBITDA [inaudible] management -- managed EBITDA, yeah.

Yeah, this is considering the subsidiaries where we have shared control. This quarter [inaudible] was, you know, an [oddball there] with [inaudible] different numbers, but we're [inaudible] all of them will perform [inaudible] decrease some of [inaudible] had profits below inflation, but they are making an effort to reduce operational expenses, as well.

We have to recapture our efficiency gains on improving our efficiency so that [inaudible] the price of energy is very high, so the generator [inaudible] 80% of all the results coming from the [inaudible] so [inaudible] result of our strategy [inaudible] when we decided to [inaudible] various companies, that helped us, too. Yes, for sure, this has characterized [inaudible] over the last 10 years. You can see the EBITDA [inaudible] subsidiaries [inaudible] 18.2% of this first quarter and [inaudible] even more so, if we keep on sticking to this strategy as we have [inaudible] the trend is to have more and more relevant results.

[inaudible] also an outstanding performance better than last year [inaudible] special [inaudible] with a company that was a cause of concern when we had the [PLD increase], but even so, it had a very positive contribution, indeed, a very important contribution to our results in light has been very [inaudible] with a lot of effort controlling [inaudible] which is the highest challenge. And we believe that by the end of the year, we will have very robust results from [light].

Yeah, and also commitment to the [inaudible] of dividends from them. That's a very important point to us.

The next slide, just like we did with EBITDA, now we do with the consolidated net income. Income generation was the most relevant, around 90% of the [inaudible] so in that this was mostly a result of -- of what our [inaudible] strategies and [inaudible] is [inaudible] we haven't had [inaudible] 100% [inaudible] but our [inaudible] to go for more generation to add to our results [inaudible] led to these gains that you now can see.

You can see profits [inaudible] growing 45% very strongly as compared to last year, but we -- we don't expect that such a strong growth keep on coming for next years, but [inaudible] still be substantial for the next quarter.

Our consolidated debt profile was substantially reduced. Now [inaudible] 7.4 billion of net debt total [inaudible] positive result, isn't it? Because it gives credibility to [inaudible] the quality of our debts [inaudible] compare [inaudible] cash generation, we can see that our debt falls short of two times that amount, so that gives us a lot of [credit quality] and it's sustainability for [inaudible] into the future [inaudible] and also the depth profile [inaudible] indexed to the [inaudible] and then the other four interest rates [inaudible] very conservative profile that we had managed over the years, detaching ourselves from dependency on foreign currencies, and we benefited a lot from the reduction in [inaudible] some time ago, and this should also be highlighted.

Now, one of the targets for this investor relations is to lower the costs of those [inaudible] can we do that? Yes, we can, and we have [inaudible] and together [inaudible] other areas of the company, we can manage to reduce these costs and keeping and increasing our stock of good investments, even being one of the companies [inaudible] that have brought more assets recently -- we are in the best positions.

In addition to working 24/7, what else can we do to convince that [inaudible] as you said [inaudible] we should show what a good opportunity [inaudible] is for [inaudible] and also for shareholders [inaudible] investors to participate in our annual meeting, they have and they are invited [inaudible] will occur, take place on Sunday [inaudible] running through Tuesday [inaudible] what's going on in the electrical sector from the regulatory point of view [inaudible] opportunity for [inaudible] investors community -- or investors in general to hear from executives of the company to -- about our strategy to generate value.

Are [inaudible] yeah, your guidance -- yes, the new guidance will be presented, and I'm sure it will demonstrate our commitment to transparency with guidance being issued [inaudible] once a year [inaudible] and it will be contribution to [inaudible] and to report the [inaudible] investors have on us, our position [inaudible] is very clear [inaudible] our financial health is very solid, and we are guaranteeing financing for [inaudible] investments we have made also in [inaudible] BRL2 billion altogether [inaudible] for 2014, total volume for 2014, BRL2 billion, so far we have already delivered BRL1 billion. So more than about half of it [inaudible] mostly investment in the acquisition of [inaudible] with the passage [inaudible] clearly [inaudible] for returns -- very attractive returns, a very [inaudible] in the generation market.

We are pretty sure that this will bring a lot of joy to all of our investors [inaudible] already in our results. They are adding [inaudible] to our growth and dividends at lower costs in operating performance [inaudible] records [inaudible] so it shows that [inaudible] been making good investments and [inaudible] we are showing it today.

Also, in due time, to [inaudible] even further results. Also in the distribution, we are investing. We have this commitment with a quality of services [inaudible] results are [inaudible] we have been investing in [inaudible] distribution this year, mostly focused on improving services, but we have increased our consumer base by 230,000 consumers, and we are making investments for [inaudible] with the World Cup, as well.

[The distribution] all the volumes [inaudible] investments made in recent years are pretty high, reflecting on the quality of the services provided to the society. We have substantial gains in quality [inaudible] efficiency in our [area concession] from 2013 to 2014. So that has to do with sustainability, as well, not only improving the numbers, but also improve on the quality that the service that reaches our consumers within our area of concessions.

Despite all the concerns and the worries that distribution companies have gone through recently, in terms of [bought energy] [inaudible] has managed to keep our distribution [inaudible] at a sufficiently good level. And it will receive BRL1 billion in investment by the end of the year, and that will translate into even better services to our consumers.

Yeah, we are consistently seeking cost reductions, but not at the cost of our quality of the service to our consumers. We have expectations of [remuneration] with more revenues to the company. That's a virtuous cycle, sustainability, better services, and [inaudible] revenues for the future.

So we are -- you are overseeing all these initiatives in operating performance improvement and cost reduction. How do you see that into the next semesters?

Our business generation [inaudible] possibility is on the side of revenues, with more and more efficient trade, and expenses keep costs [down]. Our margins are very high, so we can keep very low costs in generation. In distribution, the challenge is expenses. We have to make it more and more efficient, considering the optimization, tariffs, they have suffered natural process imposed by the regulatory agency [inaudible] challenge is to reduce costs. This has been discussed in recent meetings with distributors.

Every quarter, we have been checking the results. We have slimmed down the companies, very constantly reducing personnel, but without that translating into pressure of costs on third parties, for example, we are taking better efficiency without any -- any decrease in quality.

Yeah, [that's preserved] [inaudible] health of the company in a way that we can invest more, we can seek new alternatives for investments, always having sustainability in mind. That's [inaudible] DNA.

[inaudible] cash flow that represents everything that [inaudible] has described to you, very strong cash generation. You can see that we go on, despite all the concerns of recent times [inaudible] investing. We can see the figures there. Cash generation is very strong [BRL618 million] in the first period.

But we have this very strong cash generation, and this will allow [inaudible] to [inaudible] through this period of concerns. As part of [inaudible] strategies, we have very positive recognition from the market to [inaudible] much above the average of other players in the market. We can see the comparisons there.

And those will translate into higher returns to our shareholders [inaudible] shareholders meeting of April 30 has already approved BRL1.655 billion in total payment for [inaudible] this will be happening by the end of the year, it will be done. The expectation is that total return to our shareholders will be very positive, something around 30%, as we are projecting.

[Those results] make us very happy. The decisions taking over recent years [inaudible] strategies adopted [inaudible] precisely aimed [inaudible] good results to our shareholders, not normally the majority shareholders, but [inaudible] minority shareholders [inaudible] and discovering the entire globe.

Yeah, shareholders [inaudible] in excess of 100,000 shareholders [inaudible] in the United States and the United Kingdom are the main areas, but also substantial growth in Asia, the Mideast, Australia. [Institutional investors] even [inaudible] include [inaudible] as part of their investment portfolios. They really trust our results, and they trust our strategies for value-added for [inaudible] growth investment that are focused [inaudible] that coincide with our own strategy.

Now, they are looking [inaudible] on the other side of the world to Brazil, looking for higher rates of growth than in their native countries. These were the slides we have prepared for this first part of our presentation. Can we now move on to the Q&A session? We are available if you want to make questions and [inaudible] haven't covered [inaudible]

[Operator Instructions] [inaudible] from the [Bank of Ato] would like to make a question.

Good afternoon, and thank you for the opportunity. I would like to hear your comments on the situation of the [inaudible] of Minas Gerais, if you could tell us anything about the contract that's to be initiated in 2015 [inaudible] yeah, they have a contract with [inaudible]

Could you please repeat this last part?

Yeah [inaudible] Minas Gerais [inaudible] contact with [inaudible] and they are talking about contracts that will be to their advantage [inaudible] moment of tariff prices in Brazil. What can you see from your point of view in terms of that contract?

Thank you for that question. Naturally, these clients they have been [inaudible] clients of [inaudible] for more than 10 years, and we -- if consider even the past that goes [long back], the contract was [inaudible] at the time [inaudible] it was signed, just like August. It was -- the contract was advantageous to [inaudible] but in the meantime [inaudible] has changed dramatically.

So energy price is now much impacted. And [inaudible] some of the concessions will have to be returned to the [conceding power] [inaudible] 2,000 megawatts [inaudible] 600 megawatts of assured energy will have to be returned to [inaudible] this causes our energy price to go up [inaudible] remember that we took measures to substitute those companies that are going to be [inaudible] federal government if they want to [inaudible] market price to [inaudible] then we'll renew the contract [inaudible]

Do you think, together with the government of Minas Gerais, to -- to take some measures to help [inaudible] silicon and also aluminum? They are highly depending on energy.

Yeah, we are very much concerned with economical -- economic viability of our clients. We have 25% [inaudible] in the market nowadays. This was, you know, hard-earned in this very competitive market, a market [inaudible] price is the best [inaudible] most affordable to [inaudible] these clients. We won't forget them. We'll make [inaudible] efforts to meet their requirements within the new [inaudible] conditions that we currently see.

We wouldn't -- I couldn't understand what he said. Would you allow [inaudible] to be maintained?

No, I think that was a distortion of the last contract. And if you have -- if [inaudible] some of these clauses will be eliminated.

Okay, thank you. Good afternoon.

Our next question comes from [inaudible] from Goldman Sachs.

Good afternoon, [Luis]. Good afternoon to you all. Three questions very quickly. Perhaps I go for the three without interruption. First, a little more clarity [inaudible] timing. Somebody mentioned July, August, but recently we expected [inaudible] court date for May [inaudible] February, but then it was postponed to May. So [inaudible] rearrange the schedule for us.

Recently, we also saw in Colombia legal [discussions] about privatization of [inaudible] that led to very [inaudible] in the value of their shares. If we perhaps [inaudible] Colombian government is willing to issue [inaudible] for that. What's your expectation, given this injunction? Do you think that [inaudible] will take place? Or if not now, perhaps in the near future?

Again, the third question [inaudible] what's your opinion of your legal counsel about the possibility of [inaudible] dropped [inaudible] exposed to [inaudible] spot price.

So there [inaudible] decision [inaudible] it's just to [inaudible] and lasted [inaudible] spot market. Do you think that it will be [inaudible] or is it more complicated than it looks?

Thank you, [Felipe], for the questions. Let's try to answer it in sequence for the timing of the [inaudible] court decision. Well, everybody expected this trial or this judgment [inaudible] to take place in December, November, December, but this was brought forward [inaudible] which was good. And the fact is that the reading we did in our legal advisers said -- say that this should take place and should be resumed by July, August.

Of course, this is not guaranteed. It may be that next week the judge that's now reviewing the documents can come back to court. But our expectation is that it should happen around August [inaudible] of our legal advisers.

As for Colombia, in [inaudible] process of [inaudible] in [inaudible] Latin America [inaudible] very complicated process [inaudible] strategy of the government to try to raise capital to invest in infrastructure, especially highways in Colombia. So [inaudible] to the government strategy.

We'll allow them to raise capital to [inaudible] for investment in infrastructure [inaudible] process [inaudible] opposition, very strong opposition against [inaudible] particularly, and [inaudible] suspended, but the proposal from the government is that after elections due next week, and probably by June, this may be resumed -- the process may be resumed definitively. Our expectation is that something within three to five months at most the process will resume.

We have high level of confidence in this investment, because our partnerships [inaudible] partnerships are very solid and positive, and this would be very attractive, very attractive terms even to government of Colombia, with [57%] [inaudible] we were not 100% sure that this will happen as we expect. It may be extended further in time, but that's our estimate.

Our question about [inaudible] your question about [inaudible] the [inaudible] I understand that this is about revenues that we have enjoyed from [inaudible] as -- ever since we [inaudible] that's your [inaudible] right, yes, exactly. So if that comes to happen, we understand that we really are in position to retain 100% of the revenue enjoyed in that period.

Our legal [inaudible] has assured us with very firm arguments and that [inaudible] from the situation of [inaudible] litigation that's going on. But we have no doubt that you have -- that we have no doubt that any [inaudible] we don't think [inaudible] thank you.

[Operator Instructions] Our next question comes from [inaudible] from Itau BBA.

My question regards generation [inaudible] expectations for the rest of the year.

It's a hard [GFF] for the next month. That's a tough question. I don't think that even our experts can offer this at this point. It depends on a series of factors that our independent [inaudible] and we expect that there will be some kind of [effect], but our strategy, as we said, the strategy we adopted in 2012 was [inaudible] increasing our security margins [inaudible] anticipating that would bring some negative impact. Because of our strategy, we acquired generation capacity, expanding our hedging, and [inaudible] situation has worsened over the last six months, despite our very substantial volume of reserve. There is some concern about the value of [GFF] [inaudible] current status of our reservoirs.

Our [inaudible] measures have been adopted. We are confident that if any reduction happens in [GFF], in the next months, our reserves will be enough to absorb any related volatility.

Our next question comes from [inaudible] from [inaudible]

Two questions. Effect [inaudible] for [inaudible] and others. My understanding, I don't know how long more [inaudible] not sure if this can be resumed fully later on or if the process has -- is open-ended or is this -- is there a deadline for that to be resumed? And if any loss occurs with [inaudible] even [inaudible] new injunction with the higher appeals court, are you [inaudible] arguments -- are [inaudible] it happens again, are you going to use the same arguments to defend your case? Or [inaudible] strategy?

No, there is no deadline for the judgment. It depends on the judges and not even any limit of time for the judgment to be resumed. It depends on the judges in their own individual analysis. They use the time they feel necessary to make their judgment [inaudible] we cannot interfere with that, unfortunately.

But within this context, we think that [inaudible] is very well positioned. We had a very strong argument and we built a very strong case, and this will put us in a comfortable position during this time the judgment comes to an end.

If you -- if you look the case [inaudible] are you going to go for another line of argument? Or will you use the same line of defense?

Of course, if you don't win the next judgment, we'll go for another appeal, and our contract assures us this right. And if by any chance this [right is] not respected, we have some other strategies of appeal, trying to reverse the decision of the higher appeals court, if it is unfavorable to us.

But we are [inaudible] of our position [inaudible] have a new [inaudible] for our concession contract.

Another question about generation [inaudible] not contracted [inaudible] was very [inaudible] significant [inaudible] by late March, we have something like 900 megawatts of non-contracted energy, and that makes us comfortable to go through the next [inaudible] quarters [inaudible] number remains for the next quarters, yes.

Our next question comes from [inaudible]

On the same line of [inaudible] question, how much -- what the percentage of contracts for energy to be sold in 2015-2016?

In our annual meeting to take place on the 26th, we'll have a presentation at which you have all the information about our portfolio, our generation portfolio. All the [inaudible] exposure, exposure is no longer there. But non-contracted energy will be following within that graph that [inaudible] for that disclosure. I'm not going to anticipate that, because then I would preempt that for you, and we really wanted to [inaudible] come and I'll tell you at the occasion.

One more question. What's the percentage of -- what's the percentage of energy sold in this [inaudible]

Seasonal, yeah, how much did you [inaudible] on the first quarter, differently from last year's [inaudible] you remembered that we concentrated that during the first quarter last year, because it was [inaudible] to do that. We were committed to do that, because we knew the price, market price in January. We were permitted to do that under the roles enforced at the time.

In this year [inaudible] strategy is not 100% like it was last year, because [inaudible] an injunction is a precarious instrument, so [inaudible] commit 100% of [inaudible] on this first quarter. But it was done [inaudible] resulting that [inaudible] very solid volume that we saw. What's the percentage anyway, 20%? I cannot disclose that. And I don't even have that information with me. That is [inaudible] perhaps you can convey that information to your...

[Operator Instructions] We are now closed the Q&A session. I'd like to hand over the floor to [inaudible]

Yes, I'd like to thank you for the time you dedicated to us today. It's been an hour and five minutes of this teleconference. Our message, my closing words would be that our results are not tied to the present context or scenario. They consistently are resulting from [inaudible] that has been adopted over recent years. And we are confident that this -- these same strategies will keep on bringing even higher returns to our shareholders.

We see these returns as adequate and even exceeding our expectations in the various assets that we have acquired. And I reiterate [inaudible] is an extremely efficient company with assets [inaudible] extremely high [inaudible] quality, and this will bring major results. It's a very long-term potential for growth. And with a potential to become as big as [inaudible] generation. That's our conviction [inaudible] where they develop their wind farms [inaudible] go above -- well above the national average and even the world average with acquisition of goods and services. They have acquired very high levels of performance. That's why we bet on them.

We [inaudible] it will become [inaudible] or maybe [inaudible] best investment [inaudible] into the coming years. Again, thank you for your time, and I wish you a very nice afternoon.