Energy of Minas Gerais Co (CIG) 2016 Q2 法說會逐字稿

Good afternoon to all. My name is Antonio Carlos Velez Braga, Investor Relations Officer of CEMIG. We'll now start our webcast with CEMIG results relative to the second quarter 2016, with the presence of Dr. Fabiano Maia Pereira, Chief Officer for Finance and Investor Relations; and Dr. Leonardo George de Magalhaes, Controller. The transmission can also be followed through telephones 55 (11) 2188-0155 or 55 (11) 2188-0188 and also on our website, ri.cemig.com.br.

To start our presentation, we will show you our first slide with the summary of results. You can see 11.8% of negative results, a reduction in EBITDA of minus 45% and net profits dropping 62.2% as compared to second quarter last year. If you recall some of the factors, some have already been disclosed by -- should recall them in the second quarter our results we have the recognition of BRL561 million in transmission indemnity revenue, that impacted EBITDA and this showed a net impact from this accounting.

You should remember as we already said and I have commented quite often that in 2016, the strategy for allocation of energy was the opposite of 2015. In 2016, we sold much more energy in the first semester -- in the first half, and this proved to be the correct strategy and this reflected in comparison with 2016 and 2015. The collateral of this is the lower results, because of the lower volume of energy sold.

Also in this second quarter, we had averaged -- increasing the position for the put option of Parati due to the new pricing criteria.

This slide, we decided to include it in our presentation in view of some of the questions raised by investors and as an opportunity restate that the Group follows well defined guidelines among which reduced leverage of the Company, second increased productivity and efficiency, higher efficiency and a review of the portfolio of equity interest as we have been discussing. We focus on the Company's core business mainly generation, transmission, distribution and trading. In addition, we have internally discussed some solutions for the companies in which we have full control. So, this is all I have about this slide.

Here, I should make a comment on the indemnity revenues. As well said in the beginning of our presentation, it affected our results in the second quarter in a relevant way was a recognition of the indemnity revenue. We have been updating the value according to IGP-M, but by then we didn't know what that criterion would be to adjust the values. Starting from the second quarter, given the new instructions from the mines and energy ministry, we have to recalculate and we saw a large, in fact, one related to IGP-M that we were using. And that resulted positively and the other one representing the revenue ratio that we had received even since 2012 related to depreciation of our asset bases and also where the capital cost, this value as determined by the ministry of energy, this will be adjusted by the IPCA by 2017. Using this system, having the inflation we saw positively affecting the results.

From now on, we'll update the regulatory instruction plus IPCA and that's what we have been doing right now. Going deeper, the figures for net revenues we have a drop of 11.8% from 2015. Main factors impacting positively as well mentioned, BRL561 million in revenue and in the negative side as compared with last year, lower volume of electricity slowed on the spot market and the Sao Simao output has now been transferred to the quota regime and lower spot price in the second quarter, that's around BRL62.4 per megawatt hour as against BRL356.8 in 2015.

As for the selling of energy, this is associated to the dropping of Sao Simao from our portfolio and lower volume of sales in the spot market. The growth in the distribution department or sector of the Company was very strong, 5% increase in the amount of energy sold. This already indicates an upturn, a fledging upturn from now on.

As for consolidated operational expenses, a slight increase of [0.02%], the main point we have this voluntary retirement plan, [621] employees accepted the plan and October 27 is the period -- is the deadline for the engagement. This is more than our expense associated to this, we will more than be compensated in the coming years. Also impacts on results of provision from Parati and SAAG, leading to a worsening of the expenses, but in positive terms what we can say is despite increases in the provisions, provisional expenses were pretty level as compared to last year.

With regards to your last comment, it's important to emphasize that even if we don't take in consideration inflationary effects or the costs have been kept in very suitable levels, with the greater efficiency achieved by the Company and there is this increase in -- or because of the changing methodology of Parati, BRL355 million are expected and the impact of this new methodology is associated to a change in the price of lives in the market, the shares, the share prices are growing in the next half or the next quarter. All the issues involved Parati with a more dividend than reducing the values of the put option, we expect lower results because of these issues. But this is just a one-off effect in the -- given or the other considerations, we expect better results in the next quarter.

As for EBITDA, as it's been said, we had this 45% drop and as a results of this we have this -- there was a -- 3.1% down of spot prices and average spot price is significantly lower or so. As for consolidated net profit 62.2% drop. Given the short fall in energy prices in this quarter and allocation of the energy for the second half of 2016. Equity method gain contributed BRL72 million in the second quarter 2016 as against BRL6 million in the second quarter 2015.

With regard to debts in the consolidated of CEMIG, we have hovered for the second half which is the rolling over of part of our debt, most of it by the end of the year. The positive aspect here is that despite increase in nominal change, actual change to debt is now stabilizing the actual cost of the debt. It is a positive point and with regard and if we look on to GT, that's the bulk of the debt to be rolled over in the next half, we see [BRL3.092 million], we have been working with the banks towards rolling that over. Our guideline is to prevent -- it should be happening in the long term, perhaps three years ahead in order to present confidence of our -- the other debts that are maturing. We have converted almost all debts well over of the year by now and we should be looking at extending the debt in 2017 and trying to be strong for the debt at lowering the leverage levels.

As for investments, that's the planning we have showed in the first semester -- first quarter early this year. We should only can comment that this large amount of investments and very relevant amount in concessions, given the auction we won last year, this has been fully paid for and our distribution of CEMIG D program, investment programs, it's a very burst one, almost 40% of the total volume expected for the year and we are convinced that we should do that. In the first quarter, we had a repayment of cash with reduced investments, but after the adjustment, the CVA is very big that we are collecting, we'll proceed this investment program without any problems. And for cash flow, I'd like to talk about that.

In the previous slides, we had a very conservative cash flow program [BRL1.006 billion] for the year, for another BRL3 billion for cash generation, BRL2.5 billion as total available, and this has been financed by -- we haven't deepened our indebtedness, we haven't seen much capital injections other than financing so on, that needs the number come to June in BRL1.5 billion. We are talking about almost BRL2.5 billion as total available. We're talking about cash nearing BRL2 billion, which is a comfortable position for our investment and to ensure that (technical difficulty) leverage to previous periods as planned.

That was the presentation and the slides we prepared, talking about the second quarter of 2016 and now we move onto the questions-and-answers session.

Ladies and gentlemen, we will now start the Q&A.

(Operator Instructions)

(inaudible).

I would like to make a question, the idea would be to finalize it like now are we going to other areas of CEMIG or perhaps resume the program for the second half?

With regard to this voluntary retirement program, we don't intend to do any more about that are in the second financial, we leave it for next year. For this year, nothing more have been planned.

(Operator Instructions)

(inaudible)

I'd like to hear from you about the negotiations of (inaudible) into generation side, what's all expecting for are you expecting for the next year?

We're very proud to the talks related to the hydro plant Jaguara, already at the Supreme Court. We have been talking to the government, but so far we haven't arrived at any final decision to bring to the Supreme Court. It's the same situation as the last time we've talked about it.

With regard to the trading, would you like to say anything?

About power trading, this year or next year, yes we have been entering a few contracts, we have prepared toward the second half of 2016. We've done it some time ago and for 2017 energy prices given the potential upturn of the Brazilian economy and the reports never arrived at a very comfortable level. We're still expecting price increases on the spot prices this year but some contracts have been signed already for the second half and already some for next year.

2018, 2019 are positioned -- well, so to be more careful about this because we are at the short position given the uncertainty with regard to whether we will kick the clients or not, we have been trying to -- we purchase energy to cover the short position but still relevant into the next years.

(inaudible).

My question refers to light. We have seen on the media that they are already negotiating the fact of light, when will that start, this purchase or this sell?

On the thoughts of [media], we have no information regarding the selling of light. Our CEO has affirmed repeatedly that light is a way to grow in distribution, what's happened and that's known by everyone is that our partner FIP is willing to leave. What may happen is restructuring of the holdings configuration, but there is no way of talking about selling.

(Operator Instructions)

We now close this Q&A session. We'll now hand over the floor to Dr. Fabiano Maia Pereira, our Chief Officer for Finance and IR for his final comments.

I'd like to thank you all for participating and again, Carlos Velez our staff at your disposal for clarification or any issues that may still present, we should stress our purpose with CEMIG are being transparent before all our investors. Thank you.

So the video webcast for the CEMIG second quarter results is now closed. We thank you all for attending and have a good afternoon.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.