Energy of Minas Gerais Co (CIG) 2023 Q1 法說會逐字稿

Good afternoon, and welcome to Cemig's First Quarter 2023 Earnings Video Conference Call. We inform that this call is being recorded and will be available at the company's IR website, where you also find the company's presentation. Should you need a simultaneous interpreting, the feature is available by clicking on the globe icon where you find interpretation on the bottom of your screen. By choosing interpretation, you can then choose the language of your choice, Portuguese or English. Should you choose to follow the call in English, you can also select mute original audio.

Now I would like to turn the floor over to Carolina Senna, Investor Relations Superintendent. Please, Ms. Senna, you may proceed.

Good afternoon, everyone. I'm Carolina Senna, Cemig's Investor Relations Superintendent.

We now start Cemig's first quarter 2023 earnings call and webcast with the following executives. Dimas Costa, Chief Commercial Officer; Henrique Pinto, Chief Legal and Regulatory Officer; Leonardo George de Magalhaes, CFO and IR Officer; Marco da Camino Ancona Lopez Soligo, Chief Participation Officer; Marney Tadeu Antunes, Chief Distribution Officer; and Thadeu Carneiro da Silva, Chief Generation and Transmission Officer.

For the initial remarks, we would like to turn the floor over to our CFO and IR Officer, Leonardo George de Magalhaes.

Good afternoon, everyone. Thank you very much for being here with us in this conference call for the results of the first quarter of 2023. These are great results, very positive. Once again, another quarter with Cemig's sound results.

And in this initial slide, we have some highlights for the first quarter. The EBITDA was very good, BRL 2.1 billion. This is a recurring EBITDA for the company 8% in the year-on-year comparison from last year, which was already a good quarter last year, and we were able to repeat in this first quarter, this very good result. A balanced portfolio. We understand that in this quarter, the company and its several businesses, whether distribution, generation and trading, especially these 3 areas with greater potential to generate cash and results and the results were indeed positive, over BRL 1.3 billion in profit, 5.7% up when we compare to last year, also a good quarter for last year. Therefore, this allows us to be very optimistic for the results in 2023. We'll comment more on that on the next slide and the divestment of minority shareholders.

An important event in this first quarter, actually, in the second quarter, we would draw your attention to that. The tariff review for our distributing company in May 28, and then we would like to invite analysts and shareholders that are following up the company. As soon as we have the results for the tariff review, we will have a video conference to specifically comment on those results or tariff review. We are all invited. This should happen by the end of May. And also the reduction of post-retirement liability, we'll comment more on that, and that did have positive effects in the company's results.

On this slide, we talk more about our divestments. These are divestments since 2019 up to 2023. We will go over the ones in the first quarter of 2023. Santo Antonio, we sold fully that asset. We had diluted to 15.5% to 7.5% in 2022, but we did not follow the capital increase in Santo Antonio. And then in 2023, we concluded the complete sale of this asset to Eletrobras. So we have cash of BRL 55 million incoming and also in our relationship with Eletrobras and other assets that we have jointly, which are Retiro Baixo and Baguari. We also sold those assets. And here are the numbers BRL 393 million for Baguari and BRL 200 million for Retiro Baixo and those 2 operations also depend on some approvals in our legislation, but we understand they should be concluded in the second or third quarters of this year, and then the effect will be posted in our results. And these figures will be updated according to the CDI of 2023.

And even more important than the sold, we had BRL 2.1 billion cash inflow in the company. We also should highlight that thanks to the sales of assets in order to maintain that original stake, we would have to have BRL 1.9 billion of cash injected in the company. So this was also savings for the company. And more than BRL 2.1 billion of cash inflow, we are talking about BRL 5 billion in cash savings for the company. Thanks to these divestments that are fully aligned to our strategic guidance. And when we talk to the market and adding here, of course, the BRL 1.1 billion in tax credits and also positive the reduction of financial guarantees, PPAs release is also to purchase energy. And as we mentioned, the cash savings considering that we will no longer be injecting cash in these companies. So the assets that posed greater challenges with greater complexity, we now can understand that in this first quarter, we have concluded the sale of these assets that had the greatest challenges, we could say.

Now it's still in our investment program. This is a program of BRL 5.4 billion for 2023. Last year, we invested BRL 3.6 billion. And as you can see in this slide is much higher than the company's average in the past few years, and we start the year with an investment of almost BRL 800 million. And this is larger than what we were able to do in the first quarter of the past year. So the company understands that it has adapted already to this new volume of investments. So BRL 750 million is much higher than what we had in the first quarter of 2022. And we are confident. We here have relevant investments, especially for Cemig SIM generation, and they should be happening, especially in the second half of 2023. But we believe that most of these investments should be concluded this year, and these are profitable investments then they will generate value for shareholders.

This is our ESG commitment to the company is sustainable in this operation, 100% of its renewable matrix. We are in all relevant indexes in terms of sustainability, both nationally and internationally. And I draw your attention here to 1.3 million families that are enrolled in our social tariff program. That is a relevant figure, and it is growing over time. And here, we have a relevant social effect, a positive impact also in the delinquency reduction in the company. So we were able to bring down the electric bill for companies that have a lower income and that has a great social impact. And also financially, default or delinquency is very relevant for us, and we get better results this way.

Now moving on, I'll go into the results. Here are the main facts, our highlights. We have a new health care plan, thanks to the restatement of that liability and some employees move towards this plan where we do not provide that benefit to the enrolled employees for health care insurance when this employee leaves the company. And the initial effect was BRL 57 million, and we are optimistic. We believe we will see positive effects in the company's balance sheet, thanks to this strategy to create this new health care plan. And this is the initial effect, though when I understand it already, chose the initial delivery that we have been promising in the market to reduce the post-retirement liabilities that the company has.

And thanks to this number of actions that the company is adopting. We are discussing this topic with the unions, with the employees of the company. This is an initial effect. As I said, it is relevant. That efficiency and cost goes through the restatement of our health care plans and pension plans, and we understand we already have the first positive effect on the company's balance sheet. We transferred third-party contracts to Cemig -- from Cemig GT to Cemig H and that is a positive impact on EBITDA of BRL 243 million in the first quarter from our trading company. In the holding, it has a tax efficiency, and therefore, we can see clearly the results here. And these are really amazing results, and it was a great assertiveness for the company to read the market correctly and the strategy here really is to have the right analysis of pricing of energy in the future.

Now for Cemig D, we believe that we had a very significant growth, 3.1% when we compare the first quarter of '23 to the first quarter of '22, even with the migration to clients to distributor generation, that represents already 8.1% of total volume consumed there in distributed generation. This is going to be reviewed and adjusted in the market. But it was an important result in this first quarter in the year when we compare to the same quarter of last year. So probably one of the largest market growth and the service market and the country in the first quarter of 2023. For Cemig GT, we had the FX effect because of the mark-to-market of Eurobond and a positive effect of first Q of '23 BRL 60 million and a positive effect in the first Q of '22 million a gain of BRL 255 million, but it's also under a radar, the liability management and the renegotiation of our debt because of the FX exposure.

Now I would talk about the consolidated results of some of our main businesses, and I will turn the floor to Carolina.

Hello, everyone, and thank you all.

So starting the initial results for the consolidated ones here. We have a recurring result for the EBITDA of 8.1% with lower amounts nonrecurring this quarter, which was the sale of interest in Santo Antonio. We already talked about that. The restatement of the post-employment liabilities with the health care plan and also the bidding that we will hold for some SHPPs that did affect the results and FX exposure every quarter that affects our net income. And in 2022, the impact was positive. And we also had a positive effect on 2023, but a lower amount one because of the FX change. When we look at net profit, and I remove the Eurobond effect, we delivered a result of 5.7% positive. And as Leonardo mentioned, these are important results showing the performance of the company's initiatives, bringing results to analysts and investors and shareholders. And as we mentioned, the commercialization of the trading activity, we started the migration to Cemig Holding. So BRL 243 million left, Cemig GT and are under Cemig H, our controlling company and the consolidated results because of consolidating issues.

Now moving forward, consolidating operating costs and expenses. This is the performance of our costs as we had a growth of 12.3% affected mainly by personnel. The wages adjustment for Cemig database is in November. That's when we adjust by the inflation when we compare the first semester of 20 -- the first quarter of '23 to '22, that's where we see the impact of the cost increase and also third parties, outsourced services. We did have an increase because the result here -- it is because of more preventive maintenance that we already talked about that. And these costs tend to be higher, now because we are increasing our asset base. When we look at the investments that we have already made in 2022 that were growing when we compare them to prior years and what we have forecasted for 2023, we are investing in our asset base for the distributing company, and therefore, we will have more preventive maintenance. And also, we will have to maintain equipment to monitor clients and also increase the number of collection agents.

Now our consolidated cash flow. A strong cash generation for the company, BRL 1.6 million in cash generation. We are still having the tax credits that being reimbursed to consumers in the next cycle with the tariff review and May 28 will still have a remaining amount there to be returned to being reimbursed to consumers, also payments of loan financing and debentures of BRL 444 million and the divestment activity, what we have already done in the quarter -- or investment activities, BRL 738 million, and we ended with a significant cash of BRL 3.1 million, and that supports our investment program.

This is our debt profile. As Leonardo mentioned, we already worked -- we had 2 different movements of liability management related to Eurobond. But in 2024, we have a large amount of that in the maturity, and we are working on this high wall that we have for 2024. Our leverage is still below 1%, but we understand that this low leverage will guarantee the success of our program, our investment program, as we have shown in the second slide. We believe that we will have more than BRL 5 billion investment for 2023. And in terms of ratings, you can see Fitch's ratings and S&P AA+ and Moody's AA.

For Cemig D results, recurring growth in EBITDA. That is very good for the distributing company. We still have clients that are migrating to GT. And just in this quarter, we had 8.1%. I will show you further on how the breakdown is for consumers. But even with this migration with the loss of some clients from captive to GT, we have this increase in 13.1% in our recurring EBITDA. Net income, there was a drop there because 2023, we had a lower financial revenue with the fines in the energy bills and also with monetary restatement for a typo.

This is Cemig D energy market. We have grown 3.1%. You can see that transported recurred energy has increased. Also, we had an increase in the residential area. As I mentioned, 8.1% of the total energy consumed for Cemig's concession today has already migrated to distributed generation energy. And it's important to say that these investments are allowing us to grow in the market, whether by free clients with the increase of the transported energy or because of captive clients.

As far as losses are concerned, we are within the tariff coverage related to regulatory losses. This is a commitment that we have with the market so that we continue meeting that number. We keep that number of inspections. Just this first quarter, we had 119,000 client inspections. We are replacing obsolete meters. We already replaced 97,000, and we believe we will be able to replace 6,000 of them in the year. We are replacing conventional meters by smart ones, and we also had the disconnection of 1,900 of illegal connections. And this will allow us to keep complying with the regulatory limit, and that is something that is a commitment for us, very important.

Now for delinquency. This is important to show you how important the digital channels are for Cemig's collections. Our instant payment method of PIX is growing. And we have a number of collection possibilities here. They have lower costs for the economy and our collection rates are very close to 90 -- or 100%, is 99.75%. This is a guarantee of our methods. And as I said, especially because we are using these digital means. Delinquency, when we look at it, there was a reduction. If we started the comparison in 2020, the company developed some initiatives to bring down delinquency. And we see here that 2023 compared to the first quarter of 2022, we had a significant reduction in delinquency, thanks to these collection activities, improvement and also the improvement in accounting rules and evolution of the criteria collection using machine learning. All of that is allowing us to bring down our delinquency and get to a significant number.

Now operating efficiency. This is something else that we have been able to achieve, and it's crucial for us. It's to be within the regulatory limits for OpEx and EBITDA. So what I have covered in my tariff is BRL 1.05 million and 12.2% more efficient. So my OpEx is BRL 931 million. And on the EBITDA side, my performance is 8% of the regulatory EBITDA. These are achievements that the company is really focused in achieving.

Now Cemig GT results. We look here and we see a reduction in the EBITDA and in the net profit. But since we started the migration of the trading activity to Cemig's H part of that EBITDA was displaced. So it is important to see that when I -- if I move back with this displacement, if I analyze the first quarter of 2023, we have BRL 243 million under Cemig's H, our controlling company. Therefore, if I would bring that EBITDA back to Cemig GT, I would have reached an EBITDA in the quarter of BRL 1.032 billion. So in an initial analysis, it looks like there was an operational inefficiency of Cemig GT. But that's the other year around, we are short for 2023. We did have opportunities in our trading -- our activity. And here, we show efficiency with this activity. And net profit, in addition to this displacement to this change to Cemig H, we also have the FX effect. And in 2022, we had a positive effect that was higher than in 2023, which also helped to the reduction of 2020, 25% in the IFRS net profit and in the recurring numbers, recurring net profit, 6.6% negative.

Now the Cemig's GT highlights. We are going to have an auction to sell 15 SHPPs and a minimum value of BRL 48.2 million. It makes a lot of sense for the company's strategic planning. We look for the optimization of our asset portfolio and also best capital allocation. And we are still focused on Minas. This year, we'll have an important transmission auction over 6,184 kilometers of transmission lines with an investment of up to BRL 15.8 and 6 of the 9 lots are going to be in Minas Gerais territory. The company will analyze a lot that makes more sense according to our strategic planning, and we'll be participating in this auction with 100% Cemig's GT.

This is Gasmig's results. When you consolidate it, consolidate -- we have already consolidated Gasmig's results in our consolidated results, and our EBITDA was up 41.2%, and that is thanks to a better price of the gas molecule. We had a margin increase, which has contributed to this growth and a net profit of 76.4%.

And now I will turn the floor to Leonardo, and he will end with this final slide so that we can open with a Q&A, stressing our commitments with the market and investors.

Well, this is something that we bring to you in all the quarters. This is something that we brought in 2021, our strategic day in our last Cemig day. We stressed the strategic planning, our strategy. And we are being very much coherent. We are meeting everything that we promised. So operating efficiency, EBITDA over the regulatory EBITDA, our losses are under the regulatory limits. We have a good liability management. We reduced our debt for BRL 1.5 million to BRL 155 million, and we expected that we can reduce even more our FX exposure by the end of the year. And also, we are stressing our Cemig D investment program. It is strengthening. And we believe it has a great social impact. And for the economy, also, we are offering more energy to the state. And these are also investments that will provide the right return as we understand it.

Now in progress, divestment of nonstrategic assets. We already mentioned the most complex ones have already been completed. It's achieved. But we still have a few assets that because of our strategy, it would make sense for the company to divest them. We started seeing results of the restructuring of post-retirement benefit plans. And we believe that in the next quarters, we'll see better results. And we also are making a relevant investment this year in digital transformation, IT and renewable generation sources.

And for future challenges and opportunities, thinking about our sustainability, we will have a growth in retail electricity sales. We are prepared and we continue preparing ourselves to be able to cater to this market and to have a relevant role as we have in the free market, we are the largest trader for the end consumers in Brazil when we expect to have the relevant stake for retail electricity sales. And also we have renewals of concessions, portfolio and also other plants that we will renew the concessions, following the electric sector framework that allows us to renew these assets under given conditions. This is it.

In summary, this has been a great quarter, and we are available to take questions that you might have on topics that should need a greater highlight or that if you have any other questions that you would like us to answer.

(Operator Instructions) I have the first question. And I will ask to Marco Soligo to answer. The question is about the divestment in Taesa. How are the negotiations with Taesa that has the right for purchasing it?

We are talking not only with Taesa, but also with the market. Everyone knows that the company wants to divest and that participation in that stake, and we are working on it to finalize the process. So we are having great conversations with Taesa. We have a positive relationship with our partner. And we have an open channel to talk everything we want about this topic. That's what I can tell you right now.

The next question is for Thadeu, our Chief Generation and Transmission Officer, and it comes from Thiago, an investor. What is Cemig's perspectives for transmission auctions this year? Several lots are in Minas Gerais state. Are you going to be aggressive there? And -- or are you going to be more conservative there?

Yes, we are going to participate, and we are going to be very competitive in the transmission auctions this year, obviously, to guaranteeing the minimum return that our shareholders require, but we are not going to go crazy. We are going to work with a lot of synergies so that we can be awarded with these lots. We have, as an objective, at least 1 lot in this auction that is going to happen in June 30.

And the next question is for our CFO, Leonardo. Can you comment if you're expecting no reversals in the post-retirement issue for Cemig regarding the health care plan? How was the migration of your current employees? And also second question for you, we saw a good result in Gasmig's EBITDA this quarter. Do you expect that to be recurring further on? And this question is from Julia, sell-side analyst from Santander.

Julia, about the post-retirement benefits, we understand that in an initial migration that we allow the current employees to enroll that they could accept this new health care plan, approximately 1/3 of the employees accepted this migration and this effect is posted in our balance sheet. We believe the company will adopt new actions so that we can keep reducing this cost.

We believe that this new plan makes a lot of sense to employees and also it makes sense for the company. I think it is a win-win situation. So we expect that in the future because of an other actions that the company will take, we will be able to reduce these costs, both for current employees and also actions that we are developing to invite employees that were retired here from the company to join a sustainable plan and that makes sense that reduces the post-retirement benefit for the company, but also provides a good assistance for those that migrate to that plan. As I mentioned, the migration for now 1/3 of the current employees, but we expect that this is going to be even more relevant in the near future.

Now about Gasmig EBITDA, really was a very positive one. It's a great result. Growth in the market close to 4%, but also growth in the 15% in the molecule price adjustment. Therefore, Gasmig could have BRL 250 million in EBITDA in the first quarter of 2023. We are very optimistic about Gasmig results. Of course, we cannot say that we will multiply that by 4, but we understand it is relevant, and we expect Gasmig to have relevant results to grow its operations this year and because also of these adjustments that we just mentioned.

We no longer have questions. So I will turn the floor back to our CFO and IR Officer for the final remarks.

That's great, Carolina.

I would like to thank you, again, for being with us in this conference call. It is a very positive result. We are optimistic about 2023. We always tell you quarter after quarter that we are delivering sound results to the market and even our valuation and the appreciation of our share show the trust of the investors have in the company. Our IR area is available to talk to investors to take your questions in case they were not answered in this call.

Good afternoon. Thank you very much, and have a nice weekend. Thank you.

Cemig's First Quarter 2023 Video Conference Call has ended. Investor Relations Superintendent is available to take further questions, if you need so. Thank you all very much, and have a nice afternoon.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]