Companhia Energética de Minas Gerais - CEMIG (CMIG4) Earnings Call Transcript & Summary

Good afternoon, everyone. I'm Carolina Senna, Cemig's Investor Relations Superintendent. Welcome to Cemig's Fourth Quarter 2024 Earnings Video Conference Call. We inform that this video conference is being recorded and will be available on the company's IR website, where you'll also find the company's presentation. [Operator Instructions]. We are now starting Cemig's video conference with Reynaldo Passanezi Filho, CEO; Andrea Marques Almeida, CFO and IR Officer; Cristiana Maria Fortini Pinto e Silva, Chief Regulatory Officer, Marco Da Camino Ancona Lopez Soligo, Chief Participation Officer; and also Generation and Transmission Officer, Sergio Lopes Cabral, Chief Commercialization Officer. And for the initial remarks, we turn the floor to our CEO, Reynaldo Passanezi Filho. Thank you.

Good afternoon, everyone. It is a pleasure to be here in this media conference earnings call 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 Cemig's history, the highest net profit as well of our history, the higher annual CapEx of Cemig's history and also the best rating in history, which is AAA by Fitch 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 in all the figures, you will see in our EBITDA, net profit, CapEx. 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 is spectacular, but also historical results. Once again, I say that we have reached BRL 11.3 billion in EBITDA. This is a significant growth when compared to the prior year, we reached BRL 5.7 billion in investments, which also has a very positive effect. We know that investments that are concentrated and regulated sectors that has a great effect in the company's profitability when we are becoming more mature and also working on divestments, we reached a AAA rating. Our issuances have been made with interest rates that are in terms of the spread very good, the lowest in all-time. Just this year in 2024, we concluded another step of our divestment program. We sold Aliança Energia. And also, we had a very positive impact in the tariff review for transmission, which was of BRL 1.5 billion in Cemig's 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 go back to being a driver in energized's development because when you talk about infrastructure, electric power, we are talking about an input base that is crucial for the development of the state in the country in our case, is very much concentrated in Minas Gerais. Here, we invested in 2018, BRL 954 million. Last year, in 2024, we invested BRL 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. And year-to-date, it's very important to say that if you look at the start, 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 how 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 enough 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 nonstrategic 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 had to that BRL 59.1 billion from 2019 to 2028. And the figure for me is wonderful, which is to invest 4x QRR, the regulatory depreciation. We had invested below the QRR, but last year, we invested 4x 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 will be growing and developing networks, especially 3 Phase Is. We have a special highlight now, a special attention to the Agro business, which is the Ministry Phase program. And also it aims to improve the quality of the services for the Agro business. We are back to investing in infrastructure in gas with the gas pipeline to the Midwest of the State of Minas Gerais, we are also investing in GD -- DG 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 approves this transformation moment of the company. When I 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, Reynaldo. 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%. Our shares increased 43% of preferred shares in the year, it is BRL 7 billion of market value increase. And we have, if approved, the BRL 1.8 billion in the next shareholders' meeting, we will be distributing BRL 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 6 points up when compared to the previous year Also, we are included in the Sustainability Yearbook 2024 for S&P Global. And the A list of CDP as well for Climate 2024, which is an index that measures transparency in the analyzed 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 achievement in our sustainability pillar, in addition to our Cemig rack, not only Cemig rack, but we also have IACs. Our renewable energy certificates that we are issuing with our own generation or with the generation that we buy in our contracts, we also -- 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 a record of BRL 11.3 billion in EBITDA, up EUR 32 million vis-a-vis the prior year, we did have nonrecurring relevant effects that add BRL 3.6 billion. Among them, some that have already been mentioned, BRL 1.5 billion from the tariff review from the transmission company, also BRL 584 million for reversal of INSS over the profit sharing program and nonrecurring events, also the sale of Alliance. We had nonrecurring events in 2023, the sale of Baguari and Retiro Baixo, which corresponded to around BRL 300 million. So all of these events have been nonrecurrent and relevant from 1 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 BRL 600 million and the drop of EBITDA when compared these years. Now turning to net profit, of course, the same effects can be applied and of course on the net profit and then we have effects have increased, because we are investing more. Of course, we also had effects of payment of higher taxes because we have higher net profit, 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 years. 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 BRL 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. 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 the 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 our bidding process, logistics, purchasing stock reduction. In this case, we had unlocked BRL 808 million that will be flowing through the next months to improve investments and improvements in the transmission business. And also in our Ceará Wind Park will have the installation of 6 new wind turbines, and we should estimate recoverable revenue of BRL 11.3 million. So when we compare the EBITDA from the fourth quarter of this year to the fourth quarter of the prior year, we did have drop in the margin of the trading company here, BRL 225 million drop in terms of margin. We did have the same nonrecurring effect last year because of the sale of Baguari and Retiro Baixo, which affected positively the EBITDA last year because it didn't have this year. And also, there was an increase in PMS. So once again, I usually say that this is a positive PMSO because we have an increase and pathway cleaning because that improves our DEC, 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 BRL 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 BRL 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 BRL 1 billion. Now looking at our expenses. I mentioned some of them. We did have an increase, but it was below inflation. And as I mentioned, we did have expenses, such as outsourced services, which had to do with free pruning and cleaning of pathways, and that improves the -- some of our indicators and some also related to IT, but nothing that is of major concern. This is the debt profile. We ended the year with BRL 9.9 billion. Now this is a real-denominated debt. We no longer have FX exposure and also, we have a landmark here in terms of sustainability, debentures from last year and the ones that we just issued, they are sustainable debentures. This is another relevant end mark 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 back up to 2028 when we have the rebuilding of distribution EBITDA 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 ended 2023 with BRL 2.3 billion in cash. We did have cash from operations and that were very relevant, BRL 5.9 billion, BRL 4.5 billion in loans and debentures. Also, we had Alliance divestment, a very significant amount that we received BRL 2.7 billion. And then we had proceeds that were paid, also dividends paid and also investment activity and payments of loans and CVA. All of that has been very relevant over time, and we ended the year with BRL 2.4 billion in our cash. So now I'll turn the floor to Carolina. She is going to go into the details on each company of the group.

Thank you very much, Andrea. So now moving on Cemig's D results when we compare the third quarter of 2023 -- 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 a loss indicator. And we've 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 '23 and '24, we also had an improvement in our ADA. And when you look at the market, the fourth quarter, 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 higher and we also have already talked about the increases because of the depreciation, so we have 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 3 clients. Recently, the retail traders. We are leaders in Brazil, not only in number of clients, but also in the amount of transacted energy showing that this investment also allows the growth of the industry in Minas Gerais. And on the other hand, the captive, as I mentioned, because of migration, it had reduction in 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. And here, the opposite is happening. We had a slight reduction of 0.6% and our estate, our concession area is an area that has solar projects of micro mining manage generation distributed one. If we did not have that effect of the micro in of DG, we would have grown a higher amount. As I mentioned in the beginning, and that affects the financial results of the distributing company in 2021, the company was within the limit of core losses. This is very important for the company. And this is a commitment that we have 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 380,000 -- 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, 67.2% came through these new channels with a highlight to peak. And, therefore, we have 50% reduction in tariff costs. This is another indicator that we have. It's what we call ARFA, the receivables collection index. How much we are being able to collect in the last 3 years, we are 24, 23, very close to 100%, and that shows how important it is to have the collection of those. 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 meaning that limit the compliance, and we ended the year with BRL 156 million lower than the regulatory ops, removing the nonrecurring events that we had in 2024 and the distributing company was the program that we had for dismissal and also the profit share and distribution for EBITDA has also improved a lot, still a little bit off, but we are working to bring that back to the regulatory EBITDA. For Cemig GT, we already mentioned and I here bring to you when I compare the fourth quarter of 2024 to the '23, when we already know in the market when we shared that with you on Cemig data, the margins of the trading company and '24 would be lower when 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 Cemig GT. So in 2024, we end up having lower margins and lower results. In addition to 2023, as Andrea mentioned, we had a nonrecurring event, which was the sale of Baguari and Retiro Baixo adding to our strategic planning that improved our results in 2023. So in Cemig GT, we had a reduction because of these 2 main effects that I just mentioned. This is a very important slide because we have part of the trading activity in Cemig GT and the holding. And here, we break it down by business. Here when you 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 Baguari and Retiro Baixo transmission, and Reynaldo already talked about that. We are 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 a 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 we what we really should take into consideration when we compare our Cemig to other segments. Now, going over Gasmig, 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 Gasmig is now back to making significant investments, and it's developing a pipeline or Divinópolis, the Midwest of Minas Gerais, 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. Reynaldo 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 that -- so that we are closer to them and so that we can deliver to each client in an individualized fashion also Cemig Agro and enforcement indicators that we are going for and also the DEC when we had an improvement of the rural DEC of 8 hours. So these are improvements not only numbers, in numbers as well, but some of them are greater. It was because that follow our strategic pillars in terms of innovation and technology, ADMS as mentioned, also as for him, we are still implementing it. And the platform that is available for our clients of the retail trading companies, a digital platform. We don't see it here, but we have a program called Cemig [indiscernible], but 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 transformation -- 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 connected to them, also sustainability this year, we have planted 1 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 [indiscernible] environmental awareness program for value creation 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 BRL 40 million and inventory logistics. It's a huge organ, we are working on it. We are aiming to be close 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 provision's reversal, the INSS one, but also, we had a superior labor court decision that was very important that it was in favor of Cemig this is work that is being done by our legal team. They are 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 Cemig 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 divestments to be made, the digital transformation, which is still being developed. We will be renewing concessions. There are auctions in terms of capacity reserve. And obviously, bringing in new technology, new technologies 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.

[Operator Instructions]. Our first question is from Carolina [indiscernible].

I have 2 questions. First one, I was talking about the efficiency. Over the last year, and also over 2023, you have taken a series of measures that really improved the margin. And we are 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 health care plans. Can you talk a bit on that case or how are the negotiations with the union and if you can also give us an update on other post divestments of assets. Then turning to my second question. We have seen that another listed company that is under the control of large administration has received a notice from the Secretary of Development. So to start discussing the possible privatization of the company, so did you also have -- did you receive that kind of notice. And I would like to understand if for Cemig, this is also ongoing in there.

Our first question is going to be addressed by Cristiana Fortini about the health care plan. Then I'll turn the floor to the other officers.

About post-employment, specifically regarding the health care plan, we had a significant achievement last year. And the labor court was in favor to Cemig. Thanks to -- we had 2 collective agreements. And according to those, the benefit of post-employment for health care plan would be indefinite in terms of time. That is the company would have the owners for the health care 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 were 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 port, but also something that allows us to get closer and to negotiate with the unions. So about the health care plan. What we can tell you is that we had 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 greater sustainability. It's still protecting our employees. It is still guaranteeing the health of our employees. But in terms of its financial sustainability, it's much healthier for the company. This migration process happened in the beginning of 2025. Anything else?

Now the next question related to divestments. I will talk -- I will turn the floor to Marco Soligo.

Thank you very much for your question. We are and we are still working and divestments that have not been concluded of Taesa, Belo Monte and also on the consolidation of some minor stakeholding or such a sale or acquisition [indiscernible] and others. It will be informed in due time as we always have been. That's it.

Thank you, Marco. And now I will turn the floor to our CEO Reynaldo Passanezi.

Good afternoon, Carol. If I well understood, as a question about privatization, right? Yes, we have been receiving notices. And we are talking to the controlling shareholder, the economic development secretary, 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 received from the Economic Development Secretaria and as a representative of Minas Gerais administration.

Our next question is from Guilherme Lima from Santander.

I would like to make a quick follow-up in the post retire -- post-employment, I believe. You will have a discussion and a final ruling next week. You're already talking to the union for a possible negotiation and agreement or you wait until you go to court and how are -- how is the union behaving in this negotiation. And another question is in regarding the volume of exposure in terms of differences of submarket. You mentioned in the release 120 megawatts, with a negative effect of BRL 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 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 Marcus Vinicius. He is the superintendent of planning for the trading company, please, Marcus.

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.

Thanks, Marcus. Now we are going to move towards the end of our via conference of the fourth quarter of 2024. I will turn the floor to our CFO and IR Officer, Andrea Almeida Marcus 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's happening in the company or 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 nice afternoon, and thank you very much.