Companhia Energética de Minas Gerais (CIG-C) on Q2 2024 Results - Earnings Call Transcript
Carolina Senna: Good morning, everyone. We now start our Cemig Day, the 29th Meeting with Investors. For those of you that do not know me, I am Carolina Senna, Superintendent of RI. It is a pleasure to have you all here. I would like to greet all of you that are here with us in this agenda, and our objective is to bring to you the main initiatives of the Company. This is a special meeting. For the first time, it's being held in Sao Paulo, the Financial Center in Brazil, getting closer to the investors marketing and also bringing with us our Minas Gerais approach, the warm coffee and cheese bread, our special hospitality and meeting you anywhere. We will have a strategic meetings, networking and a unique opportunity to talk to you. Before we go open our agenda, I would like to ask you that have your phones on mute. Our meeting also is being transmitted by Zoom and thank you all that are with us online. To open our meeting, I am glad to bring to the floor the Chair of the Board of Directors, Marcio Luiz Simoes. Please, Mr. Marcio.
Marcio Luiz Simoes Utsch: Thank you, Carol. Good morning, everyone. Well, I don't know where I should look at. But anyway, I will take 10 minutes to 15 minutes of your time, at the most, to tell you a little bit about our past and then where we are going towards. I've been with Cemig since Governor Zema started. When he started his term, I also started, and I've been the Chair of the Board since then. When Zema was elected, Cemig's value was BRL10 billion. Yesterday, Cemig reached almost BRL36 billion. But in this period of time, in addition, we paid BRL12.7 billion in dividends. In addition to that amount, we paid dividends in the spirit of time. The PN shares were up 394% up to yesterday and were up 437% up to yesterday. So, this was built in terms of prices throughout this period. But price is one thing, and value is something else. What we have done at Cemig was something else. It was the value. And this past that I'm talking about, we have done some wrong things. But fortunately, we were able to score a few goals. We also took some goals, of course, that's part of life, but we were able to make it right, more times than not. So, what were the mistakes and the learnings? Well, we took a long time to sell our asset-light, but it didn't make sense for us. Renova also, it took us a while. It went there, it went back. So, it was a whole deal of things we had in court reorganization process. So, we know that this could be done. And we found a way to do things all over again. So, when we look back, sometimes, we think we could have done better. But what have we done that was best? It was not even the price, because this was a consequence. But what we have done best is something that people cannot destroy. When you do something good, and then someone else comes in and does something wrong. But the best that we have done was people's management. We have a very well aligned team and the Board. We chose Board members. All of them were hand-picked. Our Executive Board, the officers, the superintendents, all top management of Cemig, everyone is -- would deserve a score 10? No, of course not. Of course, some of them would deserve 12 or 13. But what we made right was much more than what we made wrong. So, you cannot get this type of figures with a bad team. I cannot know anyone that wants to be Alexander, the Average. Everyone wants to be Alexander, the Great. So, we planned wonderful things, but this planning was just executed, because we have at Cemig, people that work with excellence. In Cemig, we have people that have been with us for a long time, intelligent, smart people that are working very well. We have new people that came in later, we have everything. So, we really put together a wonderful team that were able to deliver these results. So, this is something that we made right. When we look at this team, I'm very happy to see that team. It's a wonderful one. It's a team that looks to the future to find out what will be our headline in the future. So, 10 years from now, what Cemig will be. This headline is not written yet, but we can work on it right now. We just have to wait and read it in the future, so we can be prepared for that. I can think of that. Of course, this is a company that is a listed company, it's not a private company yet. So, we have all these issues related of being a state-owned company, controlled by the Minas Gerais state. So, when the administration changes, things changes. But when I look back and think about what we can build, I'm sure that when we look ahead, there is a lot to be done. And why do I say that? Well, if we left BRL10 billion to BRL36 billion, we paid BRL12.7 billion in dividends. We were up 394% in PN shares, 457% up ON shares. Is that the limit? No, that's not the limit. There's a lot to be done. So, we have privatizations to be done, or better, there are other companies that we can monetize, other companies that we can bring in, we can do that. We have SHPPs. Things that we can do to turn the capital allocation of Cemig more efficient, our capital allocation that will allow us to grow even more. So, we have a huge market at Cemig Sim, and we have to make it work. Gasmig has a large area to grow. We have here someone that just started with us in a few days, but he's very experienced, so a very experienced person that he knows the sector and he's just with us right now and we have Cemig itself. When we look at Cemig, and I always say that, well, Cemig has to be at the center of the table. So, when something is good, it's a habit, but when something is bad, it's a vice. And it just looks like that plane that was going from Sao Paulo to Lisbon, and then there was a Russian flight attendant asking a passenger, I think, it was a Japanese passenger, his name was Manuel, which are the dinner options, yes or no, she replied, so very clear. It's a clear option, it's yes or no. You choose dinner or not? So, this is how we go. What is your option for electric energy, yes or no? So, if you don't want to have candles at home, you need to work with Cemig. What if it's not a captive market? People will choose Cemig. That's what we have to work for in the future, to work on these values. When it is zero of captive consumers, when everyone can choose where to buy from, like you choose your cable TV, your phone carrier, right there and then, will we be chosen? If the answer is no, it will be a defeat for this wonderful team. And I will go back. We are wonderful, but we have not been able to get there to meet the desires of the consumers. So, I have here the secretary, the development secretary of Minas Gerais, Fernando Passalio, has just arrived. But if we, in the future have the option, and this day will come and people tell us no, that they don't want us, that team, that was wonderful, it would have been a weak team, because they could not work for Cemig to be a choice, when that choice could be made. But just like you choose what you are going to do today, we will have to be chosen in the future. If it's not that, that will have been a defeat. Oh, we were not chosen, because we delayed home service, another defeat. We were not chosen, because we were a company that had only captive consumers and we did not have time. So, another failure. So, if we say that we have not done it because we did not have time, it's just like you're saying that you were bitten by a turtle and you did not have time to escape. So, looking ahead, I have to think that Cemig will grow, because there are actions in the Company to plan for the future. And you, the investor in the Company, have to understand that it will be better than it is today, not only larger, but better, and also practical and immediate actions, better capital allocation, better adjustments in our investments, which are already large. And Reynaldo is going to talk about that in his presentation. But investments that have already been done and that had never been done before. In the period that we have done it, Reynaldo has the figure. It's something huge regarding to what had been done in the past. So, these investments really will charge for them and they will be transferred to the tariffs and that's going to improve our profitability. So, when we look ahead, there are market opportunities that we'll take in, and also structural opportunities with investments, assets, improvements that will allow the Company to be better than it is today. And what else? Well, Governor Zema, since it's his first term, he said, and this is public, he says, he said, I want to privatize him. Again, his second term, he said it, he said the same thing. This is no news. If it is news for you, you're not updated. When we do, we from Cemig, we agree with him. If we did not agree, we would not be there. So, we would not be responsible of us. So, well, if he wants to privatize and I'm there, and I don't want it, so why would I be there? But all of us believe that this is a good option. That's an important movement. It depends on the controlling shareholders. The Company is a privatizing object, and the owner of that action is the State Administration. So, this is very important for you to know. So, really there is this long-term view, you are pursuing that idea, because this is very important and it can unlock more value to the Company. And what is going to change if you have a state-owned company and a private company? Well, if you are going to have some investments done, you have to go for a bidding process, you cannot choose your provider. I know that people that work with that and know how it is. So, you cannot choose your provider. You work in companies, in banks, someone chooses the provider for you, so you want to change your IT system, someone will choose that for you. So, not always a lower price or is the best service, sometimes it is and great, we make a right choice. But when it is not, it's a wrong choice. So, in a privatized company, we can choose our providers. So, you do not hire who you want to hire. You have to hire those that went through the public exam and that's fine, because they studied and they were approved in the exam, but you have to allocate the right person in the right position. Also, sometimes, you have the same test for everyone that is in the public exam. But so if sometimes, you don't have a person that would adjust to the profile that you need. Of course, that there are a lot of things that work well, but also there are deviations. So, these are improvements to be held. So, you also have to check what do you, would you gain any here, if I can hire my provider and what if I can hire each person for each different position? So, how agile will it be? How much is this worth? This would be there in your checklist. So, when I do this, that value unlocks and that will be reflecting the Company more than that. And just concluding my opening speech, the alignment that we have today of Cemig and the State Administration and ANEEL, to compare the results that we have to account for. DEC, FEC, these are very good figures and they are growing, they're improving. So, we have a great improvement in the main indicators and also indicators that are important for the controlling shareholders, which is the State of Administration. So, we are meeting the indicators, we are surpassing them. Some of the indicators are not at ANEEL, but they are very important. For instance, the receiving indicator, we receive more than what we build in the month, because we have late payments that we bring in. So, the collection results for Cemig is high, because you can pay with pics, with drums, with anything that you want, because there are a lot of ways out that, we didn't have that option before. So, a few things improved. So, that allowed us to deal with it. So, I'm going to disconnect your electric service. So, I don't need to pay, I need to pay a specific fee to disconnect the electric power, and then I have to pay another fee to connect it again. So, now, we pay a single fee. And if the person pays the electric bill right there and then you don't even need to disconnect that service. Now, as far as technology goes, we did not go up a ramp. It was a huge leap. We were not up the ramp, because there were so many significant changes in client service, with APPs, with the agreements that we had to improve customer service. And you cannot measure that in ramps, you have to measure it in leaps. We left the, some of the management, proprietary systems we have now, special systems, and that improved our relationship with clients, also purchasing systems. We would purchase in a way that there was no standard, no reference of what was being acquired. So, now, we see the different prices, the different codes, and you can have work with the competition with the best that you have available, and then you go for the best of the best, although we do have the limitations of a state-owned company. So, there are a number of improvements. So, in the past, we were less valuable, and now we are more valuable. And so, when we look at the future, I could be talking here for more 30 minutes, so people here will say, they will go into the details about some of the topics I raised. I'm sure that is going to be the subject of the different presentations and technology, generation, transmission, human resources. We have a lot of new things and good things to tell you that are happening in all of these areas. So, please some patience to hear it all. It's going to be a long day, but I know that you will have reasons to believe that what Cemig has done, it was that Cemig went up and is staying up. So, when you look at Apple's, Microsoft charts, Walmart charts, anyone that you want to, there are always up and down, ups and downs. But what is important is the final resulting line, so an improvement. So, these are improvements cannot be taken down, you cannot change. I know if the administration changes, you're going to say, okay, now I'm going to go back to calculating things manually. So, this started with us and we have made these changes and will stay with us. And we are sure that we still have the state-owned administration. And I say still, because that's not the intention of our Governor. But we might have to consider that this might not happen as soon as we wish. And thank you very much and I hope you enjoy the day.
Carolina Senna: Thank you very much, Marcio, for your presentation, for opening our event. And so, now, I would like to bring to the floor our CEO, Reynaldo Passanezi Filho.
Reynaldo Passanezi Filho: Good morning. Good morning, everyone. Thank you very much for being here with us at another Cemig Day, our 29th Investors meeting. I would like to start greeting Marcio and Fernando, our Economic Development Secretary, and thanking them for the support to all this transformation. But what Marcio just said is our daily activity, we have a Board of Directors that participates, that questions us and our will to bring in these questions and follow a transformation process. So, what Marcio said here is just like a Board meeting, right? There is another Board member here, Afonso. He was announced Director, and he really knows the electric sector. And this is how our Board works. And Fernando and Governor Zema also encourage us to look for more. And this is what we are bringing to you. This is a story that brings management improving efficiency, also a wonderful CapEx increase and capital management and also leadership. That's what we have been working on. Starting with people. I will start then with Marcio's example. And just to show you what the Board works like and also to give you an example of that Board support. When I started at Cemig, there was a special specific situation, which was all the leaders, the managers and superintendents needed to go through the public examination, we could not bring anyone from the market. And I say not market people, but people that were not working at Cemig. So, we could have officers coming from out of the Company, but all the managers and superintendents would have had to been approved in the public exam. And they can be great people, but sometimes, it's not the profile that we want for the position. So, my idea was to turn that process more flexible. And to approve with the Board that possibility, I wanted 30% per position. So, 30% of managers and 30% of superintendents that could come out from out of the Company, that is, with no public exam. And the Board allowed me 40%, not only 30%, 40%. So, I think that shows what we are looking in terms of transformation and what we have been adding in terms of support. We requested 30% and they gave us 40%. So, this is the essence of management. And this is a very nice slide, because it also shows our purpose for results. I call it back to the basis. So, we'll aim at efficiency, and we'll aim a capital allocation into what we know and something that will provide us sure profitability. So, here, results. Since 2009 to 2018, the Company was in non-compliance with the regulatory parameters of operating efficiency, that is PMSO and also technical losses. Well, the Company burned BRL15 billion over regulatory. Now, we are within the regulatory expenses. So, when we add the regulatory work, we have the capacity of generating the value according to the regulatory work. In the past, this would've disappeared, because expenses were higher. So, add BRL15.2 billion in 10 years, you can calculate how huge it is, that adjustment. So, this is a very significant adjustment. For me, this is the back to the basics. And as Marcia said, we still have things to be done. And I'll give you another example, a very simple example here, because here, it's an example. I don't remember exactly, but I think when I started, we have two rented buildings. If you have been to Cemig, we have a Avenida Barbacena building and another building by it, where we have a Banco Inter nowadays, both of them were leased. We returned the first one, the first building. This was our first effort to reduce expenses, to increase efficiency and reduce expenses that reduced the rental cost. So, what did we do? Three months ago. We got our own building and we returned five floors. Today, we use 50% of the rented area we had in 2015 for the same headquarters and generating the same results, because people are still there. So, I guess, that just gives you a pretty good idea of how it was and what we're doing, because the rent example came in two waves. We did the first reduction, then the second move, and of course, we continued to pursue opportunities to gain efficiency. Second, and Marcio also touched on that. We sold those assets that we knew little about and had no control over. And we are concentrating our investments in the businesses that we know in the State of Minas Gerais. So, this number, to me, means Cemig invested in minority holdings, normally outside Minas Gerais and Cemig invested close to BRL40 billion, BRL39 billion, Light, Renova, Santo Antonio, Axxiom, Ativas, Alianca, Belo Monte, BRL39 billion. The net destruction of value, destruction of economic value, almost BRL14 billion. When we took over, Marcio, 75% of the time. And I remember that quite well, when I took over. And Belini was going to give me the baton, he said, careful because 75% of the time is dedicated to deal with these minority holdings. Now it's down to zero. The Board is here. The management is here. Now we are a profitable company. All the problem assets, the distressed assets have been divested. With this, we recovered BRL13 billion by divesting minority interest. So instead of spending, we have a cash recovery more than BRL13 billion. And here, we are considering sales of value, plus the capital inflow because we needed to have some cash inflows. If you follow us, Santo Antonio had a recent capital increase. Light had a lot of capital increases, Renova, in addition to some court supervised reorganizations. Can you imagine participating in a court supervised reorganization. If you're a mixed capital company. So we divested of all of these minority interests. And since we invested a lot in minority holdings, we had to stop investing in the network. So at the time, we invested in distribution less than the depreciation. Now we are investing four times the depreciation. So now we are executing the largest CapEx plan in our history, BRL49 billion, and BRL49 billion means 19 plus 28, okay, just to make our 2024-2028 strategic plan. It is BRL35.6 billion, right, Carol? BRL35.6 billion. But here, we are talking about from 2019 to 2028, BRL49 billion. On average, BRL5 billion per annum. So almost all of this in regulated businesses that didn't get a lot of investments for a long time. So we have the ability to invest with no risk of refusal by ANEEL. Of course, we lost the plants Simao, Jaguara and Miranda, almost 3-giga. And now we have the financial capacity to renew the concessions of these plants. But I guess that this gives us a snapshot of what Marcio said. And we are very satisfied now because we're always seeking more. We are always pursuing more, and that's what drives us as people, as a team to always pursue more gains. But it's about going back to the basics, being efficient, and investing in the business that we understand and that we have control all over. It's very difficult for a state-owned company to be a minority shareholder. We were some minority shareholders, together with the individuals. It's not easy. So we don't know everything, but what we know, we can do quite well, and this is what we are doing. So we are investing BRL49 billion. We have invested already BRL13.6 billion by 2023. And here, we have the breakdown. I like a sentence that is the basic of our strategic planning, which means focusing on Minas Gerais and winning. A 100% of these investments take place in the State of Minas Gerais, which is the territory that we know. And our controlling shareholder is the State of Minas Gerais. So I guess it makes a lot of sense. Of this amount, 80% is in regulated business. So if we add distribution, BRL33 billion, transmission, BRL5 billion, natural gas, BRL2.2 billion. So we're kind of 40 -- 80%, BRL40 billion of BRL49 billion. It's regulated sector, regulated market. So it's what Marcio said, we can improve service to our customers because, of course, this investment will relate to a much better quality of service. We can be a company that will be a positive instrument for the development of Minas Gerais because this attracts investments to Minas, the State of Minas. And we can improve the base and create value for the shareholders. So this is an optimal situation to be in because we can be customer-centric. We can support the State of Minas Gerais, which obviously, is going to generate more load for us and more taxes for the Government of Minas Gerais, and all of this is the base, and the base is part of the tariff and we will be remunerated accordingly. So this was the logic. This was the rationale. And when we were discussing this, I remember that we hired a consulting firm. They prepared some nice graphs, and there was an option, to focus on Minas and winning. And there was another option, which was try again. Why try again? Because it worked for Taesa, so we could try again. We said, no. We are not going to try again. We don't want to be private equity. Private equity is for somebody else. We are not a private equity to have a minority shareholding. For some people this works, but not for us. That was not the best option for us. We said, no, we don't want to go that way. We want to focus on Minas and win. So this is the investment plan. And of the BRL49 billion, we have already invested BRL13.6 billion. So we still have BRL35.6 billion, which is a '24-'28 plan. And this one piece of information that I think I should share with you. Of the BRL35.6 billion, two-thirds are already contracted. So this is an important number because as Marcio said, we are a mixed economy legal entity. But as a mixed economy legal entity sometimes we find difficulties in the bidding process. We know sometimes it takes long. It takes long to prepare the bidding process to go through with it. So this plan is two-thirds contracted, and there's another restriction where it's not a regulated market, we will only invest if we have an associated PPE, we won't invest spot. And together with this, and I'm talking about the investment plan, of course. Obviously, we have our trading company, which is incredibly successful. So considering the results that we showed, of those results when we lost the concessions here, we were able to create a big market for the trading company. And this was a big goal that the company scored. We are leaders in trading and we want to continue to be leaders either in the free market or now in the retail market. And we are always customer-focused. And this is a thing that we need to be, to take a leading role in the power market. And normally, the power market is not focused on the customer. Everyone is used to work as a monopoly, and being customer-centric is not the regular thing. So that is the plan. Here, we bring you the results of this turnaround. Because I wanted to find a word in Portuguese, I couldn't. So, we used the word in English. It was a turnaround. Here, we got our competitors, which you know, which are the listed companies in the power sector, and look how much we gained in terms of relative share. Not only EBITDA increased from 3.7% to close to 8%, and as a percentage, we increased from 5.8% to 8.2%. So, we grew vis-a-vis the market. Not just that we grew compared to ourselves, of course, we did grow a lot compared to ourselves and how we were, but we also grew in market share. Net income, 5.8%, up to 16.1% or 1.7 to 5. In EBITDA, we, a little more than, doubled and in terms of net income, three times, we grew three times, in terms of investments, 5.5 times increase from BRL954 million to BRL5.5 billion in the last 12 months, and in percentage terms, 3.8% to 8%, we more than doubled the relative share, when we compare to listed companies. And we are not considering all power companies, just the listed ones. Just to give an idea, that we are not only growing, but we are growing faster than the average of the sector and for our bank representatives, I'd like to thank them, because the bank representatives have been supporting us a lot with the capital market, thank you. Net debt over EBITDA, this ratio dropped from 3.2 times to 1 times net debt over EBITDA ratio, so 3.2 times to 1 times. And Cemig's rating, I think, increased six notches, six notches in this period. We are AA+, and we believe we should be AAA, so Marcio, we still need to pursue that front of being a AAA. Again, we are satisfied, but not enough and we will achieve a AAA rating. So, I guess, this is the foundation. We are management, focused on back to the basics, being efficient, having profitable, regulated investments with a renewed team, an integrated team and here, we have the results. I spoke a lot about Cemig, but we have here Gasmig. We have the whole management here. So, please feel free. We have Colon, Cadu here. Cadu, I don't even remember your family name. It's Carlos Eduardo Moraes, I remembered. So, at Gasmig, we're building a new gas pipeline until Divinopolis after many, many years. So, when we look at this, a new gas pipeline after 20 years without building a new gas pipeline, we are back to investing in generation. We have centralized generation. We just opened a 90-megawatt plant, another one, with an associated customer, not spot, we have an associated PPA for many years with an investing generation. We won an auction in transmission. We are improving and reinforcing the system, which is something that didn't happen in a long time, winning an auction. And in distribution, we have Marney to speak about this, but we have a lot, a lot of investments in substations alone, every week, no, I mean, new substations, we had 110. I need to get an update from you Marney, because every day, we start a new substation. But when we started, we had 114. We have started 110 more. And the plan is to grow 200 substations, growing 50% the capacity. And as Marcio mentioned, there's a team of technological transformation, which is just amazing. We wanted to have our operating system, it was our own operating system, had a system to control the operation that belonged to us. When I joined, this was getting obsolete. We had systems from the 1990s, and now, we are updating through distributed energy. So, we are going to be controlling for distributed generation, and not just the operational control of distribution, but we will include all the intermittent and distributed generation. So, whenever there is a new update, we can immediately update the system. So, there was a big progress, a quantum leap in terms of SAP, ADMS. What, Marcio, you can say something. This is in relation to companies listed in the stock exchange. But all of these presentations will be available for you. But the point is, we gained market share compared to companies listed in the stock exchange. And this is what Marcio mentioned. This is the grand finale. Before the election of Governor Zema, we were worth BRL10.6 billion in market value. On August 16, it's already more than that. But on August 16, we were worth BRL35.3 billion, including extraordinary dividends of Alianca. BRL12.7 billion in dividends paid since 2019, including additional dividends. So, we have here the common shares. And as Marcio said, we are very excited to continue with this transformation, with the execution of the biggest CapEx plan in history, with a discipline for cost reduction and improving the quality of spending, because that's another important topic. We didn't do, for example, preventive maintenance. Today, as part of our regulatory expenses, we can do preventive maintenance, which improves things a lot in the future. We are modernizing governance, reducing red tape. We have just hired a consulting firm to help us be more agile and have more simplicity and agility. We have a focus on the customer, with Marcio as Chairman of the Board, with everything he's done in his life with help regardless, of course, we will be 100% customer-centric. And this is very challenging cultural theme actually, because, well, I am sure that by using the strength of our brand and with us having the ability to focus on the client, we can continue to be leaders in the free and retail market. Lastly and we are going to have a presentation about that. Because if I start talking about energy transition, well, I'll have to have another half an hour, which I believe that Brazil has unique opportunities in energy transition. We have to play a leading role and bring Minas, the State of Minas Gerais, to energy transition and attract investments to the State of Minas Gerais with innovation. So, this is the moment that we are living. As Marcio said, we have a lot to do, a lot of good things we've done, but we know that there are a lot of things that need to be done. And I'd like to thank the presence of the Secretary of -- the State Secretary of Economic Development. And I'd like to invite him to come to the stage to tell us the standpoint of the controlling shareholder. Not just what we have done with the support of Fernando and Governor Zema, but also to hear him tell us about the future, future expectations. Marcio mentioned here. There are many themes on the table, themes related to the controlling shareholders. So, nothing better than having the presence of the controlling shareholder, somebody who has supported us in every work front. And for us, if we move the head with the privatization, this was public information since day one. Everyone knows we want to have an asset that is more and more valued, so that we have an opportunity to privatize the asset with a good market cap. But of course, this is exclusive responsibility of the controlling shareholders. So, I'd like to invite Secretary of Economic Development, Fernando Passalio. Fernando, thank you very much for your presence, for being here.
Fernando Passalio: Good morning. I would like to start congratulating Cemig and the whole management here, represented by Marcio Utsch, Chairman of the Board; and Reynaldo, the CEO, for this Cemig Day, which is already a success. We can see everyone engaged in social media and all of you attending on site. And I want to briefly say that our Governor, Romeu Zema, and the Vice Governor are very focused on what Cemig can offer in terms of development. It is now by chance that Cemig is linked to the Secretariat of Economic Development. Everything that was said so far is investment that brings more investment. Why do I say this? From 2015 to 2018, and I'm talking about protocols of investment intent. These protocols of investment intention generated close to BRL26 billion for a four year plan. The prior administration attracted BRL26 billion in private investments from business people spread around the world who chose to invest in the State of Minas Gerais. And this program to attract investments, in my opinion, was too small. BRL26 billion is too little for a State of the size of Minas Gerais. Governor Zema, because he was always an entrepreneur and focused on having the best public policy in the world, which is creating jobs, he required us to turn the key of the whole team and to start attracting investments at a different pace. If they attracted BRL26 billion in four years, he said, I want to have BRL150 billion in the next four. So, he raised the bar quite a lot. And with the Romeu Zema standard of quality, we were very proactive. We put Minas Gerais in the world. Minas Gerais is still unknown. The world knows Brazil as Sao Paulo, Rio de Janeiro and Brasilia, and not so much Minas Gerais. For us, it is a challenge to put Minas Gerais in everyone's radar. But you know it worked. This target of BRL150 billion in private investments was attained in the first two years. And we were able to close the four year plan with BRL280 billion. After 1.5 years, we're at 5.5 years of this administration, we reached BRL440 billion. As a reminder, the prior administration only attracted BRL26 million. And these investors, one of the things they need the most is infrastructure and power infrastructure. So when we see Cemig investing both ways, but investing in a feasible way, because let's remind, let's remember that in 70 years, Cemig built 400 substations. And now, in three years to four years, we have more than 100 additional substations built, and we will build 217. In other words, more than 50% of what was done in 70 years. And all of that in just six years. This is a daring focus and we are only those focused to win. And this is a fortunate name. Try again never. It is to focus, to win. I think that Cemig, during a good part of its history, that it was Eletrobras. Cemig started buying assets all over Brazil. And this is not our focus. Our focus is in Minas Gerais. Doesn't make sense to buy 50% of Light in Rio de Janeiro when we have a state that requires a lot of investments whose infrastructure is kind of scrap. And with this, we have to speak about politics. I have to say how Governor Zema is focused on the quality of management. We have here Marcio Luiz. If you Google him, you'll know who he is, if you don't know him. And with a CEO like Reynaldo Passanezi and a team of Vice Presidents, which are top notch, some people who really think about how to improve the public policy every day, because when you're the controlling shareholder, when you have the controlling shareholder mandate, like the Governor, we have a view that the public policy or the controlling shareholder dictates the public policy, but they're also the controlling shareholder. So, this kind of harmonization is possible. So, we have Cemig in distribution with 9 million customers. It's a lot of customers with a very high satisfaction level, very high satisfaction level. As time goes by, as these substations are built, fewer companies are waiting to have their power connected. So, the numbers show that they get connected much faster. And this shows how Cemig has been a partner of this public policy to attract investments. A little time ago, the government had a program called Light for Everyone. And this was an important program, because people didn't have electricity in some places in the State of Minas Gerais. And we have Light for Everyone, that was the program. And now, at a different pace, we have Three Phase Minas. Light for Everyone program was a literal program. It took electricity for everyone. Now, Cemig has a daring program of having a Three Phase supply, the whole rural zone, more productivity for the agri-business. So, the agri-business will be able to scale up their productivity in a way that was never seen before. So, we have more substations being built, we have the Three Phase supply program, more power, and this BRL49 billion CapEx was our plan, built very responsibly and the plan that can be executed, it is executable and this is very important for the results that we're reaping now. And it was only possible to do this by divesting those minority shareholdings outside of the state. The current administration is focused on a smaller state government. We want to have an agile state government, an administration that is as small and as optimized as possible. We will be selling minority shareholders and will be privatizing state-owned companies, so as to ensure better quality services, more accessible services to the citizens of the State of Minas Gerais, as this was the case with telephone services in Brazil, it is not, because we haven't been able to advance this discussion with the state council about transforming this company in a corporation. It is not because we haven't been able to advance so far that we are going to leave this behind. Proof of that is the numbers that we saw here. We now have a company that is totally focused on the results. We have seen the most important indicators shown by Reynaldo. We also invested in a committee for the governance of state-owned companies. We are constantly in contact with the Chairs of the Boards of Administration. So, we do that follow-up, so that we have everything on the same page. And here, I'm not even talking about Cemig, but rather the management of state-owned companies and how Minas Gerais state administration is focusing on the responsible management. The same thing that we have rolled out at Cemig, we are doing with all the state-owned companies of Minas Gerais. And here, we have consolidated results. You see that from 2011 up to 2014, there is a peak of BRL5 billion up to this year. And the Labor Party Administration, you see a fluctuation in values, that's normal to see with state-owned companies, right? The tendency, the trend is to destroy the state-owned company, not to privatize them. And now, you see under Zema's administration, the results, you can follow that up. It's here the figures are always surpassing prior management. This peak in 2012 here, it was because of an operation of a non-recurring profit. So, usually, the results are very low and these figures are already deflated. Okay. Distributed dividends. This is really odd, really different. Here, you'll see that the prior management, prior to ours, you see the amount of dividends paid and look at how Cemig is now. It's really a milking cow in the market, right? So, Cemig is investing, is paying dividends. That it's a very attractive company to the market and still facing the challenge of being a state-owned company. So, you do not choose your providers. It has different owners at every four years, so you cannot choose who you're going to hire. And it is still working as if it were a private company. If you don't know, this state owns a little over 17% of Cemig. So, if you do not know, the stake is not that large. But we have the highest number of common shares, so that's why we have the control. So, just to give you an idea of the market value, in 2011, each share was at BRL1.63. When we took over, it went up to BRL5. And now, shares are around BRL10 to BRL12. So, if you analyze the foundations of the company, if that were not a state-owned company, the price share would be skyrocketing. That is not considering dividends, you're right. But the profitability of these shares is really, really high. These are investments that bring more investments. And that is my message. We will maintain that management, ensuring that this is a qualified management for Cemig, Gasmig, for Cemig Sim. And here we have the officers of these companies. As Reynaldo said, Cemig Sim and Gasmig are also investing. When we took over office in 2019, a little over 500 megawatts of solar energy, and now, we have almost 9-gigawatts in Minas Gerais. That is, we are generating more than half of Itaipu power plant of solar energy just in Minas Gerais. And this is an amazing result. We are absolute leaders in Brazil and we will keep on being leaders, because we have with you know considering this, our objective of solar energy, constant investment for infrastructure and substations will help on that. But we already have approved at ANEEL dozens of projects that will keep on placing Minas Gerais at this pole position. So there is a natural possibility here that is being transformed into an economy as economic asset for this company. So, we have pipelines in the state for gas. And these are investments that bring more investments, this is a company that can invest. It has everything it takes to invest. This is a company that is ready for a future IPO, Gasmig, I mean, and here we have investments that I am sure will help that region where the pipelines go by to be a prosperous region. And prosperous is a word that our governor always mentions. Bring in 900 million employment positions, will attract investments and also almost one million of employment positions. When we took over we had 8.8% of stake in our national GDP and now we have 9.5%. The 0.7% means the POE state economy. So we grew one of the Brazilian states' economy. We have grown Amapa and Rondonia together. So these -- that 0.7% is a lot. It's not easy to get there. We went over BRL1 trillion in our GDP and when we took over it was a little bit over BRL600 billion. So, well, good wins to Minas Gerais. I wish you all a very productive event. You only have the best here to show you what we are doing and that you have a wonderful Cemig Day. Thank you.
Carolina Senna: Thank you very much, Reynaldo, for sharing with us this transformation over the years, and thank you Fernando Passalio for sharing with us the transformation of Minas Gerais State that is allowing our state to grow and also your view on the state-owned controlled assets. I have time for two questions. If you want to ask questions either to our CEO or our Secretary of Development, feel free to do so.
Daniel Travitzky: Good morning. Daniel Travitzky from Banco Safra. Thank you very much for this opportunity. I have one question to Secretary, Fernando Passalio. Mr. Secretary, thank you very much for being here. And my question is about the federalization topic from Cemig as was discussed by the federal administration and also by Zema's administration. So how are these discussions going and how the Minas Gerais administration is tackling this topic? I am Daniel Travitzky from Safra Bank.
Fernando Passalio: Well this is a topic that was on the headlines for the past few months. This is an initiative of our Senate Representative and President, Rodrigo Pacheco, and we know that there is high debt from the controlling shareholder, and the Governor always says that the state cannot be that indebted neighbor with five BMWs in his garage. So we have to be responsible for the public figures, and there is a deficit there, but the fiscal recovery regimen is the only option that we have. Well, still is being discussed. We don't know if we are going to have a feed or if, this is going to go, something going on in there, and we don't know what's going to come out, but we are still waiting for things to happen. But what we have today is a fiscal recovery system, which is the best option today. The best option is always the one that we have. And we are in this fiscal recovery system and our idea is to remove this possibility and turn it into the regular system, because right now we are under an injunction and we want that to be regular. Yes, federalization might be a way out, but after the law is approved, there is a journey that is a very long one, so that you can come out and realize, it is a public knowledge, you all know, about the Cemig's tagalongs that might discourage even from the federal administration, the sale of this asset. And really, we do not have that, second page is still being developed, and federalization will depend on the valuations if we come to that stage. Anyway the IRF has to be approved, and if needed, we can move from that and go to Propag. And something else that we really see as a possibility is to turn Cemig into a corporation and then a hypothetic scenario. If we would have federalization after Cemig becomes a corporation, so everything that I said here of maintaining a technical management that will be insured once in the diffuse control of the corporation, we end up having shares even with a greater value, we can discount our debt, and Cemig will keep on investing as it is investing and also promoting investments.
Carolina Senna: Thank you very much, Fernando Passalio. And now I would like to bring to the floor our CFO and IR Officer, Leonardo George de Magalhaes, and he's going to talk about our results in the second quarter.
Leonardo George de Magalhaes: Good morning, everyone. Thank you very much for being here. This is a very important moment for the company. This is the chance that we have once a year to be here with all the management of the company, RI, investments, and financial results, but we believe this is a single opportunity where we can be with you. It's important to be here with investors. It's a very important moment for the company. We are having consistent results. It is very clear that the market is happy about the company's results, but this is very consistent for the past few years and we can seize this opportunity, and we want to talk more to you and be here available and be able to talk more about our strategy. Let me talk about the results. Once again consistent results. The company in the last years was sometimes 5% lower than the market consensus and sometimes 5% over. This is very consistent. That makes a big difference and this allows us to have consistency and robustness in our results. And we have interest equity in another quarter, over BRL430 million in June, without considering the extraordinary dividends. We are among one of the main dividends payment company and with the additional dividends that we have posted in the last month, clearly this is, we are clearly the highest dividends paying company. Also we have here BRL1.9 billion operating cash generation. We will talk more about that and in spite of results being in line, these non-recurring positive events are not neutral, they will be generating more cash to the company or they have reduced the company's risk related to some topics that were in our balance sheet, so we strengthen our situation. We believe that the non-recurring effects, and this is a huge example, they come from actions of the management that have generated results and reduced the risk, and as a side-effect, that also improved our base for dividends, payment. And finally investments that were posted in the tariff review, this was a very important one, we can highlight that. And further on we will be hearing the opinion of other Directors. Maybe Marco Soligo can talk about the tariff review. We doubled the base for Cemig transmission to BRL2.6 billion. And in this quarter, we are in the process that all transmission companies that have similar basis to Cemig follow, which is to reconcile the cash flow that was approved by the approved regulator and the cash flow that we use in our projections when we invested and registered these assets in our balance sheets, in our financial statements. We think this is a fair review. All our investments have been accounted for and we do have the capacity of doing investments at a very low cost. We have a scale and we are very optimistic and we are reconciling here to check the effects of this review and they will be accounted for in the third quarter. So we are in this work of reconciling investments, but we believe this was a very positive tariff review for the company. Then we'll talk more about transmission investments. They are very relevant with a return rate that we understand to be very attractive generating value to our shareholders. Now, moving forward, this is our investment program. Reynaldo talked a little bit about this also Marcio and Fernando Passalio about our investments in the past few years. For investments here, you can see, we are very much in line for, we have invested in the first quarter, almost 40% of total investments for the year and we have a catch-up in other businesses. But even with investments in generation that is lower than what was forecasted, we are confident that we might be doing investments that were higher than our target. I think we are going to reach the BRL4.4 billion. And also in transmission distributed generation, we believe that we will be meeting the forecasted for the year as well as gas and a little bit less in generation because I think part of this investment might be transferred to 2025. But total, we should be investing close to BRL6 billion this year, very relevant when we consider our history, we used to invest, we invested BRL1 billion in 2018, now we are going to invest BRL6 billion in 2024, but when compared to last year, we see 40% higher. So the company adjusted itself to the level of investments that is much higher than what we had in the past. And as Reynaldo reminded us, part of this investment is already contracted. Now, moving forward, here we have consolidated results for the second quarter. As we mentioned, consolidated EBITDA almost 30% higher than last year, including non-recurring items, and in line with last year, both in the net profit as well as in the EBITDA when we exclude the non-recurring effects. And last year, the trading company results for a lot of reasons, it was very positive. It's still positive this year, but last year, because of the convergence of factors that were positive, it brought exceptional results, allowing the non-recurring EBITDA to be close to 24 to 23, but it's good to highlight the recurring as well. So the review of profit sharing distribution, we were able to revert BRL600 million because we still already have a chance of winning BRL800 million that are provisioned in our balance sheet. This is, also thanks to the actions you have taken, the volunteer dismissal program, almost 400 employees that enrolled in the program, that also have a very quick return in less than a year. We can have the payback of the program with the employees that are here for longer, they will receive indemnity and then when we can hire employees that are beginning their career with lower wages and here we recycle our team. It helps changing the company's culture. We believe that this is a very important investment. Now, the issue related to PASEP, PIS, and Cofins, we have returned the BRL6 billion in fiscal gains that we had in this lawsuit, and with this refund, we were able to reconcile our updating criteria of that obligation. Therefore, reverting BRL400 million, that refers to net profit of BRL271 million. Another non-recurring effect that is significant. There is a lawsuit that involves trading company with a large client and we are appealing, but we have provisioned in this quarter, but we did not give up. We believe that we might win it back and this is the update that can generate the cash. Cemig few years ago appealed against the criteria related to workers' legislation. This is the workers' meal program and just now we were awarded that lawsuit. So these are neutral, they're not neutral, they are positives as well, and also they hedge because of the FX went up in the last quarter. We did see an effect in our financial statements. And remember that the company's hedge has to do with the bonds that have the final installment of BRL380 million now at the end of the year. Now moving on costs and operating expenses. If we remove the voluntary dismissal program, our obligations were up 1.7% a year when quarterly-on-quarterly comparison lower than the inflation. And as Reynaldo mentioned here, expenses for third parties also our services are improving or increasing actually and this is our concern of really serving the clients. We see the society now is demanding a better service and our challenge is to spend on the right place, to spend more in the maintenance operation and less in other process, in a way that the company's costs are still disciplined, growing in a disciplined fashion, with no pressure in the operating efficiency of the company and improving quality of service to clients. And at the same time, also related to financial obligations. We have over BRL200 million expenses last year. We are working internally to reduce those. That means that with investments we are able to reduce our financial compensations because we start providing better quality services. And then we can also decrease the fees that we pay to clients. Therefore, we were able to bring down in six months around BRL38 million in fees related to regulatory compensations and this is because of ANEEL Resolution 1000. This is important and we are continuously working in reducing these indemnity penalties. This is the cash flow of the company. We generate a lot of cash and we have a lot of investments to be made. We generated BRL3.5 billion in this quarter, and this half of year, between BRL7 billion to BRL8 billion of annual cash generation. This is what we generate in terms of cash annually and we ended the cash with BRL3 billion in the first half of 2024, but we will be using that in our operations and investments that will be done for next month. This is the consolidated debt profile. This is close to one-time the EBITDA, but in a constant fashion. Now, we go to the market, we have to bring funds to the market. So we went to the market to look for resources and our distribution generates between BRL3 billion to BRL3.5 billion in cash generation annually. So we have investments of BRL4.5 billion. That is, we are going to source funds from the market constantly. This is already increasing and it will be increasing up to the next review, close to 2.5 times in 2027. But we believe that we are very comfortable and our objective now is to turn the debt profile more adequate. There is a more concentrated growth in '25 and '26. And we want to turn this average term of data that is more adequate to the upcoming issuances with -- and this is the company's objective. This is Cemig's D results. With a good result, we will look at the next slide, volume of sale of energy. But we see that in regards to the prior quarter, these results were great, whether including recurring events or not, that's a good result. And there was a month here where the results included the tariff adjustments that happened in May 28, but we understand that Cemig D is at another level now. It had an EBITDA close to BRL1 billion in 2018 and now it's an EBITDA close to BRL3 billion, BRL3.5 billion. Without considering the ramp-up that we will have in 2028 with a tariff review, this is the energy market. We grew 2.9 even with DG growing 33% and we had an improvement here of 2.9%. If we exclude DG, the market would grow more. The Minas Gerais market is not as elastic in terms of temperature like Rio and Northeast, but even then it was a significant growth. But you can see that transported energy improved to 6%, a small reduction in the capital market. But even with the residential growing 7% and the other classes being reduced because of the competition of DG or GD and also retail market. But even then, in a total, our market was a market that we understand that had an improvement in 3%, and even with the pressure of GD, it was a relevant growth. This is our operating efficiency. Considering non-recurring effects, it was 22% lower than regulatory one. But even excluding non-recurring events, we had OpEx within the regulatory OpEx, 2.4%. But remember, last year the EBITDA ratio here is 10% lower than regulatory. We mentioned at the time that was temporary and our commitment was that within the year we have our EBITDA that is higher than the regulatory and that 10% gap is already down 2.4% and we believe that for the next quarters, we'll be able to have an EBITDA higher than the regulatory one as we have done in the prior year since 2021 and OpEx also under the regulatory limit. This is a commitment and they are very important for us. We want to be within the regulatory coverages. And even being a state-owned company, we have some extra costs that private companies do not have, such as post-employment benefits. That's very specific for the company, we pay that. This brings an additional expense to the company, but even with these additional costs, they are covered by our tariffs. Here we have Cemig GT results. Once again, last year was an exceptional year for the trading company, but even excluding the non-recurring effects, we see that the results were very close in '24 compared to '23. And last year, as we said, was the year where we had energy restriction in the Northeast, therefore we were short in the Southeast market. We were able to acquire energy at a very low price and that increased the margin of the trading company. In addition to that, the contracts with clients had a greater margin than this year we had already announced that to the market. And the prior year, Cemig Day, when we presented the margins for the next years, we're already showing that 2023 was an amazing number. 2024 also would be a great number, but not as in 2023. Of course, Cemig today is a trading company that when compared to the market is an outlier. We have superior results when compared to the average of the market. Considering the company's expertise and also our characteristics of being not only a peer-trading company, but also being a generating company that allows us to have margin levels much higher than our competitors. Here we have our EBITDA per segment and this is the beauty of being a company with a number of businesses and we'll talk about gas in the next slide, but this was a quarter that was very good for distributing company. Generation was basically in line here. We transferred here the contracts for the trading company, which had a lower result than last year. Last year, as I just said, had an exceptional result, but we believe that 143, if we were to annualize those results, we would have a result that would be over BRL600 million, but first quarter was much higher than that. We believe that the trading company will be delivering now results that are very positive as well. And then our Gas business, we have a worse result, 7.1%, but here there are two factors. One, the industrial market had a reduction because of a big customer of Gasmig, reducing their consumption and this affected the Gasmig revenue and the regulatory assets are off balance. This is called compensatory parcel. It's out of the balance sheet. And last year they were able to offset that to build BRL24 million of this regulatory asset, which made the result last year to be higher, but annualizing it, the EBIT is greater than BRL900 million, which is extraordinary, a great result. A company that is not leveraged, it is a cash cow. A company with a concession until 2053, with the whole market to be tapped into, and we are going to hear more about that, when we speak more with the VPs, the officers, and the CEOs of the different companies of the group. Here we have the commitments. It's delivering on our commitments. This is how we are executing our strategy. I mentioned to some of you, if you access the Cemig website and if you look at 2021, the Cemig Day, our presentation in Cemig Day, if you look at our strategy and what we've achieved so far, you will clearly see that 2021 was not just lip service. We did execute our strategy. We said that we invested in regulated assets. We said that we were going to invest in the distribution company, divest from distressed assets, where we didn't have any control, that we would get more operating efficiency, and we were able to deliver on all that. These are the commitments achieved, the ones in progress, and the future challenges and opportunities where we included technologies for energy transition. We'll have an opportunity to speak more about this during this Cemig Day. So, to conclude, this was a quarter with very solid results for the company. We believe that we are continuously creating value for our shareholders. Thank you very much.
Carolina Senna: Thank you, Leonardo. Now we can have a brief coffee break. Questions related to our results can be asked during the Q&A session with the whole management. So we can go back to any questions you might have. I hope you enjoy our Minas coffee. You can taste our special coffee break with Minas products. Thank you. [Break] We are back to continue with our agenda. Before we begin our next presentation, I would like to invite all of you to have your smartphones in the silenced mode. I'd like to invite our Vice President of Distribution of Cemig, Marney Tadeu Antunes.
Marney Tadeu Antunes: Good morning, everyone. Thank you for being here with us. We speak a little about distribution, putting it into numbers. Of course, as Dr. Reynaldo said, anything we decide to talk about, we could spend hours talking about. I'll be very brief. Okay, so how do we operate, trying to be proficient in the largest DisCo of the country, with more than nine million consumers, 567,000 kilometers -- square kilometers of our concession area, equivalent to the size of France, bigger than Spain, with more than 20,000 people out in the field working to operate the system and how we look for operating efficiency, considering all of that. Our first strategy was very much talked about here to be customer-centric, focus on the client. Client at the center of everything we do, optimizing revenue management, fighting losses, improving collection and reducing delinquency. I always say that for the DisCo, we have to assess losses together with delinquency, because one is related to the other. If I do not disconnect and I start collecting from customers, we'll reduce losses, we'll be very effective in collection, but there will be a lot of fraud. So these two topics are interrelated and we have to be doing well in both indicators, increase operating efficiency, applying innovative and technological solutions such as digitalization of all of our systems. And as established in our strategic plan, we need to induce the development of the State of Minas Gerais, increasing market size. In addition to improving the quality of what we already have, we have to be able to connect new customers to the grid. BRL23 billion for the 2024-2028 period, BRL23 billion in investments and some numbers. 404 substations will end 2028 with 615, 19,000 kilometers of lines in 2018. By 2028, 21,950 kilometers of lines. And we have 3,500 kilometers of 69 kV made of wood. And we'll replace all of them by towers, increasing the level of voltage to 138, in other words, improving reliability and quality of the power. Distribution network 551,000 kilometers in 2018. By 2028, 577,000 kilometers. And there's also the three-phase power, that's another program. Transformer capacity from 10,000 MVAs to 16,000 MVAs. The substations are running at the same proportion of voltage and three-phase network, 130,000 increasing to 165,000 will reduce the single-phase networks. We'll close the alligator's mouth, as we say it, and municipalities with dual voltage supply, 667 municipalities increasing to 774 municipalities. All of the municipalities with dual voltage supply. There's an opportunity to rebalance load in an automatic way. In some municipalities that are small, sometimes they spend two or three days with a power outage. Because, we have a power outage due to storms, poor weather and landslides, problems in the bridges. So, we have to have dual-voltage supply and digitalization, so that we can reallocate the municipalities automatically. This will increase quality, customer satisfaction, and of course, the sale of power. Smart meters will end with 1,785,000 smart meters. This will help us a lot in operating efficiency. I think to highlight is in addition to the advantages of customers being able to monitor their consumption and so on and so forth, we can reconnect customers online remotely. If they pay the bill, I can reconnect them as soon as they request a reconnection. And of course, we can disconnect them remotely. If
