Energy Co Of Minas Gerais Q2 FY2024 Earnings Call

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 strategic meetings, networking and a unique opportunity to talk to you. Before we open our agenda, I would like to ask you to have your phones on mute. Our meeting is also 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.

Thank you, Carol. Good morning, everyone. I appreciate you giving me your attention for about 10 to 15 minutes as I reflect on our past and outline our future direction. I joined Cemig at the beginning of Governor Zema’s term and have been the Chair of the Board since then. When Zema took office, Cemig's value was BRL10 billion, and as of yesterday, it has increased to nearly BRL36 billion. During this time, we also distributed BRL12.7 billion in dividends, which were paid in a timely manner. The PN shares rose by 394% and the ON shares increased by 437% up until yesterday. While these figures represent price growth, what's more significant is the value we've created at Cemig. Although we have made some mistakes in the past, we achieved several milestones and managed to rectify our missteps more often than not. We did take too long to divest from our asset-light ventures, which didn't align with our strategy. The situation with Renova also took time to resolve, with various challenges in a court reorganization process. However, we learned that there are more effective ways to approach these issues. Reflecting on our past, it's clear we could have performed better. Yet, the most important things we've accomplished are intangible. A common saying is that good work can be undermined by poor management, but we have excelled in managing our people. Our team is well aligned, and every member of our board has been carefully selected. While not everyone may score a perfect ten, many exceed that with exceptional performance. Our achievements would not have been possible without a strong team. At Cemig, we've built a dedicated team of experienced and capable individuals. We also have new members who contribute to our success. Together, this cohesive group is achieving outstanding results. Looking ahead, I’m optimistic about our future as we strategize about what Cemig will look like in ten years. Although the future is not predetermined, we are preparing for it now. As a publicly traded company under state governance, we must navigate changes in administration, but I remain confident in our potential. Given our growth from BRL10 billion to BRL36 billion, along with our dividend payments and stock increases, there’s still more we can achieve. We have opportunities for privatizations and monetization of other companies, and we can enhance our capital allocation to maximize growth. Cemig has considerable market potential, and it is essential that we capitalize on it. Gasmig also presents significant growth opportunities.

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 their 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, I think that speaks volumes about how we are changing our company. We will 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.

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.

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.

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 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 will reduce losses, we will 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.

Let me check my watch. Everyone says I speak too much, and I do speak too much. I see many young people in the audience, and I feel connected to academia. I am a Professor at the Federal University and have advised Light for several companies. I have also been a Board Member of Cemig for four years. I want to thank Reynaldo for inviting me to speak. It’s interesting, I feel nervous; I didn’t expect that, but I hope to feel more at ease. As a Board Member, no one instructed me to talk specifically about the positives while shying away from the negatives. I will share my perspective as an Independent Board Member, which is why I was invited to the Board. Now, let’s discuss Energy Transition. The Energy Transition and Innovation Committee was established a year ago. Reynaldo and I had dinner to discuss a place for this, and Marcio accepted the idea. I serve as the Coordinator of this Committee, and we hold monthly meetings, some regular and some extraordinary. During this time, we have invited key players in the Energy sector, including some from abroad, to share their insights and experiences. For instance, we have heard from Andre Clark from Siemens and representatives from EDP International, in both online and in-person formats. This has fostered great interaction and helped cultivate a culture of Energy Transition. But what is Energy Transition, and what role does Cemig play in it? We need to comprehend the essence of Energy Transition. In my view, it goes far beyond what is often discussed today. It traces its roots to the first oil crisis in 1973, which sparked the beginnings of Energy Transition. That crisis played a critical role in promoting renewable energies, marking the start of technological advancements. We do not face challenges in harnessing solar power, wind energy, or biomass as we initiated our technological development 50 years ago. The Pro Alco program came shortly after and is something we're proud of; it was a government initiative that led to the widespread adoption of ethanol and biodistillers across Brazil, nearly 50 years old now. However, none of this arose merely from pricing or routine business practices. There is always a need for a driver, a geopolitical factor motivating the transition, which is notably absent in Brazil. In 1978, the US enacted the PURPA, which mandated the purchase of renewable energy or qualified cogeneration. Brazil has never implemented such a compulsory purchase of power. In Europe, this was established around the year 2000, while the US, regarded as the most capitalist nation, introduced the PURPA law back in 1978, which was significant for renewable energy development and led to the emergence of companies like Enron and Duke, crucial for the free energy market. Following that, the second oil crisis and events such as the Chernobyl disaster led to a move toward denuclearization, further accelerated by the Fukushima incident in 2011. Germany, in particular, played a key role in this transition, making the daring decision to phase out their nuclear power plants, a feat many thought impossible, but they accomplished it. This shift spurred the growth of solar and wind energy in Europe. Also, during this time, Germany introduced hydrogen as a means of energy storage and to manage power fluctuations. In Brazil, the 1995 Law 9074 established the renewable market, offering various incentives. Initially, there was a 100% discount, which subsequently decreased to 50%. This pricing strategy has been vital for the development of our wind power market. We often discuss subsidies in distributed generation, but wind power plants benefit from significant subsidies with nearly a 50% discount, regardless of their size. Currently, we face the ongoing war in Ukraine, which is bringing tremendous changes. Many anticipated a severe crisis in Europe due to the gas shortages from Nord Stream, but Europe managed to navigate the situation remarkably well. They utilized renewable energy sources, enhanced energy efficiency, and turned to liquefied natural gas and stored natural gas. This impressive transition is something I have been closely observing.

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 is the Minas Gerais administration tackling this topic?

We believe that the non-recurring effects, and this is a huge example, come from the actions of the management that have generated results and reduced the risk, and as a side-effect, this 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.

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.

Thank you very much, Reynaldo, for your presentation, for opening our event. And so, now, I would like to bring to the floor our CEO, Reynaldo Passanezi Filho.