Companhia Energética de Minas Gerais (NYSE:CIG) Q3 2023 Earnings Call Transcript

Companhia Energética de Minas Gerais (NYSE:CIG) Q3 2023 Earnings Call Transcript November 11, 2023

Operator: Good afternoon, everyone, and welcome to Cemig’s Third Quarter 2023 Earnings Video Conference Call. We inform that this call is being recorded, and will be available at the company’s IR website, where you will also find the company’s presentation. Should you need simultaneous interpreting, the feature is available by clicking on the globe icon located on the bottom of the screen, choosing interpretation, and then choose the language of your choice, Portuguese or English. For those that are following the call in English, you can also select mute original audio. Now I would like to turn the floor over to Carolina Senna, Investor Relations Superintendent. Please. Ms. Senna, you may proceed.

Carolina Senna: Good afternoon, everyone. I’m Carolina Senna, Cemig’s Investor Relations Superintendent. We now start Cemig’s third quarter 2023 earnings call and webcast with the following executives. Reynaldo Passanezi Filho, CEO; Dimas Costa, Chief Commercial Officer; Leonardo George de Magalhaes, CFO and IR Officer; Marco da Camino Ancona Lopez Soligo, Chief Participation Officer; Marney Tadeu Antunes, Chief Distribution Officer; and Thadeu Carneiro da Silva, Chief Generation and Transmission Officer. For the initial remarks, I now turn the floor over to our CEO, Reynaldo Passanezi Filho. Mr. Passanezi Filho, the floor is yours.

Reynaldo Passanezi Filho: Good afternoon. Good afternoon, everyone. It is a pleasure to be here with you on this new quarter, bringing consistent results, thanks to our strategy and to our discipline in terms of capital allocation and efficiency. These are the highlights for the third quarter, an EBITDA of BRL2 billion, net profit of BRL1.2 billion, annualizing it. And I think this is the reality of the company. We are talking about an EBITDA of around BRL8 billion a year and a net profit close to BRL5 billion. These are very significant numbers that show how successful our strategy is. You see here the figure, the 28% growth in the adjusted EBITDA quarter-on-quarter, and 20% for the net profit. And how are we able to do that?

And it’s always important to mention our strategy here and our strategy in terms of management. And we have a very simple strategy. It’s called to focus in the state of Minas Gerais and to be winners. So we are running the largest investment program in the company’s history, focused in the area that we know and the businesses that we know. We are no longer investing in minority shareholders — oh, projects outside of Minas Gerais and all our efforts now are to invest to Minas Gerais clients. This is a very clear strategy, where the capital allocation is being done in the businesses that we know, in distribution, generation, transport in Minas Gerais. We have also a trading company, we sell for the whole country. So we are also investing in gas in Minas Gerais, and distributed generation in Minas Gerais.

So here we are concentrating all our investments. This is the capital allocation that we have been doing. This is the main investment program. It’s not in this slide, but you will see the figures. We have the investment figures. Obviously, you don’t need to pull up the slides because we’ll go over that. But we have BRL954 million. We have almost four times the amount of the investment when we compare that to 2018. This — these are very consistent numbers of a capital allocation in regulated sectors with a known profitability, mostly when we invest in generation. Also, we invest with associated PPA, therefore also with guaranteed profitability in sectors that we know and we follow our divestment process in the areas that are not a priority and that we are leaving.

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Q&A Session

Once again, we were successful in the auctions of the SHPPs and also we concluded the sale of Baguari Plant. These were two non-strategic assets for the company. So we are focusing in Minas Gerais and we wish to win, to have record investments, record capital allocation in areas that we know with assured profitability. And finally, always be looking for more efficiency. We aim to be within the regulatory standards. This is one of our mantras in the company. And once again, we are delivering consistent results. The EBITDA is within the regulatory limits, operating expenses, losses, all of those within the regulatory limits. And this is one of our permanent objectives in aiming for efficiency always. Of course, we are available to take your questions later on, but once again, we bring to you a quarter of very consistent results, bringing in the new reality of the company.

This is a live dynamic company that is investing a lot, and these investments, you may trust us, will bring a lot of value to shareholders, to society and to the people of the state of Minas Gerais.

Carolina Senna: Thank you very much, Reynaldo. So now I would like to turn the floor to Leonardo George De Magalhaes, our CFO.

Leonardo George de Magalhaes: Good afternoon, everyone. Thank you very much for being here in our video conference call for the results of the third quarter of 2023. I’m going to talk about some highlights before I go into the details on the third quarter results. First, I would like to talk about the sale of asset. This is the execution of our strategy since 2020 when we disclosed our strategy to the market. We communicated our intention to divest assets that were very complex where we could not have any control over. And the sale of the SHPPs were very successful with a premium of over 100% — BRL100 million cash that will come into the cash of the company. And we know that for this strategy, we add more value for our shareholders.

And these funds will be part of the cash of the company up to the end of the year. In addition to that, we also completed the sale of Baguari HPP, and this happened actually in October. And also we have Retiro Baixo. We expect to conclude it now in the fourth quarter. These are significant funds that will allow us to pay some of our financial obligations. And this is also moving forward with our proposal of assets disposal and the sale of these assets that we are executing once again, this strategy we divested in light Renova, Axio, and other assets. And now we are going through this other stage, especially now in this second half of 2023 with these power plants. SHPPs, Baguari and Retiro Baixo. Well, Cemig is a reference in ESG. We are present in the most important ESG’s indexes, national and international ones.

And there are two programs that are — we would like to draw your attention to. The first one is our involvement with the communities that are around the — around our the areas where we have the dams. We have environmental programs. Also, we have educational lectures in schools in the area. I think this is the role of the company to be close to the surrounding communities that are close to our assets. And another program that is very significant to us is the first AGRIVOLTAIC project in Brazil. This is a partnership between Cemig, Epamig and CPQD. Here we want to produce food under the solar farms — the solar parks. We believe this is very innovative and it can change the environment of the solar parks. When we are developing those, of course, we have to make some adjustments in those solar farms, but we do believe that we can produce food under the — that area.

We believe this is going to produce a lot of value, and it has to do with the DNA of the company. We are very optimistic. We believe this can bring a huge transformation to the environment where we have our solar farms. And I believe that we will have good news on that front in the future. Now, talking about our investment program. This is a very bold one. It’s of BRL5.4 billion in 2023. We have already invested BRL3.3 billion in these nine months, 42% higher than what we invested in 2022. So Cemig is investing more and more in a very significant fashion. When we compare to the investments for this year to what we invested in ’18, ’19s, it’s five times more than what we had five, four years ago. And these investments that we have made up to September, the conclusion of the third quarter, we see that most of that was in distribution, BRL2.3 billion, transmission, BRL123 million and generation, and the other businesses where we also work.

Within distribution, we are going to be executing this program over the year. We do believe that we will be able to execute 100% of our distribution program. Same thing for generation, maybe for distributed generation and gas. Part of the program will be postponed to next year, probably in the first quarter of 2024. But these are works that are already ongoing. It’s just a matter of adjusting the schedule here, but we’re very optimistic. We also have distributed generation, and this investment should be concluded in the first half of 2024. But once again, we are sure that they will be concluded and they will be generating additional revenue for the company. So this is a history of growth in sustainable businesses with low risk. And we are sure that this is going to add value to our shareholders.

This is an example of one of these projects, the expansion of Boa Esperanca and Tres Marias, the solar farms. We have the pictures before and after. You can see that 80% of the works are already concluded. And we believe that in a very short period of time, they will be already generating revenue and EBITDA for the company. This is a company that has 100% of its energy metrics renewable. And now we are going to turn to the results of the third quarter. Highlights once again, as Reynaldo mentioned, very consistent results, close to BRL2 billion in EBITDA, a growth of 57% of our trading company when compared — the third quarter of this year to the third quarter of last year. And also operating efficiency in Cemig D, not only operating, but also that reflected in financial indicators.