André Sampaio: André Sampaio from Santander. Márcio, I have a question for you. I would like to understand what is the difficulty? What are the challenges in dealing with a company that has a natural turnaround process a company, and you mentioned in the beginning of your speech and comparing that to the privatization process. So how do you bring together these two processes in a way that one does not get in the way of the other, and to make sure that both of them can work hand in hand?
Márcio Luiz Simões Utsch: Well, these are two simultaneous projects as you said, but one is really moving forward the turnaround projects and here are the results. We just work on them. We carry out and we are able to achieve some objectives. The strategic plan as Reynaldo said is a limit to say no. So the worst thing that we could have in a strategy is a good idea. So when you have a plan that is defined, you’ll say no to any other idea. So you have a wholesome plan because you can carry forward this turnaround project. You have a strategic plan that allows to say to define what’s in or out of the project, then you can say no to some good ideas, otherwise you are going to have a patchwork thing. On the other hand, the prioritization plan.
Nowadays, for Cemig is more of a preparation. I mean, we have to be ready so that when you are ready to do it, we are really ready for the process with all the questions already addressed with the most relevant issues taken care of, everything related to the corporate structure, because that has to do with the state. So this is more of a preparation for when the general assembly approves some type of prioritization. That could be a simple privatization, could be a corporation. There are a number of options. But so we do have a plan that is ongoing, that is varying results. And the other area is a preparatory area I would say, we are €“ we will be ready to execute the other one €“ the other plan when the time comes.
Reynaldo Passanezi Filho: Another question about the transmission CapEx, how much of that transmission CapEx is regarding new lines and how much of that is just to reinforce existing projects in the original contract? And most of them are just to back up improvements by far. We’ll have a Q&A with all the other officers. So please you can ask Márcio questions here and no problem. You can ask anything you want, but we will be here the whole afternoon and there’s going to be a Q&A by the end of the day.
Unidentified Analyst: My name is Juliana from Bank of Yes . So how much of your agenda today is focused in privatizing the company? That’s my first question. How much the agenda of the Board and the CEO is taken by the privatization possibility? And also on generation, all of €“ out of these R$13.4 billion, do you have a target here for mega, all of that is focused in Minas Gerais? And how much of that is from HVP and how much is renewable?
Márcio Luiz Simões Utsch: About the agenda, we had an agenda consumer in the agenda that was huge. And that was Light and Renova that really used up and consumed a lot of our agenda. It was really that would take up a lot of our time in hours, but also our intellectual agenda. So we cleaned up that agenda and now our mindset is focused in Minas Gerais. Once we left the low profitability or negative profitability assets and now we’re focusing on the good one. So that allowed us to concentrate on privatization. And here we are working on that. We are working closely with Minas Gerais administration so that we can show Minas Gerais administration and tell them that the reason why this is a good option for them and to be able to approve it.
In addition to that, we have a preparatory agenda. We €“ there’s nothing much that we can execute that we can actually do. And how this is going to be on the day after? We are just a preparation. So it’s done. What are we going to do on the next day? So we had advisory that we are working with and internal actions that we are doing to be ready. But there is something that is key. We need to have the government’s approval. So now we have a favorable environment. We from management are favorable to that, because of the objective reasons, because that’s going to improve the value of the company and also for subjective reasons as well. This is the single non-privatized company in the country. We are the only ones. Is that right? So I think it does make sense to take that into consideration.
We always communicate with the government and we always have meetings. So that’s also very active.
Reynaldo Passanezi Filho: First, I would like to tell you my personal opinion, just like Márcio. So also this is the opinion of the top management. And I believe that as an officer, I believe that it is great for Cemig to become corporation to go through this privatization process. So this process of acceleration and value creation is going to be even more accelerated in a movement that we might have of turning into a corporation or have the privatization of the company. So I’m thinking here as an executive, I think this is positive of the company. The company will no longer have some management eyes and that will allow this amazing company that we have to generate even more results to the investors and to the society. And also to €“ we believe this is very positive for the company itself.
The company will gain sustainability and long-term survival. Now, as far as our relationship with the state assembly and with our officers, we have something that we need to discuss, which is the concession €“ which are the concessions and Alessandro here and he can tell you more about. By November of this year, we have to request the extension of our concessions within those 49%. And I don’t know the number of the decree, this decree nine to seven one, our concessions are doing 26, 27. But we have to send a letter saying that we are interested in the automatic extension. And this letter has to be sent by November of this year. And we also need a report from the state house, the state assembly by November of 2023. They have also to approve the extension of these concessions in here is more than 50% of our productive area.
So we have been discussing that with the executive power and the state assembly to avoid what happened in 2015 or 2017 when we lost some of the concessions. It was in 2015. So about our CapEx to R$13 billion obviously that is associated to a number of megawatts. How much is that Tadeu . 1.9 average and obviously is 100% renewable and that includes the renewal of the concession grant. So part of that is H50 because includes the renewal of the concession grant, but the investments will be in wind and the photo will take. I’m sorry, they are not using the microphone. So we can’t hear what is being said. Yes. So just €“ so that you can understand, we have two options. First, we can change our head office and that needs the state assembly. And that’s the option Paraná’s administration chose.
They will ensure 100% of the renewal of their concessions by changing the corporate structure of the holding company. And we have another option, which is to retain 49% of the SP, the concession grant that is due. And then I have another private entity will take over the 51, that’s on the regulation. And for the second option, we need an opinion from the state assembly. The state assembly needs to approve this model ensuring that we have the automatic approval of our 49% and that has to come by November of 2023. And I can also go for the auction. I think our time is up, but just one more question please.
João Pimentel: Well, this is João Pimentel from BTG. A lot has been you said about privatization and the obstacles, but we do need the approval of the state assembly and something very simple here. You said that you were not discussing with the state assembly. Yeah. When the government intends to discuss with the state assembly? What is the timing here involved? When do you €“ do you think it will be able to start and follow the process of our privatization process then? We know it’s a long one next year, we have municipal elections. We know that is a critical period of time. So we don’t know when that’s going to happen. That’s what we would like to understand. Are you going to submit this proposal to the state assembly right now? Is this a negotiation that takes time? Do you have a timeline involved here?
Márcio Luiz Simões Utsch: We want to right now don’t want to waste any time. We’ve had meetings with the government where we emphasize the need for the government to mobilize. Right now, that’s what we want. We want to get the approval. But obviously the government has its own interest. It’s not just about Cemig. There is a strategy to take those topics to the assembly to get approval. From our side, we believe in it. We’ve been working very hard on it. I believe that it will happen in this term. It didn’t happen in the Governor’s previous term, but it takes time as you said. So we need to work hard. We need to bring in potential bills and try to get immediate approval. But it’s not just in our hands, because shareholders own the capital and they should be doing that.
They have a power at the assembly. So we’ve been supporting that by information to get group, but it’s not in the hands of the company’s management. We’re just operating capital plan is done by the government really and we’re working hard to get. Thank you, Márcio. Thank you, Reynaldo for your time. As we heard we will have another Q&A session. But before now, we have Leonardo George about the last quarter and the year of 2022 result.
Leonardo George de Magalhães: Good morning. Thank you for joining us in person and thank you for joining us online. We have our foreign investors who are listening to the simultaneous translators. We also have our investors here, analysts, bank representatives who are here with us. Thank you so much for coming to the land of Cruzeiro Sports club. I’m sorry I apologize, but I do have the microphone. So I have the power of speech and I’m make use of it, so I must share 4Q and years results with you. But I wanted to talk about investments first. Reynaldo showed you the investments will be making the regulated market and competitive markets. We do have the balance to R$42 billion. Our leverage will be kept at levels €“ low levels.
So not to affect our rating, but in free markets, competitive markets, the future price of energy is one of the main variables for the company. So investing in the free market. Those R$13 billion we saw for generate, for instance, will be made considering future energy prices. In Brownfield or Greenfield and Márcio mentioned many times during his presentation that we need to have the right capital allocation and the right capital allocation plus financial discipline in allocating resources. That’s part of our everyday life and part decision making. So those investments when we disclose them to the market express which would that they will be adding value to our shareholders considering market variables with regards to raising funds and the future price of energy, which is a key variable, especially right now where €“ when energy prices are so low considering last few years of favorable ideology.
But we’ll have an afternoon presentation by the most about this topic. And during Tadeu’s presentation about generation, we’ll also be hearing more details about how ready the company is for this future. How the company is organized to make the most of market opportunities to present themselves. So I’m going to have to continue talking about my football team. No, maybe I shouldn’t. As I said, these investments will respect the discipline will have an allocating our funds over the next few years. We’ve been doing presentations for a few years and when we did this presentation a few years ago about talking about the companies focused on planning, we were dealing very difficult question. Some investments that did work out our debt profile wasn’t great in the short-term.
There was a lot of pressure on our cash management divestment program at the time. It had to do with how the company was dealing with cash pressure. Sometimes it had R$10 billion maturing in two years’ time. It was a very tough time for the company. But the last two years. We have been able to change history in the past. We were also discussions with the federal government about renewing concessions, losses that led to the loss of half of our generation complex. These were tough questions that led to a drop in our rate change, the cost of we issue on at the end of 2017, IPCA €“ no not IPCA it was the dollar value plus 9.5%, which isn’t that scary right now, but at the time it was very high. So since then, over the last few years, we have reorganized our leverage ratios very low.
We have the balance we need to make investments Reynaldo told us we have invested in operating efficiency and we are on a whole different . So our drivers now are our operation and our everyday life.
