Carolina Senna: Thank you very much Leonardo. If you have any questions, you have a few minutes for a Q&A regarding the results.
Unidentified Analyst: Hello, Leonardo.
Leonardo George de Magalhães: Hello.
Unidentified Analyst: Quick question about Gasmig. There was a significant drop in volume, but at the same time the EBITDA had a significant growth year-on-year. Can you explain what happened at Gasmig please?
Leonardo George de Magalhães: Well, our Gasmig CEO is here. Would you have any comments on that? This is for a question from Juan from BTG Pactual. Last year was the other way around. We had an increase on distributed volume, but the thermal was down because of hydraulic favorable conditions for another type of energy, not the TTP dispatches. I think he’s talking about the volume of the market where they have lower margins. Right? And we also had a tariff review last year that although it decreased our margin a little bit, it increased because of inflation. So we went down 40% in effective margin, but because of inflation we ended up increasing in 5%. So there was a higher number. The collection was higher because of that.
We had the TTP and we also sold more energy, more gas. I don’t know if I address your question. Well, we’ll have a special session in the afternoon where we can go into the details right? Can you go back to page nine I think on the cash flow? I just would like to check something there. Yes, that page, what we can see here is done. If you roll out the data will be generating cash of R$3 billion, R$3.5 billion, considering a CapEx of R$3.4 billion. The projection now is to have the R$40 billion of CapEx over the five years. So it’s more than double your CapEx here, right? I would like to understand how your leverage is going to behave in the process and if that that is interfering in the dividends pay out. And also not only the capacity of getting loans, but also the operating capacity to execute this CapEx first for distribution, for Cemig distribution.
And I’m starting by the end of your question. Our ability to execute the program, we have an investments close to R$1 billion and to go from R$1 billion to R$3 billion, R$3.5 billion, which is no reality for Cemig distribution, that’s not simple. You have to have a restructuring process in your operations. And our logistics today is totally different. We have centers all over the state. We have control in the process and the investment process in our hand. And that is in a more systematized way. And we have already invested R$2 billion to R$3 billion. So Cemig organized itself to be at a higher sales level than what we had before. And with no disallowance, we have an internal process to follow up these costs to see if they are meeting the regulatory compliance.
We are very disciplined. This is multidisciplinary and we are ready for these investments about the other investments we see that investments in solar energy, you can do it quickly and you start generating EBITDA. So in our results, when we consider our leverage in the long-term considering this program and the type of investments that we are doing, and of course here there is a caveat. We will only we’ll be making non-regulated investments if they provide returns to shareholders. And if we say that there are no opportunities in the market to invest, we will see that investments in the free market are not attractive to the company, then we will have a discipline in capital allocation. We cannot lose that from our side. But considering that we’ll be able to make these investments and we’ll have opportunities in greenfield or brownfield for those investments are leveraged.
And we’ll be following the 50% of dividends payment and that’s in our loss , that’s what it’s in our strategic planning. So our strategy, our leverage would not reach to times out, our EBITDA. So we know we could reach 2.5 at the most but thinking about our results how much Cemig D, our next revision can generate our operating efficiency in the house. We believe this is a sustainable program. We understand that the cash generation. In summary, cash generation and the new funding and other investments that we are making and maintaining that 50% policy leverage is lower than two times our future cash generation. I just want to make clear that this is part of our strategic plan. The sustainability of that investment plan is extremely important to us.
As we said, this program is sustainable. We have the balance that we required to execute on it.
Unidentified Analyst: Question about the same topic. There’s a wall in 2024, when you’ll be paying for the bond and the credit market right now is quite tight. So there are other instruments that are being used that are not so conventional. What is Cemig’s access to capital market considering that significant CapEx increase, there are other options?
Leonardo George de Magalhães: Well, with our normal operations at Cemig and our businesses at Cemig GT, there is no cash pressure in 2023 or to pay for any debt. Cemig distribution has a relevant program, but we need to understand that there is a credit restriction in the market and Cemig D has great credit quality and in our industry. In our industry there’s a predictability in terms of generating resources. It’s one of the very few industries that are still attractive in terms of predictable results. It’s very reliable for our investors. So during this fundraising period, the deadline would be shorter and the cost would be higher than it would be last year. Obviously we understand that, but we don’t see any problems in going to market to raise funds in these conditions to keep our distribution programs up and running.
That wouldn’t be a problem. Now obviously fundraising had longer terms, but in the short to the midterm, things are a bit less favorable than they used to be a few months ago. But that’s not just Cemig, it’s everyone, but we’ll be able to deal with that. I mean it’s part of the game. Market conditions are not that favorable, but we have no problem to conduct a well-structured fundraising considering our investments and also our credit. But for Cemig GT, as I said, we’re not going to leave it to the end of 2024. Maybe we will raise funds in the shorter period, so that we can amortize more than 50% of that bond, which will be close to $300 million. So we can go to market and raise funds, because Cemig GT’s leverage right now it’s practically the bond.
So, we’d raise funds just to improve our debt profile and Cemig GT does have the credit it takes to go to market until the end of the year, but we are monitoring the market and there’s a chance to divest as well. We’re not counting on that. But if there are any divestments, we could use those funds. But even in this challenging scenario this year, it’s not going to affect our investment plan for the year. There will be a partial amortization of bonds. Towards the end of the year. I mean conditions would be favorable to that, but as of December, 2023, we can buy the bond, could be December, January, February. We’ll monitor the market and see when things are looking more favorable.
Unidentified Analyst: Gustavo from Bank of America. About results costs were higher than inflation, especially in third party materials at the distribution company. Does that have to do with your corrective rather than preventive measures? Might that decrease over the next few months? Talk about that will there be a reduction in the next two months, because of the preventive and predictive maintenance and have any OpEx predictability for the rest of 2023? Or have you done most of it last year?
Reynaldo Passanezi Filho: Well, to give you some more color, we think that investing in innovation is extremely important. We spent a few years not making any investments and investing in technology is very important to our business, in the short term that means reducing costs, but we will be making more investments in IT over the next few years. That’s part of our strategic plan and we think that, investing in IT is important to us and it will help us have a more sustainable and efficient operation. We also talked about maintenance and we believe that cost increase, which we believe to be short term. You have corrective and preventive maintenance still at higher levels. But on the same level, we believe we should be investing more in preventive maintenance than corrective, because it’s cheaper.
But that’s a short-term issue. It happened in 2022. We believe that cost will be lower now, it will grow close to inflation rates and those are the rules of the game. But those costs should reduce looking forward. But the message is, we have to reduce costs in other areas so that we can keep costs below the regulatory limits. We’re not going to straight from that. We’re not going to say, oh, this happened, that happened, therefore our costs will be above regulatory limits. That’s not going to happen. That’s our strategy. We need to have expenses that make sense, that help to reduce costs in the mid to the long run. But even though those costs have to do partly with investments, they will not go over that which has been established for the tariffs.
Unidentified Analyst: Lisa from Itaú. I have a very quick question. You talked a lot about migrating some GT contracts to the holding company that about 30% of that spinoff has already taken place. How is that going to progress over the rest of the year? How will you conclude this spinoff?
Reynaldo Passanezi Filho: I have the trading, our trading officer is here. I think he can probably help me with that answer. Do you want to answer that now or will you be talking about that later?
Leonardo George de Magalhães: Hi, good morning actually. Good afternoon. Yes. Right now we’re migrating those contracts because we have to agree on the prices for which we bought that energy. We believe that by the end of the year, we should have migrated all the energy that we purchased from third parties because we haven’t traded Cemig, we have traded Cemig’s Energy plus third party energy. So by the end of the year, we believe we will have concluded our negotiations with the sellers and by the end of the year, close to a 100% of those contracts will have been transferred and the holding, trading company will be managing all the energy that we have purchased from third parties.
Unidentified Analyst: Good afternoon, Myra from HSBC. You just recognized the voluntary retirement program worth R$4 million. So how much will you be saving and personnel, because of that voluntary retirement program?
