Companhia Energética de Minas Gerais (NYSE:CIG) Q4 2023 Earnings Call Transcript

Companhia Energética de Minas Gerais (NYSE:CIG) Q4 2023 Earnings Call Transcript March 22, 2024

Companhia Energética de Minas Gerais  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Carolina Senna: Yeah, thank you. Good afternoon, everyone. My name is Carolina Senna. I’m Investor Relations Superintendent of CEMIG. We now start CEMIG’s Fourth Quarter 2023 Earnings Call and Webcast. We have the following executives, Reynaldo Passanezi Filho, CEO; Dimas Costa Commercial VP; Leonardo George de Magalhaes, Chief Financial Officer and Investor Relations officer, Marco 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 turn the floor over to our CEO, Reynaldo Passanezi Filho.

Reynaldo Passanezi Filho : Good afternoon, everyone. Again, it is a pleasure to be disclosing our earnings. These results we believe were extraordinary. Okay, you can see my video now. I’ll repeat. I’ll start again. Good afternoon, everyone. It is a pleasure to be here to present our 2023 earnings. These results are extraordinary. And they show the success of our strategy. I think it is very important to give you a summary of the 2023 results, but you have to understand that these are the results of our strategic planning results of the execution of a strategy that is focused on concentrating our activities on the businesses that CEMIG knows. The electricity sector in Minas trading all over Brazil with control efficiency and operating performance.

So this is the strategy. And this is what justifies our record investment plan of BRL35.6 billion. How are we executing? Well, I think that here we have these bullet items. And we see the consequences of this strategy. The first was concentrating, focusing on the assets that we know and divest from our minority equity stakes of assets, which are basically outside the state of Minas. So we divested from light with diversity from Renova. And we ended up divesting this year from Santo Antôni, Retiro Baixo, Baguari and the first lot of SHPPs. And this was extremely positive not just in terms of the cash inflow because of these divestments. But also because we didn’t need to inject capital. You will know that Renova required a capital increase.

Light also needed a capital increase, Santo Antôni also required a capital increase. So CEMIG if we still have those shareholdings, and if we wanted to keep those share holdings, we would have to inject capital into these companies. So considering the BRL795 million in sale of assets in 2023, so you have to look at this general movement, i.e. divesting from non-strategic assets, where CEMIG make held a minority stake. Now, the cash that we generate, that we that we generate can be reinvested in the business that we know, you see before we had to take part in these capital increases that were required. So the first phase is to focus and concentrate on the assets that we know and divest from minority shareholdings. And this process is well advanced.

So we exited light Renoa, Santo Antôni, Retiro Baixo, Baguari and the first lot of SHPPs. So we changed the company’s capital allocation. The second part is trying to remain within regulatory thresholds and targets that is fundamental for us to achieve the EBITDA that we’re delivering here. You will all remember that CEMIG was the outside the target of regulatory expenses for distribution, and beyond the regulatory threshold for losses. And today, we are proud to say that we have within those regulatory targets or thresholds. We are compliant with the regulatory PMS sold threshold, and technical and non-technical regulatory losses authorized by the agency. This is also the result of an effort to generate cash because before, the resources that we would use for investments were used to pay for expenses.

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Q&A Session

So we divested from the non-strategic assets, and we increased efficiency. This is exactly what enabled the delivery of these results, a strong cash generation, a record adjusted EBITDA of BRL8.1 billion. This is the reflection of the fact that we are now within the regulatory targets. In the past, we were beyond them. And today, this EBITDA no longer needs to be invested in minority shareholdings. It can be fully invested in the business, it’s controlled by CEMIG. And we have a second regular investment of BRL4.8 billion. So like I said, this is a summary of the of the transformation movement of the company, we had a first wave of a turnaround, i.e. allocating capital on the businesses that we control and seeking efficiency, and also increasing the operating performance of our assets.

Our wind farms, for example, increase the performance a lot. In the sectors where we improve the operating efficiency, we can generate more revenue, we’re also trying to improve efficiency. It can come through less expenses or through higher operating efficiency of the assets. So we have more efficiency in terms of expenses and more efficiency in terms of revenue. And we have less need to spend money in those minority shareholdings. So this is what enabled this record EBITDA of BRL8.1 billion. This is what led to the current phase we’re living, the highest investment program in our history. So wave one was the turnaround. Phase 2 is executing the investment, when BRL4.8 billion we invested in 2023, and BRL6 billion that were invested in 2023 — and BRL6 billion to be invested in 2024.

When you look at the track record it was under BRL1 billion in 2018. So we increased from BRL950 million in 2018, increasing to BRL4.8 billion in 2023. So in a five year timeframe, we grew investments by 5 times from BRL954 million to BRL4.8 billion, and we continue to grow. Our forecast for 2024 is around BRL6 billion or BRL6.2 billion, or BRL6.1 billion. So I guess that this is kind of the snapshot. We did a turnaround of the company, we turned it around. And now we are at our maximum moment of investments, again, investing in the businesses that we know regulated businesses. And when they are not regulated, this is business that we invested because there is a guarantee of profitability. So we have an associated PPA or generation business, for example, is linked to a PPA, there is no exposure to Power Price risks.

At the same time, we’re making an effort to preserve our leading position in the markets that we lead in the trading sector, for example, and to be prepared for a movement of market opening. We’re moving forward in being present in the free retail market and we want to maintain our leadership in trading. So this is kind of the general strategy that led to these results that you see on the screen of record EBITDA of BRL8 billion record investments of BRL4.8 billion and a record net income of BRL5.4 billion, which is also bringing to you shareholders a spectacular yield, dividend yield of 12.4%. In other words, we remunerated more than BRL3 billion in investments and interest in equity. So this profitability is even greater because a part of this has been reinvested.

So my message, my initial message to you is look at these numbers and understand them as results. We’re not thinking about a number, we’re thinking about executing the strategy. Executing a strategy that makes sense. In other words, focusing on the activities we know, seeking efficiency, reducing expenses, seeking efficiency, increasing revenue, having safe investments, because we’re doing this in the regulated market. When it’s a competition environment, we have a PPA. And we are then prepared for the future. And being prepared for the future means having the ability to trade power in the free retail market. So I would like to congratulate the whole CEMIG team, our own employees and third parties. Because we have delivered results, which are the reflection of the dedication of each and every one of you.

In depth like to say that this is indeed our commitment to execute our strategy, a strategy, which is clear, easy to understand, and which is bringing all of these results, because we are allocating capital to the sectors where CEMIG has a competitive edge. And to me, that’s the most important thing. We have to invest in what we do and be prepared for the future. I truly believe that these results given the execution of our strategy allowed us to get this far, and will allow us to continue to post even greater results in the future. I will turn the floor to Leo. But again, I’d like to congratulate the whole CEMIG team for these results. And let’s hear about the results for the quarter. And the more general financial topics to be presented by Leo and Carol, and I’ll be around for the Q&A session.

Leonardo George de Magalhaes : Thank you, Reynaldo. As the CEO said the results for the year were excellent. We understand we had an EBITDA greater than BRL8 billion and net income greater than BRL5 billion a result that we believe are delivering we’re delivering to the shareholders, while we promised in our strategic planning. The CEO said we’re executing our strategy and these results are the reflection of this adequate execution of the plan. As we communicate it to the market, our dividends proposed for 2023 are very attractive. We understand that CEMIG today more than in the electricity sector in Brazil has one of the highest and most attractive dividends considering the dividends for 2023 that represents a remuneration a dividend yield of 12.4%.