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Companhia Energética de Minas Gerais S.A. (NYSE:CIG)

Q2 2013 Earnings Call

August 14, 2013 9:00 am ET

Executives

Antônio Carlos Vélez Braga

Luiz Fernando Rolla - Chief Officer of Finance, Investor Relations & Control of Holdings and Member of Executive Board

Djalma Bastos de Morais - Chairman of Executive Board, Vice Chairman, Chief Executive Officer and Executive Vice President

Maria Celeste Morais Guimarães - Chief Counsel and Member of the Executive Board

Leonardo George De Magalhaes - General Manager and Controller

Analysts

Felipe Leal - BofA Merrill Lynch, Research Division

Vinicius Canheu - Crédit Suisse AG, Research Division

Sergio Tamashiro - Itaú Corretora de Valores S.A., Research Division

Antonio Junqueira - Banco BTG Pactual S.A., Research Division

Lilyanna Yang - UBS Investment Bank, Research Division

Antônio Carlos Vélez Braga

Good morning, everyone. My name is Antônio Carlos Vélez Braga. I'm Superintendent of Investor Relations at Cemig. We'll now begin the video webcast of the second quarter 2013 results with the presence of Djalma Bastos de Morais, the President; Dr. Maria Celeste Morais, our Legal Director; Dr. Luiz Fernando Rolla, our CFO and Investor Relations Director; and Dr. Leonardo George de Magalhaes, Controller.

The webcast can be followed on -- over the phone, 55 11 4688-6341 and also on our website, http://ri.cemig.com.br.

We'll now give the floor to our CFO, Dr. Luiz Fernando Rolla, to begin the presentation.

Luiz Fernando Rolla

A very good morning, everyone. It is with very great pleasure that we, again, do the webcast of the second quarter 2013 results. I thank each of you in advance for your attention. It is important for us to communicate with the market -- to the market the results that we, at every quarter, publicize to our shareholders.

Here's our results of the P&L of the second quarter, represents an evolution compared to the previous year, much in line with the growth strategies and the improvement strategies of our operational efficiency that the company has in place in the recent years. We are now in the process, very dynamic process, not only from the regulation point of view but also from the economic point of view in Brazil. And you will see that reflected in our results.

The results that we presented in the second quarter of 2013 compared with the previous year had a relatively small variation. We're going to go into a lot of detail during this presentation. You can see that the results of revenues, net revenues, had an impact on the tariffs reduction that took place last February 2013, but also a result of the third tariff review.

Mr. President, these results that we're presenting now, if we look at the results, the cumulative results of this semester, how do you see the results?

Djalma Bastos de Morais

Good morning, ladies and gentlemen. I thank you for your presence here and our staff. We have a very good result, actually, this semester, 1.4 [ph] profits now represent, relative to the first semester last year, an addition of approximately 20%. So we are in a very good situation relative to the context in which all of the activities in the country are, especially in the context in which Brazil finds itself and the rest of the world, except maybe for the USA. We represent, actually, an oasis in this country. This result reflects our effort. Our team are part of it that's present here. Today, we have the presence of Dr. Celeste and that would be a recap a little about the regulation environment we're experiencing. Dr. Celeste is going to add on to what Dr. Rolla [ph] and I might say, for you to be knowledgeable about what we've been doing.

Luiz Fernando Rolla

Mr. President, in previous quarters, we were talking or saying that Cemig was going through a process of fitting the new regulation reality. And in fact, we had, as we announced in the first quarter, significant reduction in the number of employees.

We have reached the number that we expected, and it is now 700 to 800 employees. We had about 1,000 joining the resignation program. Approximately, by the end of the year, we're going to reach about 1,800 employees. So it is what the expectation is for us. And we believe that we have an ongoing selection process. We're bringing people, new people to the company, of course, with the necessary training. And we expect that we're going to reach 2014 in a relatively good situation. We believe that our results are going to proceed along the same lines that we have been having. We have operational gains to capture in the second quarter, which are going to be credited next year or the second semester and certainly, in a greater reflection by the end of the first year's semester and really more intensively in the second semester. Exactly, the cash generation during the first semester reflects the level, the kind of investment that we have been making coming from this reduction.

Mr. President, exactly, we had an EBIT of BRL 2.4 billion, approximately a growth vis-a-vis the second -- the last semester, about 15%. And this really reflects our policy, the policy that you have been, actually, informed about all the time. As a result, probably today, we're going to have the publicizing of Taesa, the excellent result of Taesa. And also they're going to be publicized. Recently, we actually transmitted part of our interest, TBE interest to Taesa. Taesa's going through a very good moment.

Just to give you an idea, we have not had much success in our auctions, but we're striving towards it. Two of our directors, plus 2 directors of Taesa, plus 2 superintendents have been recently to China, trying to find partners and associations in order to make us more competitive.

We believe, really, that we are going to be successful in our -- in the next auctions. It is a dynamic company, and we're already moving, associating with the Chinese, similar companies for us, to have success in our auctions. It is our growth vehicle for transmission, and we're going to have good results in the future.

This represents our growth strategy. With Light, by the way, you may have followed that in the media. We've been going into a tariff review in the next month in Light. But there is a similarity to a peculiarity to this expectation of tariff review at Light.

If you observe that, yesterday, there was in Valor, a newspaper story, that the Aneel team would be in Rio de Janeiro examining a situation, which we showed to Aneel. We have been trying to show Aneel that there are 2 Rios, one Rio identical to the rest of the country with all of the problems that we have in the country. But there is a part of Rio de Janeiro which is very peculiar, a part where we cannot even make feasible the cut -- the cutting or the outage of a certain area or a certain residence, which has actually stolen energy. We are even prevented from cutting off that illegal connection. So we cannot join this normal Rio with the peculiar Rio. And we're having a small success. Light showed itself to be receptive, and it's showing the team to verify that. On-site, the presence of Light was in a contact with the public safety secretary in Rio and Aneel showing this peculiar situation. We're trying to show Aneel that we need to invest. We need to be together with the government of the state in the units of what we call the peacemaking units or the police peacemaking units in the slum areas in Rio. It is a peculiar situation, but we are going to have success in Light, actually, stealing of energy, of power in Rio, which is so peculiar vis-à-vis the rest of the country.

In the renewable energy aspects, we also had some novelties recently that we have announced. We, Light, you know that the Renova, we have a Light/Renova interest. And now, Cemig also, we have an interest in Renova. Renova is our growth vehicle in the generation area. We've been participating now Cemig, Light and RR Renova, each one with 1/3 interest. This is an important interest of ours. And by the way, you know, because this has been publicized, that we have been working along the lines of acquiring part of Brasil PCH. We have made a successful proposition to Petrobras. However, the partner which already had 49%, has a preference. We've been negotiating with that partner, and it's possible even that we will be successful in this acquisition. And maybe this partner might add some assets, might be with us. So it is -- these are news that we actually will publicize. But what we have thus far is our Renova having an interest in Brasil PCH. These assets, which add up to about BRL 700 million, these assets, we've made a proposition. And we've been negotiating with the other partner so that we can also have their interest in other assets that they may have so that we can add that to our company. So those are important additives, which we're certain will add on to what we have been doing thus far in terms of new acquisitions adding value to our company.

Last week, we had a first auction of a Cemig/Light equipment. We proceeded with the bidding process, and there was a total synergy of the 2 companies. We need to magnify that. It was a small amount, but it was the very first step towards a great, great path.

How about the regulation front? That is, the regulation front, and the presence of Dr. Celeste, has been very, very important in this round of regulation. You know about our work with the judicial system in terms of the 3 hydroelectric plants: Miranda, Jaguara and São Simão. We had a concession contract. We've been working so that these contracts may be considered legally valid. There is a juridic perspective that we have. That's right. We are entitled to this, and we were surprised about 2 months ago with a letter from the ministry already asking us to return Jaguara.

So we wrote a memorandum to the Supreme Court. We were present there in the Supreme Court, myself and Dr. Celeste and our contact in Brasilia. We've been there to the Supreme Court. We visited the minister, and we had first success.

I'm going to give the floor now to Dr. Celeste. But ladies and gentlemen, this is a small battle in a great war. We were successful in this first battle. So Dr. Celeste is going to provide us with some explanation of what we did there and how this process is going through. Dr. Celeste, please?

Maria Celeste Morais Guimarães

Good morning, everyone. I thank the reference of our President, Dr. Djalma, and my greetings to Dr. Luiz Fernando Rolla, and Dr. Velez. As our President has said, our CEO has said, we were successful, really, a very important success, that Minister Sergio Kukina, who is the reporter of our process at the Supreme Court. We actually had this provision of asking the rights to have the renewal request examined by the Minister of Mines and Energy. As everybody has said, the Ministry of Mines and Energy did not examine the merit of our request. The argument that the request would be untimely not because we had actually missed the deadline, but also because -- but because we did not adhere to MP 579. Today, is a law, and we understand that the law applied to our contract, is the one that was, therefore, that was in effect when the contract was signed. So we were in the right time. We entered the right time, and we were very successful because the Minister Sergio Kukina actually approved our request, granting Cemig. Those are the terms of his report so that Cemig will remain the concession owner of Jaguara until the situation is judged. The concession ends on the 28th of August. The process has not been put actually on the agenda. The union actually re-appealed that decision. But because of the Supreme Court recess, the process now has begun again in August. So the company is very tranquil because that injunction for however time, however long the process remains, we will keep the concession. And the Minister, in his report, has stressed that he saw plausibility in our claim. So he actually advanced that on the basis of his own jurisdiction, isolated, given his decision, that the concession, therefore, must continue with Cemig until the litigation is judged. Therefore, we've been working with the office that represents -- legal office that represents us in Brasilia so that this injunction is stabilized so that we can be successful with the concession maybe in the next month.

Djalma Bastos de Morais

Thank you, Doctor. Just a minute. Just adding on to what she said. I was surprised this morning -- still about the subject, Dr. Celeste. Today, there was a report on Valor. I mentioned Valor twice. And you talk to the Valor people. We've not given them any coverage to them. But today, I was surprised with the story at the Valor newspaper, where a former Director of Aneel said about this topic. He mentioned a sentence that Cemig actually had a lot of reason. Did you read that?

Luiz Fernando Rolla

Yes, I did.

Djalma Bastos de Morais

And we were surprised, pleasantly surprised, because there was a former Director of Aneel saying that Cemig has -- is right in its request. So for you to know that we find our claim pertinent, we are actually creditors of these 3 generator plants, and we're going to the last juridical consequences evidently about this topic.

At each day, we have been winning small battles. I believe that this new story is one other victory, small victory, that we have had. And we believe in, the justice system in this country. We believe in the confidence that our investors have been lending us, and we are on the right path.

Luiz Fernando Rolla

And Mr. President, just to close, we also had an extremely relevant fact in the quarter results, the transfer of TBA to Taesa concluded the regulatory process, which is going to bring Taesa very positive results. But in order to close this first phase, could you give a message to our shareholders and investors, who are willing to analyze Cemig as an investment opportunity?

Djalma Bastos de Morais

I don't want to state to you, investors, that Cemig is similar. I just want to -- that you keep your confidence that you always had in our company. We've been present in more than 20 events together here, outside of here and some other cities in our state. But please keep our confidence. Our work is correct. We have a total support of our controller. We have a great investor, Andrade Gutierrez, which is adding value to the company and is helping us. And the total confidence, the total trust that our controller has in us, delegating the actions that we have been implementing, and we are actually on the correct course. I'd like to convey to you that we're going to continue doing the same type of work. We will continue this format based upon this tripod, which is, first, to offer good services to our consumers and a tranquility to our investors and that tenderness that we have with our company, our employees, who are our support, which have led us to the situation we are in now, we're enjoying now. So I want to be together with you. I don't know how long I will still be able to share the success of our Cemig.

Thank you. Dr. Celeste and myself will have to withdraw. We have other commitments. We cannot be with you, but we are always at your service. Thank you very much, and good morning, everyone.

Luiz Fernando Rolla

Thank you, Mr. President. Closing this first stage of our video webcast. From now on, we're going to go, Dr. Celeste, into the figures that were publicized and trying to clarify any doubt that our analysts and investors might have about our results. Thank you, all, for your -- thank you, too, for your presence.

Now continuing our -- thank you. Continuing our presentation of our results. I'm going to now call on the presence of Leonardo George, who's our Controller; and Velez, who is our Investor Relations, IR. Both are very well-known to you. Dr. Leonardo, this year, once again, we've been able to -- the transparency trophy in our statement. We have filed our ITR, and it is an ITR already awarded with the prize for the 10th time around -- 11th -- 9th time around. Next year, we're going to have the 10th time.

Leonardo George De Magalhaes

Dr. Rolla, as you yourself has said, once again, we received this transparency award, which is a reason of pride for us. It is external recognition of the effort that our company has been making to give quality information to society, its investors and transparent information. So we think that this is a national recognition prize and is independent judgment done by the University of São Paulo. And it is another pride for us. And also, it converges with our sustainability spirit and to respect our investors being as transparent as we can so as to give our investors a fair evaluation of the company.

Antônio Carlos Vélez Braga

It has not been an easy task, Dr. Leonardo, because the facts that are occurring have brought additional difficulty of understanding on the part of the public at large, especially investors. All of these regulatory changes, all of the transactions we've been making have brought an added complexity to our statement. And this has resulted in the need for explanatory notes that are more and more detailed.

Leonardo George De Magalhaes

Yes, in all certainty, Brazil has been going through great changes in the accounting area, with the adoption of IFRS and with the standards that have been adopted in the corporate environment of Brazil. But Cemig has a history of dealing well with challenges, whether in its Investor Relations or regulatory issues or in the adaptation to the new environment. We think that this is one more challenge that the company is ready to face, to come out, actually, strengthened and giving more information, with more quality information to our investors. We think that we have overcome that clarification phase to analysts and investors about the practices of IFRS. We think that the first year of application of the standards, was 2010, was very difficult both for ourselves and our investors. We think that is in the process of maturation. We've been able to get more convergence in our understanding with this information asymmetry between the administration and investors. We know that this year has been a little more difficult because of the consolidation process. Now we do not consolidate the information of the companies that are controlled together. But in order to solve this issue, we have put additional information to our financial statements. But at any rate, the company is open to receive suggestions from our investors in our IR areas, suggestions related to additional information, which would be important for these investors to understand our company's operations.

So the suggestions made by our investors are analyzed, and we have every interest in improving on this information in our demonstration so that the analysis by the investors is as fair as possible so they can understand our business clearly.

Antônio Carlos Vélez Braga

How about the relationship with our external auditor in this aspect?

Luiz Fernando Rolla

The company is audited by Deloitte, a company among the largest in the world. It's important to report that is a tax company. We are also audited by auditors in what refers to our internal controls. And the company has never had any negative qualification in our account and demonstrations vis-à-vis these internal controls. So keeping the independence of these independent auditors, this is a fact. And we think that we have a good relationship with them. And we can, throughout the years, have a history of demonstrations without any negative aspects showing the spirit of the company to work in an adequate structured way, reducing risks in the level of information that is publicized.

Last year, we had announced a deal transferring the interest of Cemig H to Taesa. In fact, what we have actually executed with already the approval of Aneel in the second quarter, we obtained this approval in this period. And therefore, we included everything in the reflection upon the second quarter of 2013. This deal, which naturally, within our -- what our President has said, of transforming Taesa into our growth vehicle in order to -- for transmission, that is. We have now given Taesa the necessary muscle to become an independent vehicle for growth with the cash generation that is quite relevant. But we had, Dr. Vélez, very good results in the second quarter coming from this transfer, the sales total value of the operation was BRL 1,900,000,000, which is reflected positively in our results.

Antônio Carlos Vélez Braga

Exactly, Dr. Rolla. We received -- the holding received a value directly from -- an amount directly from Taesa, BRL 1,691,000,000. And the remainder of that amount was received from TBE through dividends between the period in which the agreement was signed and the closing of the operations so that the total value that our company, the holding company, will be receiving because some dividend that had been declared, but not paid off, a total value of BRL 1.929 million (sic) [BRL 1.929 billion].

Now the effect of the results upon our demonstrations, upon our statements, has different effects upon the holding company and our Cemig GT, which also had a small interest in one of the TBE lines. So the consolidated effects of this table, that is, this chart that is on the slide, has a net effect of approximately BRL 107 million. That is a net effect on net income after tax. In the case of Cemig GT, we recorded a loss because of the sale of EBTE, of BRL 94 million. EBTE is a line that is part of the TBE Group, where TBE had 59%, Cemig GT, 49%. When we actually assessed, evaluated the assets, Cemig evaluated a total of the operation and the profitability that Taesa would have and the cash that the holding would receive. In the end, this asset had to record a loss, in the case of Cemig GT.

Luiz Fernando Rolla

Naturally, the fact that we transferred it to Taesa represented exactly our expectation of recovering this amount. Now we also -- as announced by the President, we have begun our negotiations with Renova so as to have an increase of our capital, a capital increase, in this growth vehicle. Renova Energia, we have an expectation there that is quite positive, as you can see there.

On the slide, the growth, the expected growth, of Renova in the coming years will be very robust and is going to add immense value to our shareholders. So we have absolute trust in the technical qualification of the management of Renova. The controlling group, the block, has a very uniform partnership. At least aligned in the long-term view, we are now with the interest of Cemig in the controlling block of Renova, reinforced its capacity to execute, not only the growth projects of the wind farms, but also to add generation capacity of water generation, hydraulic generation, of small plants, hydroelectric plants, which are going to add great value to Renova and give it the robustness in the cash generation in order to ensure the growth in the future. Do you have anything to add, Dr. Vélez?

Antônio Carlos Vélez Braga

I would only like to add and ask a question that can be a clarification to our investors. Now the whole operation potentially can reach a value around BRL 1.4 billion, which would be the acquisition of Brasil PCH, which is not yet consolidated because we're still waiting for the partners, the other partners' position. But it would be interesting for our investors to know how Cemig plans to finance that operation. If there is a definition, it would be debentures and other IPI.

Luiz Fernando Rolla

No. We are in the process of negotiation. We IPO-ed, that is. So we're now in the process of how we're going to capitalize Renova and the partnership percentages that we're going -- resulting from this capitalization. But we have several alternatives before us. We have made -- created strict finance structures that aim at ensuring an amplified performance of the return on investments that we have made. And whatever the structure that we have in place, the purpose will be to maximize the return. We have an expectation that is extremely positive. We can do it through an IPO or capital outside together with IPOs. Or -- so this is still actually being considered. And shortly, as soon as we have a definition of the Petrobras partner in this enterprise, we will announce definitely what or which would be the adequate structure in order to have this deal.

Leonardo George De Magalhaes

And I would only like to remind that the capital increase at Renova, has the loss -- has an effect that Cemig is an interesting party. There was an assessment through independent reports and by renowned companies, Ernst & Young, and they are partners. So this amount that was actually attributed to buy per share was calculated through actually, estimates...

Luiz Fernando Rolla

Not an estimate that we established for the -- our company's interest especially in the controlling block, which reflects the expectations of growth that we have about Renova.

Naturally, these investments are inserted within the context of our sustainability vision. We are already within this principle, already making decisions and implementing all of the necessary initiatives so that the company becomes sustainable. Sustainable means guarantee in returns, financial returns, that are adequate and respect to the environment and the guarantee to the future generations, the availability of resources that we manage today. Also, this deal, this transaction is inserted within the sustainability context.

Now moving ahead, Gasmig, also, is one subsidiary of Cemig and a partnership with Petrobras. It has had very robust growth in recent years. It has a great potential growth as part of the group. We have repeatedly publicized to the market that the opportunity for developments of the gas, natural gas business within the block represents a very good opportunity for our shareholders, representing a value addition.

Cemig, anticipating this growth, has already shown very solid results of growth, not only of gross revenue, but also investments into the expansion of its pipeline, the rail network so as to reach and enlarge the universe of customers. We're now focusing upon industrial market. And naturally now, we've been enlarging through the construction of pipeline networks, urban pipeline networks in order to meet not only the residential sector, but also commercial sector, which is going to represent a change, quite significant change, in our growth vision and our -- in the sales and trading, the products that we negotiate for the customers.

So let us focus the analysis of the results.

The second quarter, we had a growth of net revenues in the quarter, quite significant one -- 15% of revenue growth, the consolidated revenue growth in the first quarter. The second quarter, we had practically a stability, which, in a quarter, represents a growth of 7%. Any comment, Dr. Vélez?

Antônio Carlos Vélez Braga

In the case of the net revenues in the second quarter, there were several impacts that I think worth mentioning. Due to our sales strategy, we liquidated a relevant amount of power in the CCEE at the -- at keeping this uncontracted energy buffer in order to mitigate the risk of an unfavorable hydrology. And that is why we have a quite representative liquidation in terms of our volume of energy and revenue as well. But this revenue also reflects the impacts of this PM 579 and the Law 12.783. Besides the tariff reviews, in the case of MP 579 and the Law 12.783, we'll have the impact of the renewal of our transmission concessions of Cemig GT. This has an impact around BRL 100 million per quarter upon our revenues. And at the same time, I have items that are passed on to the distribution tariff, which also reduce the distributor revenue, but also, are just passed on. In the case of this quarter, especially the cost of transportation, the transmission cost of the distributor, and the reduction of charges, RGR, CCC, which was extinct, and reduction of CDE.

Besides that, as you know, there's the subsidy of 1/3, which is, in the case of CDE, was reflected an increase of BRL 136 million. We have all of these items that are reflected on the variations of our net revenues.

Luiz Fernando Rolla

Hence, the apparently opposing signals in the growth in the first quarter and the stability of the second quarter.

Antônio Carlos Vélez Braga

Just reminding that in the first quarter 2013, the energy liquidated was even greater, especially because the first quarter presents an increase that is greater than the second quarter.

Luiz Fernando Rolla

In case of explaining adequately, we're going to go into the Cemig GT results and Cemig D, and maybe we can -- and then, we can evaluate the aspect of growth and the stability of revenues and the consolidated one.

As for the costs, usually we highlight increase of operational costs of purchases energy. This increase is quite visible there on our chart, showing an additional cost of energy purchase, which was included already in the second quarter. But this necessarily does not represent a negative factor.

Antônio Carlos Vélez Braga

Precisely. We have, in our expense composition, items that we call noncontrollable and controllable items. The noncontrollable costs, the fact that they are -- they increase or decrease does not represent an increase or decrease in the profitability of the company because they haven't -- there is a tariff coverage for that. In the case of distribution, it's tariff coverage. In the case of generation, we only purchase energy to resell when we have a sales contract for that energy and only carry out this operation if we stand to gain. So the items that we call noncontrollable are purchase of energy's regulatory charges and transportation costs, which are there as charges of network use.

In all, the increase of expenses -- the increase of these items represent about 80% of the variation of the expenses. Those are costs that are not reflected upon the profitability of the company. In the case of the generation business, as the market knows, Cemig GT had already sold -- practically all sold for 2013. And we started purchasing energy since July last year, when we noticed that there was a risk of an unfavorable hydrology for 2013. Then with the advent of PM 579, this purchase of energy, not only for 2013 and '14, was incremented. So as -- so that besides guaranteeing the fulfillment of the contracts we had already had, we generated this buffer that I mentioned in the previous slide, so as to face the risk of an unfavorable hydrology. And this is reflected when we see the increase of the purchased energy in the second quarter of 2013 after BRL 123 million, around BRL 50 million is located in our Cemig distribution, as it's passed onto the tariff. In the case of Cemig generation and the transmission, it's an increase of BRL 173 million, reflecting the purchases, but also where the margin. So this is also reflected in the improvement of the results of our Cemig GT.

Luiz Fernando Rolla

We also reflect in the second quarter our program of reduction of expenses, precisely personnel expenses, having in mind the redundancy program announced by the President, which was very successful. The cash generation remains solid, much in line with what had been planned by Cemig. You remember that all of the decisions that we've made in the company aim at protecting this generation, our cash generation capacity of the company. And we are really having very good success in the first quarter. The performance was directed by the sale or the sales of the installed capacity, which gives us the semester average, which is quite strong, of 15%. Naturally, within that aspect that we always prescribe, that the great part of this cash flow comes from generation and transmission, which are the basis for this cash flow.

We -- only Cemig GT, for example, has given a contribution of BRL 1.352 million -- BRL 1,352,000,000 as for the performance compared to the guidance that we publicized by the end of May in our annual event with analysts and investors. If we consider the EBITDA over the last 12 months, we have already gone over that guidance, that's the upper limit of the guidance, with this performance.

If we consider only the performance in the first semester, we will be on the -- much the half of the lower limit, which goes to show that we are actually on the way to delivering that guidance that we have actually publicized in our annual meeting last May. Any comments, Dr. Vélez, about that?

Antônio Carlos Vélez Braga

I would only say that it is worth remembering that the EBITDA that we presented today, because of the accounting roles that we've been adopting beginning this year -- the beginning of this year, does not consider the consolidation of the company's control together as a whole. And our guidance considers this consolidation proportionately. We consider it as an energy or EBITDA, which we follow and which reflects the minority participations that -- interest that Cemig has and as part of our strategy. So there's a small divergence between the amount of the managerial EBITDA, which is the old criteria, and the EBITDA that is in the financial statements, which they're not considered as proportional consolidation.

Luiz Fernando Rolla

Same thing can be said about the net profits. The net profit, the consolidated, has given a very positive result for us, which has supported our dividend policy. So as you can see on this slide, that our net income has solidly grown in the last quarters, with the tendency to deliver what had been promised in our guidance to our investors.

Now moving on and focusing now on Cemig GT with a little more detail. We can notice the impacts upon GT because of the facts that we have commented before, which is a reduction of the EBITDA compared to last year because of the impact of the sale of EBTE, which Vélez has mentioned before. The performance of the first quarter 2012 was very positive because of the generation of energy, additional energy, because of hydrology. This energy has brought very positive results in spite of -- in the second quarter.

The price of energy is compensated by the EBITDA. We had a reduction comparatively. It is worth remembering that we had a GSF reduction this year as compared to last year. The volume of energy -- of electricity was practically stable. Likewise, the net revenue and the net income was affected in the quarter by these impacts.

The debt profile, which is there, it is in a very positive level, we had a strategy of elongating that debt. And you remember, that in the last 2 years, we had contracts -- concentration, that is, a very strong concentration in the short term. But now, our debt, consolidated debt, is quite comfortable. Our credit quality remains, according to the risk assessment agencies, we're quite comfortable.

Leonardo George De Magalhaes

Certainly, I call attention to the net debt of BRL 5 billion, which is well below our annual EBITDA, which gives us a safe condition to continue investing in a sustainable way and a well-balanced way, given conditions to continue being a consolidating company. Also calls our attention the profile of our debt showing that, during a certain time, the company was indexed to CDI. And that was benefited from the presence of interest reduction rates -- interest rates reduction in Brazil. But now the company is using some market opportunities, it has changed its debt profile. And now, we're much more well-balanced between interests -- interest indexers and inflation, which gives us a guarantee in reducing the risk of the company,

Luiz Fernando Rolla

And in case of variation of those indicators. Truly a positive composition of a strong cash generation and a capacity of a -- an adequate capacity of the borrowing, which allows us to grow at the rate we're growing with sustainability of our investments. And this has reflected upon our results. And we are extremely happy to see the results taking place in a very solid way.

We can see there the GT debt profile. As you remember, it was a reason -- a matter of concern of investors when the Provisional Measure 579, there was a strong concern about loss of revenue that this company would have because of the anticipation of the concessions, of the concession renewal. But we said at the time that we would be seeking not only -- try, not only to defend the financial situation of this company and to keep it at a strong level, but also to give it the necessary conditions so that it can -- so that it could continue investing and replacing all of the generation capacity -- eventual capacity loss that it might have with the return into 2015 of 18 out of the plants that we operate. So the results that we see in the Cemig GT with the net debt of BRL 2 billion, gives us the tranquility to ensure our creditors that the quality of our credit of Cemig continues extremely high and we are certainly going to deliver the results. This performance -- very few companies can really take pride in presenting such kind of results.

Antônio Carlos Vélez Braga

Even with the last changes in the electrics industry, our company continues in a comfortable financial situation, well-structured, allowing it to be -- to fulfill its...

Luiz Fernando Rolla

Now in the distributor, we had the first impact of our tariff review. We had -- already had a reduction of the tariffs last February coming -- because of the 579 Provisional Measure. We continue now with the strong performance of our distributor, as compared to the first -- the second quarter 2012. The EBITDA growth around 5% in spite of the fact that the net revenue fell by 3%, but also made up for by an increase of energy sold of 4.3%.

The profile of the Cemig distributor debt is a little different from our Cemig GT. But even then, it is quite comfortable and very adequate to the cash generation of this company. We have no pressure of that rolling for the next year. As you can see, that the average tenor after 2020, which actually gives us the tranquility to make an adequate management of the distributor aiming at the necessary investments to improve the quality of service and the preservation of our assets.

Now this is the best slide of our presentation. It actually reflects all of this quality management. Very conservative view there of quality preservation of our financial situation. As you can see, we have the cash generated, very solid cash generation to grow in one. We have been generating more and more positive and more surplus in such a way that we can

pay very attractive dividends to our shareholders.

After the first quarter, we paid already BRL 2,600,000,000 dividends, really quite significant amount. We also were able to reduce the debt. We paid more debts than we rolled. And in spite of the fact that we had significant investments, as well, because of our expansion -- the cash flow, the available cash flow, including also the papers, the equity in dividends reached about BRL 5 billion, which positions us very favorably to continue growing in acquisitions and new projects and expansion of our activities in several business lines that we have. It is a clear demonstration of our financial capacity of the company, and it's been used parsimoniously, and with the necessary efficiency in order to generate new resources to give sustainable EBITDA growth of the company in a very solid way. This naturally reflects upon the expectations of our shareholders. We had performance -- very good last year. And practically all of the companies that are listed, we highlight Renova, which had a performance up until yesterday, a very positive one. But both Taesa and Cemig, both our shares have been positives although the industry indices of electricity have had a decline of 9%, which is relative to the investors' perception. The results that I've been presented now in this quarter reinforce this perception of investors. And this is quite important to us. Cemig counts on the trust of our investors to continue growing and enlarging its activities and generating more resources and dividends to our shareholders.

Now we're quite happy with the results of the second quarter. Well, these were actually all the pieces of information we'd like to bring you. And I believe now we can open the floor for questions and answers so that we can actually respond to the curiosity of investors and analysts about points that we have -- we might not have covered during our presentation.

Question-and-Answer Session

Operator

[Operator Instructions] We have our first question from Felipe Leal of Merrill Lynch.

Felipe Leal - BofA Merrill Lynch, Research Division

I have 2 questions, one about the results and the other one, more strategic. A quick doubt about the results. Did you provision any expense about PSS because of the resolution of CMP 03 [ph] ? Was there an impact upon Cemig GT? And second, we saw the conclusion of the transfer of TBE to Taesa. We had the Renova operations. Cemig has other assets, smaller assets, transmission lines and small hydro plants with a hold and the idea is to continue this process of rationalization by placing these assets within the vehicles dedicated to transmission, then a renewal energy for example?

Luiz Fernando Rolla

Felipe, thank you for your questions. For the first question, naturally, we have no expectation of losses coming from the GSF. What we've been naturally discussing with the regulation -- the regulators is the ISS -- ESS, the charges of services and system, which naturally through our institutions -- industry institutions, we've been challenging, even at the court, the payment of additional expenses by Cemig GT. We have no expectations because of the strategy that Vélez has mentioned. Last year, we acquired the generation capacity that was necessary to cover this risk of an unfavorable hydrology, which generates lower GSF. So we are now perfectly comfortable with this strategy that we adopted. And we have no expectation of providing for what you have mentioned. Now your second question about this strategic vision. We have all every interest in grouping together our assets by segment so as to give the necessary muscle to these vehicles so that they can be sustainable and independent, not only in cash generation, but also in their capacity to raise funds in the market. So our strategy is always that of strict in these vehicles. We have done that with Taesa. And the transfer of TBE to Taesa represents this additional muscle that we are giving to our transmission area. We've been doing the very same thing with generation, renewable generation. This transaction that we are certain is going to be finished in a very brief time, is going to give Renova the necessary muscle again to become a great player in the area of renewables and maybe even a position of leadership. We, our management that is responsible for the management of the company, is very highly qualified and it has a strategic view that coincides with that of the shareholders, which is going to allow it to grow more speedily. So our philosophy and our strategy is that of reinforcing these vehicles and through them to capture all the necessary synergies in order to maximize the return on investments that we have made in these companies so that we can continue growing in an independent way. So we have actually repeatedly shown that. Taesa has made acquisitions. Light has made acquisitions. And certainly, Renova is going to go into this growth process, a quick growth process.

Operator

[Operator Instructions] We have a question from Vinicius Canheu.

Vinicius Canheu - Crédit Suisse AG, Research Division

My questions are just for the clarification of a few figures that I see. There was a chart here in the conference call. So beginning 3 questions, one smaller one. Cemig D, we're looking at the results. There is a reduction of the redundancy program of 3 million. And I'd like to understand what this -- is this positive redundancy program figure? And the CCEE, if the distributor is overcontracted in liquidating ability? Looking at your cash flow chart, when you say investment activities, I see a number of activities, the reversal of investments. I would like to understand these figures. If you could tell us more about what is in your cash flow chart?

Luiz Fernando Rolla

Let us begin with the first one, which is the easiest one to understand. As a matter of fact, in the first quarter, we provided for expenses with our voluntary redundancy program. It was an estimate in the first quarter, anticipated to the expenses that would actually occur later. Evidently, when we effectively incurred those expenses, we came to the conclusion that the provision had been overestimated. And because of this overestimation, we made the adjustments now to the actual numbers. So this reduction of provision that we did in the first quarter is reflected positively in the second quarter, and this gave us a more positive results for our distributor. As for the second question, the CCEE expenses, can you repeat the question, please?

Vinicius Canheu - Crédit Suisse AG, Research Division

There is the CCEE revenue, 267. The first quarter was a higher value, 127, 130. I'd like to understand if the distributor is over-contracted, and this would be the revenue of this over-contracting.

Luiz Fernando Rolla

We're not over-contracting in our distributors. Naturally, this must be some sale within the 3% -- 3 percentage over our sales of the electricity to the consumers, which were reflected positively.

Vinicius Canheu - Crédit Suisse AG, Research Division

Okay. The last question about investments. Detail of investment activity lines in Slide 19 of the cash flow. CRC is clear, but just to try to understand why the application is so high? And what is the reversal in investments of TBE? Just to give an idea what is included in there.

Luiz Fernando Rolla

You consider with the equity?

Vinicius Canheu - Crédit Suisse AG, Research Division

No, when I see there in the Slide 19, that intangibles and fixed assets...

Luiz Fernando Rolla

BRL 2,568,000,000, intangible, fixed assets and others.

Leonardo George De Magalhaes

I believe that this information that detail deserves a little more attention from us. I think it would be more adequate that in this case to place this information on our website and to give you the detail of what the amounts are that make up this amount that is shown on Slide 19. We make a commitment to do this quickly.

Operator

Our next question comes from Mr. Sergio Tamashiro from Safra Bank.

Sergio Tamashiro - Itaú Corretora de Valores S.A., Research Division

Two questions. The one would be to Dr. Celeste. I'd like to have an update what actually are the movements, vis-à-vis, the C injunction, if it's going to the, really, Supreme Court or the Superior Court?

Luiz Fernando Rolla

Tamashiro, I think the legal pathway is unpredictable. It may finish at the, actually, the Superior Court, but it also can go up to the Supreme Court so it will depend upon actually the decisions that the Superior Court will make about what Celeste has explained how this process takes place. Naturally, we'll have to wait maybe on the next -- during the next weeks, for the justice to decide upon this injunction. The process is going to be intricate because of the strategy that the Ministry of Mines and Energy has used because it did not deny our rights to have an extension of our concession. But it said that we were untimely. This added one more step to this process and we're actually following all the steps. And therefore, naturally, this is going to take more time than we had previously estimated because of this ministry -- ministerial decision. At any rate, the injunction is going to be decided on shortly and we're going to have an idea of what we can get actually in the future steps.

Sergio Tamashiro - Itaú Corretora de Valores S.A., Research Division

Mentioning an isolated decision, you're still waiting for the total decision or is that an assembly decision?

Luiz Fernando Rolla

The appeal to be given by the ministry is going to go through the general assembly of the Superior Court. This was a decision of one of the Chief Justices, and it has to go through 3 of them. The one that gave us -- isolated it was the reporter.

Luiz Fernando Rolla

Yes.

Sergio Tamashiro - Itaú Corretora de Valores S.A., Research Division

Now the second question as Vélez has mentioned, that the increase of the cost of the purchase energy was followed by revenues. But looking at the data, amount purchased energy of the first quarter was 973, second quarter 213. There is an increase of 329 million. When we see in the consolidated revenues, I see that the number went from 378 to 3,479. There was a decline. I'd like to understand this behavior. I was not able to diagnose this increase of revenues.

Luiz Fernando Rolla

Tamashiro, what happens is the effect of MP 579 actually was in end of February. So we had still January and February in the tariff that was previous, pre-579 effect, which reduced not only the costs of generation, but also the costs of transmission. There was also the reduction of RGR and CD.

Leonardo George De Magalhaes

Just an additional comment, Vélez, it's worth remembering that in the first quarter, the expense was reduced because of the 400 million that we received at the time of the tariff review. We received it from the federal government. This helped us reduce the revenues. And there was an isolated nonrecurring event, which did not have a counterpart in the revenues. And this event also helped the expenses of the first quarter to be lower than the second quarter.

Luiz Fernando Rolla

As we had previously warned in the presentation, it is quite complex to understand these variations, given that we have had several impacts coming from the PM 579 and other measures adopted by the government so as to mitigate the impact of this 579 measure and also, of the some other issues. As for example, the increase of expenses with purchased energy. So we have to really dwell longer these aspects in order to really understand the variations that are being presented.

Operator

[Operator Instructions] We have another question from Antonio Junqueira from BTG Pactual.

Antonio Junqueira - Banco BTG Pactual S.A., Research Division

I don't know if you made available this information. I would only like to confirm the value of Cemig D, the CGA of this quarter, which has an impact upon the distributor EBITDA.

Leonardo George De Magalhaes

This information was not made available. We may also, we will...

Luiz Fernando Rolla

Provide this information in a quick way. Just remembering that most of the purchase of energy expenses have been made up for by CDE subsidies. So what is going to be recorded is not such a significant value.

Leonardo George De Magalhaes

This is true. It is not very significant because of by April 8 we had a review of these values in the tariff that is closer to reality, but we still provide this figure.

Antonio Junqueira - Banco BTG Pactual S.A., Research Division

Would it be possible to include the CDA in all the quarter statements?

Leonardo George De Magalhaes

I think this information is relevant. I think that we may analyze the possibility of including even in the same way as we promised to provide information of the consolidation of the previous criterion. And we think that the CDA is very important in order to measure the performance of the distributor and we can make the commitment to publicize it normally.

Luiz Fernando Rolla

Your request is recorded, and we're going to include it in the next quarter.

Operator

We have another question from Lilyanna Yang from UBS.

Lilyanna Yang - UBS Investment Bank, Research Division

I had actually 2 questions. One is, there is any sign from the Ministry of Mines and Energy about a concession for 2016? If you expect a renewal with or without extra burdens, what to expect? And the second question is about the generation prices in Brazil. If you can tell us what would be the long-term price and how much you expect the price on this PID [ph] on the spot actually will reflect a new methodology that is being studied by Aneel?

Luiz Fernando Rolla

This process of our remuneration base is an administrative process. We did it soon after the publication of our basis, that first review. It is still under analysis by the director. And we believe that in the next months, we shall have, prior to -- before the end of the year, we're going to have some decision about that. We don't expect this decision to be given in a short time because of the number of processes that already there at the Board of Directors of Aneel. But certainly, we expect that before the end of the year, we may have some decision about that. Now as for the price of energy, it's still a little distorted because of the relationship between the short-term. In the short-term we had a substantial increase of electricity prices because of the thermal plants commissioning. And after this turbulence is over, we shall probably have the long-term price well-directed by the marginal cost of the construction of new capacity. And within this cost, the main driver is the cost of the IHPs [ph] added to the transmission price, especially those plants located in the Amazon region. And in parallel, with the marginal costs of the wind farms, we believe that we should have a marginal cost of generation about -- that should be in the range of BRL 110 to BRL 130 per megawatt hour. We'll have some auctions ahead of us, which is -- which are going to give us a very good indication of the prices. And naturally, this is going to confirm the tendency that I've been talking about.

Lilyanna Yang - UBS Investment Bank, Research Division

How about the renewal of the distribution concessions? When do you expect more clarification from the Ministry of Mines and Energy? Is it towards the end of the year or into 2015?

Luiz Fernando Rolla

On the part of the regulator, there's no definition about this renewal. Our concession contract, actually, is due in 2016. And according to a statement by the General Director of Aneel, the distribution concession does not have that urgency of anticipation that the generation concessions had because this is not going to be reflected in the cost of energy to the consumer because the distributing companies go through periodic reviews. And according to him, the price is already within parameters that are coherent with the regulators' view. So there is no schedule as yet, and we have not received any request on the part of Aneel for information. We believe that in the next months, we're not going to have anything new, not yet.

Operator

We'll now close the Q&A, question-and-answer session. I would like to give the floor to Dr. Luiz Rolla for his final remarks. Please, Dr. Luiz Rolla, you may proceed.

Luiz Fernando Rolla

I would like to thank, first of all, the time that you have dedicated to this web conference. We have just done it for 1.5 hours, and I expect that we have actually met with your expectations. We have 2, actually, things pending to publicize and shortly, you're going to have the information available on our website in order to add on to the understanding of these results. We repeat that we are convinced that Cemig has the correct strategy, the adequate implementation and the financial capacity to implement it. And this has been widely demonstrated by our statements, and the confidence that we have in these strategies is very great. And you can feel assured that Cemig is going to follow in the same path of creation of value and investment discipline in the search of -- for synergy among the several assets that we operate. I thank you all for your attention and I wish you all a good day. Thank you very much.

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