Antonio Carlos Velez Braga - General Manager, IR Fabiano Maia Pereira - Chief Officer for Finance and IR

Kaique Vasconcellos - Citibank Carolina Carneiro - Santander

Good afternoon, everyone. We'll now start our webcast for CEMIG's Results for the Third Quarter of 2016. With the presence of Dr. Fabiano Maia Pereira, Chief Officer for Finance and Investor Relations; Antonio Carlos Velez Braga, IR Officer, and Dr. Leonardo George de Magalhaes, Controller. This webcast maybe accompanied via the telephone 5511-2188-0155 or -- also on our website ri.cemig.com.br. Now I hand over the floor to Dr. Fabiano Maia Pereira, Chief Officer for Finance and IR.

Thank you very much, thank you and good afternoon to all of you, thanks for your interest on our results. Going to the third slide of our presentation with consolidated results, we would like to highlight a few points here and then we'll go for other [topics] [ph] that are relevant for us. Net revenue saw a 2.3% increase as compared to the same quarter 2015. EBITDA also increased 84.4% and net profit almost 160%. The main fact here that explains the increase in all these relevant lines is the strategy for Cemig GT. Our strategy for sales are leveraged due to that increase in EBITDA especially shows an improvement -- well, you could see how much it grew in terms of the EBITDA and net debt to EBITDA ratio and net debt to stockholders equity plus net debt, also improved well. We could see our filing in the 20-F Form with the SEC that was laid before –we submit for the financial report 2015. And the adjustment in the 2015 figures were quite small, but they needed to be adjusted anyway; this was something that we were depending on the adjustment of Belo Monte and as long as we did there, then we could do it here also at the Company. The main point here that was raised by [inaudible], we have mentioned it before a couple of times but we should restate it. We were pretty much aware that the results beginning as from the third quarter this year would show improvements and they do show improvements, and an important point is the seasonal addition of inventory. Well, now for the fourth page, results of Cemig GT; again, net revenue, EBITDA, net profit very substantial increases. Seasonalization in 2016 was quite a contrary to that of 2015. And in 2015, we allocated more electricity in the first half and less in the second half of the year and this year it's been exactly the opposite. A lot more energy allocated in the second half, this strategy proved to be winning and successful strategy, and spot pricing in the third quarter 2016 was BRL116.01 as compared to BRL34.69 in the first quarter of 2016, that was a very satisfactory strategy. If you consider that average GSF in the third quarter was around 0.8281. Now page five, and the market of Cemig GT, you see an increase of 6.6% in the supply of electricity, especially with the growing sales to regulated market; view of mills or other plants that we acquired last year. Commercial -- well, we see there is a drop in 10% following the reduced economic activity but those don't impact too much on the revenues because most of our long-term contracts are adjusted according to inflation, and inflation in the period was around 10% as well. And this had [reversal] [ph] zero effect on our supply of electricity and we can see that it increased more than 33%. We like to comment on the debt, about the debt profile of –Cemig GT, the main point here and it starts - recorded in the September numbers, is the rollover of BRL716 million in October 2016, and we've been working together with the banks to roll over the remainder of this debt and extending it to longer periods going beyond 2018 adjust the time limit. And one favorable point that is involved in our debt profile is that given our main indexors, as you can see we have 84% in CDI, and there is a forecast drop in the SELIC interest rate, and we can expect to see our financial expenses going down. We can see [inaudible] made the calculation. Yes, in the consolidated group [a reduction of 1%] [ph] in the interest rate implies an increase of 90,000 or 90 million in our results. And we can perhaps really count on the drop in interest rates, that's very positive and we should start thinking of a strategy. At some point we should go back to index inflation to the company's debt. Moving on now to Page 7, results of Cemig Distribution. Cemig Distribution is still suffering with the crisis and this low economy, although, well consumption has dropped it was only slight fall, and part of that is explained by other factors like the tariff plan. We're now going through a period of red flags in the tariff. Also you can see that it is higher than where it should be -- what we have been accumulating and that's our revenues. Another important point that should be highlighted here is the level of our over-contracting of supply, which will close the year a little above 100%, 102% that's comfortable enough. Another important point is that as we know, industrial clients and free clients, they kind of avoid terminating their contracts with distributors which shows the [inaudible] difficulty. In this quarter we see an increase by 16% of transported energy explained by the recovery in metals and several [inaudible] sectors that caused that volume to be increased. In terms of our market, we also had another important factor that contributes to explaining the drop in consumption of captive consumers of Cemig Distribution. We had a lot of movement from captive consumers migrating to free market, especially while all this drop that we can see in industrial and commercial of the captive market of distribution is due to this migration. In terms of our supply of electricity in millions of reals, due to this drop in consumption, the drop in revenues is also an explanation and also the tariff flag as I mentioned before. Now going to Page 9, operational costs and expenses; we saw a considerable reduction in the third quarter as compared to last year same period of around 10% without taking into consideration inflation, because if inflation is taken into consideration this figure kind of doubles. We made an adjustment in operating efficiency with PDVP, retirement plan, voluntary retirement plan, that number is 648 employee leaving the Company, some of them now being accounted for, this means [a gain] [ph] in terms of results for next year of some 20 million presented costs; BRL20 million in presented costs. We also had an increase in provision for doubtful receivables, it's now 107.8% higher. We have already laid down a [a clear] [ph] annual plan for the Company to fight this increase and these provisions. We have a five-year plan already approved by the Board and next year intend to almost double the figures invested in this [inaudible]. And the figures we are dealing with here given the present situation for each one [inaudible] that we put under this [actually] [ph] we have some BRL6 of a return in revenues. This will bring a considerable returns within the mid-term. As for the debt profile of Cemig GT, we don't have any more need for rolling over the debt this year. These amounts that you see here in debt we will pay that off; as we have been talking to you, our intention is to reduce our debt and [unlevers] [ph] the Company. And in October we paid BRL659 million in debts, BRL175 million for 2016, and BRL328 million for 2017; and for 2018 BRL155 million we paid that in advance. So the main point here, a positive point, if we consider the figures, is that although this nominal rate is a little higher than in previous quarters, the actual figures are low and they remain low if we consider that our revenues are pretty much indexed to inflation. Then we could perhaps take a deeper look into that and stick to the actual figures and it's in actual terms that is pretty much controllable. Now moving to investment in the Slide 11, we said before that we had plans to invest in this year and we see that 72% have already been invested. The idea was to -- the plan was 1024. Last year we had auctions of the plant at the amount of BRL2.2 billion plus, and distribution we had planned for our CapEx of almost BRL1.1 billion, almost 60% of that has been already realized. The Page 12, that is the last slide demonstrating that from the beginning of this year or late last year, we've been talking to you about our intention, the company's intention to go for disinvestment to reduce the debt of the company, in this quarter and of course, just a side comment, in this scenario we are going through, this won’t happens of course overnight. But we have, fortunately, good news about the last quarter. In that regard we hedged a transmission line in Chile representing BRL180 million back to our cash, also monetization of Taesa owned by CEMIG. This was very much well received by the market. We increased our liquidity of our shares and we also injected more cash into the company as we did this disinvestment. And finally, we also disclosed that to the market as a relevant fact, and Ativas Data Center was [subscribed] [ph] by Sonda right now a minority shareholder because this is not part of our core business. All of these actions are in line with what we have been telling you as far as our intention to disinvest. These assets do not belong to the core business of the company, that’s why we did that. I would like to thank everyone for the participation. This was the information we had to convey to you. And now we will move on to the Q&A session.

[Operator Instructions]. Mr. Kaique Vasconcellos from Citibank wants to make a question.

Good afternoon all of you, thank you for the call. Well, about the company cash, you talked about -- in Chile, what are the next steps as you see it? Also what about St. Antonio, Belo Monte -- perhaps you could comment a little more about that. And what about like -- well 2017 is the deadline; what are the other alternatives that you end up using?

Well, Kaique, as for the next steps, the same way as you -- we didn't say beforehand about the assets, the same guideline is now in force. Our idea is to disinvest assets that are not part of the company's core business and/or that evolves governance that does not generate value to the company and we will stick to that. We have no intentions to pre-empt which exactly all the assets that we will disinvest. As for launch, we are building that is a tax wall -- is now leaving, we are buying out their equity and this reduces the cost that we incurred in that operation. And also let's recall that we should remember that this selling of the asset is a source of guarantee to the feat which should advance that payment. And lastly, what's remaining which is that two-thirds of the total operation almost -- the idea is to liquidate that as soon as possible, altogether. We have next year to do that and I still can't set a specific deadline at this moment.

Thank you.

Seldhan [ph] from Credit Suisse has a question.

Good afternoon. Along the lines of the previous question, you said that instead of liquidating the quickest possible deal -- it is really share or the video of the other stockholders; could you convey any idea on the capital gains that will significantly derive from that sale? And if you are not going to use that money right now, what do you think will be the main use of that money as appraised through that sales? Or eventual events, some payment of debts as we did before?

Thank you for your question. Well, let's see; first, BTG share was already part of the cash and we were doing that regardless of their following on. This was from early this year, we organized ourselves in that direction. Then Banco Brazil Santander -- and what were unseen would remain in the operation. The intention is that part of the follow-on was gone with the shares that we're giving as collateral. The intention is that we should advance part of the payment due to these three banks; whereas two work on the [battle zone] for debt, but we should pay another one-third to those three banks, and then two-thirds would remain. Therefore, the two-thirds -- additional expenses. The operation is not already defined, so I cannot disclose it to you, but the intention is that we should do that as quickly as possible and we should not use all of the available time by late next year.

Yes, that was clear, what about the capital gain?

Very small; according to our analysis, almost entire money will go into the cash and stay there. Thank you.

Marcelo Lusan [ph] from UBS has a question.

Hi folks, still about the rolling over of the debt. We still BRL4 billion to roll over by late this year. How do you intend to do that? I have heard it from the media, that you should -- you had intention to do that during dollars, what do you think?

Well, Marcelo, of those BRL4 billion that you are referring to -- this is the some of the issue here or with CEMIG, we are paying it up, we are not rolling it over, that's a false information. GT, BRL1202 million added -- being rolled over, there are only 2.52 roll over by next year and we've been working on that on a daily basis together with some banks in order to think the rolling over of that operation. We understand that we can get a longer rolling over reducing the risk of refinancing, some investors see that risk; but we are providing for designing it so that this new debt should fit into the debt flow and profile of the next years. I still don't have the final figures but we talk to them on –a daily basis, the bank that is, and I cannot preempt any information about that but I can tell you that it's pretty much well advanced in order to be [positive] news for everyone concerned.

What about the debt in dollars any comments?

We have studied -- we have been studying not only that but all the other options that could allow us to attract money from other pockets, than the current ones. We are examining a possibility of an external operation or including receivables as across for our debt. And CEMIG distribution has already been authorized to incur in the debts related to infrastructure debentures. We are checking for all of these options to relieve pressure from those channels that we use more often. And on the last question, about the competition for those three planned -- any possibility of really getting it, arriving at an agreement with the government of those three plans? We've got no news about it, but I can tell you that we still ship the levels of conversation with the government and we believe that we will arrive at a positive solution, both for the government and for the company. Business here is the same, conversations are ongoing but it's more of the same. It takes longer than we would wish for but we understand that the final outcome will be positive for both parties I believe. Thank you.

Venessa [ph] from Bloomberg would like to make a question.

Good afternoon. I would like to understand about light -- a little bit more equatorial is being on negotiations; I'd like to know how it extends and who else is running for it?

Above these market speculations what we have been saying and I'll repeat it now is that CEMIG has no intention whatsoever to disinvest that asset. Light is the vehicle for growth and distribution for our Company and in our planning we will stick with them and we stay there. What we have said to you more than once is that we have this strong holding restructuring and we are leading of some equity holders, Pats [ph] and some others for the end of the year. And then we proceed to restructuring; I have no information on that negotiation we referred to, and that's all I have to say. Any other point?

No, thank you.

Carolina Carneiro from Santander has a question.

Questions about distributor; the costs we saw accrue the figures, we saw it last few years and we have been keeping track of the movements in the distribution. I'd like to have some updates with regards to the data that you expected the GT contract, third-party services, how this all is progressing and also as I made an investment for CEMIG distribution for 2017. If you please could provide me with an estimate so that we can work on those figures for the next year? Thank you.

Carolina, this is Fabiano. Well look, with regard to operating expenses, what we have been developing in-house is and this has not been approved by the Board of Administration that involves 18 different initiatives. Those most relevant are the restructuring or purchase and supply, especially purchase of services. We have made some -- we do have some estimates on savings, but it's not convenient at this moment to give you figures, that's when the figures are more solid, we can communicate them to you. Also PVD -- we had one late last year and another now, this resulted in a 10% decrease in our own workforce and these people again are leaving, we will generate next year some BRL200 million in avoided costs. We also have initiatives in terms of [indiscernible] fee, profit sharing, deliveries, more explicit deliveries of our employees. We have this major design for shared service center, we had that idea for some time, now we decide to execute that, that generated great deal of synergy. We had already taken some steps towards that, but now they've become more explicit. And I think these are the most important points. Also, you said -- you asked about investments, well investments of CEMIG distribution, what happened was that early this year, before the review, we holded back a little bit in order to control the cash flow of the company better. We had little more reduced than we had in the first half and now it's been accelerating. This half of the year we'll get much closer to the target we had disclosed to you. And 2017, the number should be around slightly above 2016 because we have some works -- regulatory works are required to get delivered due to our understanding with NL [ph], we have this self-provision of rural works, this will be should get slightly above what we saw in 2016.

It helps a lot. Thank you.

We now close the Q&A session. I'd like to hand the floor over to the Chief Officer for Finance and Investor Relations, Dr. Fabiano Maia Pereira, for his final considerations, please.

Well, I would like to -- yes, I would like to thank you for participation. We remain at your disposal for any queries that you may still have. Good afternoon to all of you, and thanks a lot.

The webcast with CEMIG results for the third quarter 2016 is now closed. We thank you all for the participation. Have a nice afternoon.