Companhia Energética de Minas Gerais, or Cemig (CMIG4.SA), has reported a resilient first quarter in 2024, despite facing a slight decrease in recurring EBITDA and net profit. CEO Reynaldo Passanezi Filho highlighted the company's strategic focus on divesting non-core assets and investing in its primary business areas during the earnings call. The company's trading arm emerged as the top trader in Brazil, with an EBITDA of BRL 280 million. Cemig D, the distribution branch, met quality indicators and showed a 0.7% increase in recurring EBITDA. The company also announced its intention to maintain attractive dividends for shareholders.
Key Takeaways
- Cemig completed the sale of assets from Aliança Energia for BRL 2.7 billion and plans further divestments.
- Over 75% of the BRL 35 billion investment program is contracted or in the bidding process.
- The company will launch its first solar plants in July and is aiding regions affected by climate change.
- Cemig's trading company reported the highest EBITDA in Brazil, while Cemig D met quality indicators.
- Recurring EBITDA declined by 4% mainly due to lower asset sale gains and increased operating expenses.
- Strong cash flow with BRL 4.5 billion in cash and BRL 2 billion successfully funded.
- Improved debt profile with a higher rating from Moody's (NYSE:MCO).
Company Outlook
- Cemig is focused on investing in distribution and expects significant shareholder returns.
- The company is committed to operating efficiently and complying with regulatory standards.
- Cemig is negotiating liabilities related to pension funds and healthcare plans, with a solution expected this year.
- The company is open to inorganic expansion opportunities and aims to maintain a leverage ratio of around 2.5x EBITDA.
Bearish Highlights
- Net profit declined due to foreign exchange effects and increased depreciation in the distribution business.
- Cemig GT reported a 1% decrease in recurring EBITDA due to lower margins.
- The absence of a compensatory parcel and a decrease in volume contributed to the EBITDA reduction.
Bullish Highlights
- The company's investment strategy is on track, with significant funding and cash flow.
- Cemig's divestment program is progressing, focusing on assets where the company has no control.
- The company remains committed to providing attractive dividends to shareholders.
Misses
- The company experienced a 4% reduction in recurring EBITDA in the first quarter.
- The net profit also saw a decline, impacted by various factors including foreign exchange and increased operating expenses.
Q&A Highlights
- Management clarified that federalization and privatization are not on the company's agenda but are the concern of the controlling shareholder in Minas Gerais.
- The company is executing its strategic plan, focusing on regulated factors such as transmission and distribution.
- Investments in technology, such as smart reclosers and smart meters, are part of the strategic plan to improve service quality.
Cemig's first quarter of 2024 reflects a period of transition and strategic realignment, with the company divesting from non-core assets and investing in core business areas. Despite some financial headwinds, the company's focus on efficiency, regulatory compliance, and sustainability positions it for future growth and continued shareholder value.
InvestingPro Insights
Cemig's strategic initiatives and focus on core business areas are reflected in their recent financial metrics. The company's market capitalization stands at an adjusted $6.27 billion, showcasing its significant presence in the energy sector. With a Price/Earnings (P/E) ratio of 5.43 and a slight adjustment to 5.64 in the last twelve months as of Q1 2024, Cemig demonstrates an attractive valuation relative to earnings. This is further underscored by a Price/Book ratio of 1.27, which indicates that the market values the company at just over its book value, suggesting investor confidence in its assets and growth potential.
Investors may also be encouraged by Cemig's revenue growth, which has seen a 5.67% increase in the last twelve months as of Q1 2024. This steady growth trajectory is complemented by a solid gross profit margin of 18.34%, indicating efficient management of production costs and strong pricing power. Additionally, the company's operating income margin stands at 18.72%, reflecting its ability to translate revenues into profits effectively.
For those interested in dividend income, Cemig's dividend yield as of Y2024.D137 is notably high at 8.77%, although it's important to note that there has been a -5.55% change in dividend growth during the last twelve months as of Q1 2024. This suggests that while the yield is currently attractive, investors should be mindful of the company's ability to sustain such dividends in the future.
InvestingPro Tips for Cemig highlight the company's strong revenue growth and solid operating margins as key indicators of its financial health. For investors seeking a deeper analysis and additional insights, InvestingPro offers further tips to help evaluate the company's performance and potential. By utilizing the coupon code PRONEWS24, interested readers can receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to a total of 7 additional InvestingPro Tips tailored to informed investment decisions.
Full transcript - CEMIG (CIG) Q1 2024:
Carolina Senna: Good morning, everyone. I am Carolina Senna, Cemig's Investor Relations Superintendent. We now start Cemig's first quarter 2024 earnings video conference with the following executives: Reynaldo Passanezi Filho, CEO; Leonardo George de Magalhães, CFO and IR Officer; Dimas Costa, Chief Commercial Officer; Marco Soligo, Chief Participation Officer; and generation transmission after for now, Marney Tadeu Antunes, Chief Distribution Officer; and Cristiana Maria Fortini Pinto e Silva, Chief Legal Officer. For the initial remarks, I turn the floor over to our CEO, Reynaldo Passanezi Filho.
Reynaldo Filho: Good morning. Good morning, everyone. It is a pleasure to be here with you to talk about our results for the first quarter of 2024. I would say this is another quarter of consistent results according to our strategic plan. So these are the main messages that I would like to bring to you. The first one, our capital allocation. We move on with the objective of concentrating Cemig activities in its core businesses. So we are divesting from minority stakeholdings, and we are investing in businesses that are our core business, Cemig's core business. So in this quarter, we once again show you these results. We have concluded the disposal of asset of Aliança Energia in April. The transaction was concluded a large transaction. It's BRL 2.7 billion adjusted by the CDI. There is another less HPP's auction to happen now in July. So we are moving forward with our divestment in minority stakeholding and nonstrategic assets so that we can focus in our strategic assets, which are distribution, generation and transmission and managers. And here, once again, we have results that are very consistent of record investments. We have investments in line with our budget, budget over BRL 6 billion. Just to give you an idea, it's almost 6x the investments in 2018. So it's 600% growth in investments. A very sound results now in June. We should be opening our 100 substation that was built under more Energy program. When I started, we had 414 substations and our plan is to grow in 50% of that number. That is over 200 substations. And we are delivering our substation #100 now in June. These are very sound results that will improve the quality and the service we provide. This is the first message. Our investment program is focused in Cemig strategic business in managed businesses that we have full control of and divestment in assets with minority shareholding. So both programs are ongoing. Whether in the assets that will still be divesting and of course, the execution of our investment plan. And it's important to say that we have here BRL 35 billion of investment up to 2028. Over 75% of that is already on track so it's not only a promise. So part of that is already contracted or we already have bidding process ongoing for over 75% of the total. That allows us to tell you that we'll be executing the investment plan. Another significant guideline is efficiency. Efficiency for expenses, we are within the regulatory OpEx efficiency because we are within the technical commercial regulatory losses, efficiency because we are within DEC and FEC indexes and also a greater capacity for assets operations. So we are in compliance with the regulatory losses. This is very important for the company. It generates a lot of value. We are also compliant with the regulatory DEC and FEC and this is important to decrease financial compensations. And also here, in this quarter, we moved away a little bit from the regulatory OpEx, but it is our commitment to comply with the regulatory OpEx. And we are working hard to comply with the regulatory OpEx and at the same time, the directing expenses to improve the service providing quality. There is a program that we are launching. It's called the Cemig Agribusiness to improve the performance of our assets in the rural area. This is going to affect OpEx, but it will be offset by decreasing other expenses. So our commitment is to be in compliance with the regulatory OpEx. And another strategic guideline is sustainability. Obviously, you know that Cemig is already 100% renewable. But right now, we are delivering within our investment plans and also considering sustainability, our first solar plants of centralized generation. So probably in July, we'll be delivering 2 large plants, 180 megawatts photovoltaic generation solar plants. Therefore, this is something that -- we just had HPPs and now we are also in the generation market of intermittent and renewable energy. Once again, our sustainability commitment and practice. And now talking about sustainability, I should mention something that is important. When we talk about climate change and what we are seeing now in the south of Brazil, you understand that this is not something that happens only with the people from the South. But we need to understand that this is our challenge and everything that we can do to help, we'll be doing it. And so all of you that can hear me now, I would encourage everyone to support whether cooperatively or personally. So I can tell you that we have sent a helicopter to help them in rebuilding substations and also to help rescuing people, we are also sending generating trucks and also ATVs. We are doing what we can to contribute. And I think it is important for companies to support some needed solution for today. So this is my message for everyone that are following us here today. So I think it's important to work in your companies and also personally to help people. And again, I repeat that this is not something that is happening in the South. This is something that affects all of us. So once again, we have very consistent results, and we are executing our strategic plan, divestment and nonstrategic assets, investment in the core areas of the company, operating efficiency, better performance for our assets and sustainability. So here, now we turn the floor to Leonardo to move on with the presentation.
Leonardo Magalhaes: Thank you very much. Reynaldo, we're opening our video conference. Thank you all very much for being with us today. As Reynaldo mentioned, another quarter of consistent results. We are very proud to say and to stress once again about our capacity of execution of our strategic plan, which we brought to you in 2021. We believe that the company has been executing the strategy that was disclosed to the market at the time, and we reinforce it every year. And among the actions related to strategic planning, we have the divestment of assets where the company has no control of these assets or noncore assets. We had a number of divestments in the last years. And once again, as our CEO already mentioned, we had a divestment now of Aliança Energia that was approved in the shareholders meeting that we had in April, and we expect the closing of the operation after all the approvals of the competent agencies that should be concluded in the second half of this year, 2024. And we would like to draw your attention to the most important topics of this operation. Here, you have BRL 2.7 billion for 45% stake of Aliança. This amount is being adjusted by the CDI rate since June 30, 2023, after the closing that should happen in the second half of 2024 probably between October and November. This is what we expect the period of time to conclude the operation, although we are trying to bring that take forward. And also, we are waiting for the needed approvals. And this operation was done in the post gate mode. So we will have the effective conclusion in terms of rights and liabilities regarding the disposal of the asset. And there is a possibility of receiving an additional amount of BRL 223 million for compensation, and that would be related to Candonga plant. That's a period of time when this plant did not have any operations. So this would be net of taxes. Now moving forward in our next slide, also following our strategic plan execution, we were successful in the disposal of 15 small SHPs. So we understand that we add value to shareholders when we dispose of these assets. They have great value in the market and the other disposal we had an important goodwill. And we believe that this disposal of assets that is going to happen on July 3, 2024 in B3. We have 4 plants here, not as irrelevant in terms of value. But once again, we are being very faithful to our strategic plan. So here, we are talking about 19 SHPs and with some of them were sold last year and 4 more this year, once again, executing our strategic plan by disposing these plans of lower results and they are complex in their operations, and we consider that the size of the company and its operations, as we said, I think this is going to add value to our shareholders when we sell these assets. Once again, here, we have our divestment plan here for investments here. In this first quarter, we invested BRL 1 billion in execution. As Reynaldo mentioned, we feel very confident about this investment cycle. There is a curve here. We remember that last year, we had BRL 3.2 billion of investments in our distributing company, and we were able to invest 100% of what was forecasted. So we are confident that the BRL 4.4 billion investment forecasted for 2024 will also be fully realized. The other investments in the first quarter in the other business is that we had a lower investments in transmission generation and gas as we mentioned, there was a ramp of growth over the year. We have seasonal effects in the first quarter. It was already expected in execution of these investments at lower levels when compared to the next quarter. So we are confident that this investment of 6.2%, which is the largest in the company in the last years. And you can see on the slide how the company went from investments of BRL 1 billion in 2018 to almost BRL 5 billion in 2023. And now we are confident that we will be investing the full amount of BRL 6.2 billion in 2024. This is the message of the company. This is a growth curve for investments. We are very optimistic. Once again, I highlight distribution. So forecasted investment for the next 5 years from '23 to '28 with BRL 23 billion. As we disclosed to the market, these are significant investment in the distributing company with an important effect and the quality of service for clients, but also these investments will be integrated in the regulatory base in the next tariff cycle. So these are very important and the company is faithfully executing this investment strategy in this business. We have 100% of control in the next few years. Now moving forward, we are going to analyze our results, the highlights for the first quarter. Once again, resilient results. We have the company's condition of having relevant stake in a number of businesses. This allow us to have resilient results, whether in generation, trading with the larger trade in Brazil was catering to free clients and also our distributing company EBITDA close to BRL 2 billion and also interest on equity posted this quarter, BRL 386 million. We have been posting interest on equity on a quarterly basis. Last year, we had a very relevant yield with a very attractive remuneration to our investors. And this is the expectation for the next year, a company with low leverage with regulated investments and with the ability to be attractive in terms of dividends. The company today is one of the main dividend payer in the electric sector, and we intend to keep on being on that position to providing good dividends to our shareholders. Once again, our trading company with an EBITDA generation of BRL 280 million just in the first quarter, allowing Cemig, our trading to be the trader in Brazil with the highest results, weather in absolute amounts or a margin of profitability when compared to its peers. For Cemig D, here, once again, we are meeting the quality indicators. The DEC outage duration indicator is compliant with indicated parameters by Al as acceptable in terms of the quality of the energy we provide our clients and energy losses are also lower than the regulatory limit, thanks to a number of actions that the company took allowing us to reach that result. For Cemig GT have resilient results during this first quarter. And we have already mentioned the disposal of assets of the 4 SHPs that will join the other 15 ones we have sold last year. Now I will talk to Carolina, our IR Head, and she will talk about some other results, and I'll be back.
Carolina Senna: Good morning, everyone, once again. So moving on with the results. We have the consolidated results for the first quarter of 2024. We already mentioned, we had a reduction of 4% of our recurring EBITDA, and we have some topics that should be mentioned here. In this quarter, we no longer have [indiscernible]. So when we see the gain on sale of that, it was lower in 2024 than when compared in 2023 because of our strategy of divestments that our CEO and our CFO mentioned, we also have a greater OpEx pressure that our CEO mentioned. And I will show you more ahead. When we compare realized OpEx of distributing company to the regulatory OpEx. But over the year, we have a number of initiatives so that we can end the year in compliance with OpEx. This is a commitment that we make with the market. On the other hand, the net profit had a drop because of the FX exchange. We have issued a debt in Eurobonds in the past. And over time, we have already done some tranches of liability management of partial buyback of that debt and foreign currency. And in 2024, we have the final share of $380 million. And just like in 2023, the FX had a positive effect and our profit in 2024 had a negative effect. And so because of that net profit had a greater reduction when we compare that to the EBITDA also affecting our net profit an increase in Cemig distribution depreciation because of our robust investment program, where we have BRL 23 billion to invest in the distribution concession up to 2028. Considering this investment program in our asset base has been increasing. It is natural that we have a depreciation that is higher. So the main effects on the net profits were the FX exchange in Cemig GT because of issuance of bonds in foreign currency and depreciation of Cemig D. It has increased because we have increased the base of assets considering our investment program. Now moving forward, talking about our consolidated operational costs and expenses, we that have some important effects that are highlighted, and I will go over them. And I will remind you of some important topics here. One of them is the post-employment which had a nonrecurring effect in 2023. We launched a new health care plan for the company's employees. And in 2023, we had an enrollment of 1,500 employees with a positive effect in our 2023 results once we had the restatement of the liabilities related to the health care plan. So when I compare 2024 to 2023, I see that the cost and expenses related to post-employment are worse, but that is because in 2023, there was a reversal because of what I already mentioned, there was an increase in outsourced services over 2023. We shared with you. We told you that we are increasing our investment program in distribution. We have a challenge of being in compliance with the quality indicators. Therefore, we need to have higher expenses with maintenance. We already shared that with you over 2023 and is still happening in 2024. We have a greater asset base that requires greater maintenance expenses in addition to the quality indicators so that we can provide the best service to enter population. And also under other expenses, we have an important highlight, which is the shutdown of assets, thanks to our divestment program in Cemig distribution. When I remove the recurring effect of the post-employment, the increase in costs will represent 5.6%. Now in our consolidated cash flow, this is a very important slide, and we'd like to share that with you to show the strong operating cash generation of the company. As our CEO mentioned in the first slide, when he talked about the highlights, Cemig has a strong cash generation. Every quarter, it goes around BRL 2 billion. And in this quarter, we also had funding, successful funding, which was issuance of debentures of BRL 2 billion in March so that we could increase our robust investment program, and we ended with a cash of BRL 4.5 billion. And this cash naturally will be used as we already mentioned because with our robust investment program for 2024 of BRL 6 billion. And in addition to that, we will also be paying dividends in 2 different installments a year. So we'll be paying the first installment in the middle of the year and in December of '24, the second installment. So this cash will be used naturally. And as we have shared with you, we'll be going to the capital market at a higher frequency so that we can foster our robust investment program. Now for the debt profile, I already mentioned, we had fundings in the first quarter for Cemig D very important, not only for the investment program, but also a second series issuance with a 10-year term. So we have elongated the debt profile of the company. And now in May 7, Moody's published a report increasing our rating to AA. So today, our company is AA+ for the 3 main rating agencies, and we are still working to improve the recognition from these agencies because when we look at our funding rate, we see that we are in the same position of AAA companies. Our leverage is low. But just as my cash will be used to pay dividends and to direct for investment programs. I believe the leverage will also go up because of the same variables that will be affecting our cash consumption. Now for results and Cemig D moving on. For Cemig distribution results, and I have already mentioned the OpEx pressure, there is a greater OpEx pressure that was already mentioned, especially outsourced services and also shutdown of assets, and there was a growth of 0.7% of the recurring EBITDA because of the market growth, and I will show that in the next slide. And also in 2024, we already have the effect of the tariff review that happened in May of 2023. The net profit, as I mentioned, in the consolidated slide, we are increasing the asset base with this investment program. So now there is greater depreciation. So our profit is affected because of this depreciation that the more I invest, I will have a higher value. And as our CEO mentioned, so that we can provide better services. We are launching what we call Cemig Agro for the agribusiness. The idea is to have new installations, new reclosers to improve the business for the agribusiness in [indiscernible] concession. As mentioned, the recurring EBITDA for Cemig D was 0.7% higher in 2024, partially explained by the tariff review with the adjustment in the '24 result when compared to 2023 and majorly explained by the market's growth. There was a growth considering the transported energy and captive market growth of 4.4%. And I should highlight here the growth of the residential area. This is a very significant increase when compared to other companies, concession companies. They had greater growth, but our distribution is the one that has a very hard time with distributed generation, and we always bring that information to you. And so we always show the growth of injected energy when compared to distributed generation. And also in terms of the requests approved in the quarter, after 14,300, the law changed the distributor generation regulation. And starting in January '23, the new connections, the new requests for new connections for the distributing company, we will start receiving part of that [Micro DG] because of transported energy. And so we see that there was a significant reduction, especially in Mini DG. But what we have already lost in our market, we will recover part of that in the investment program, but we have not recovered everything. Now moving forward about losses. Also, our CEO and our CFO talked about, this is a commitment that the company has made to be in compliance. We were able to be in compliance in 2021 and to maintain losses in compliance. We need actions and initiatives, and we are still investing a lot in these initiatives with a significant number of inspections. We are switching conventional meters to smart meters. We are switching obsolete meters. And also, we are here converting illegal connections in legal ones. This is part of the distributing company routine, and they are very important to allow us to be in compliance with the regulatory losses. Now for operational efficiency, I'll turn the floor to our CFO, so that he can talk about the noncompliance of the regulatory OpEx.
Leonardo Magalhaes: Thank you, Carol. As already mentioned, in this quarter, we had some nonrecurring events related to the level of provisions that were much higher than we had in the prior quarters. And that has affected the company's compliance in terms of regulatory limits here. Since 2020, Cemig has an OpEx that is lower than the regulatory limit that is solely in compliance with the regulatory levels stated. And also EBITDA that is over the regulatory limits established by the official agencies. So we intend that this noncompliance in this first quarter is regarding to a situation just that happened in this first quarter. As we mentioned, we have BRL 140 million more of impact in our EBITDA that are related to contingencies, provisions for losses and also the shutdown of assets that is more related to the divestment program. So when you invest more, you also need to shut down the assets that have been replaced and switched. So that explains this temporary noncompliance in this first quarter regarding to what we expect to see in the year, which is to be in compliance with our OpEx and EBITDA. Carol, please, you may take over.
Carolina Senna: Okay. Now moving or Cemig GT results here in the first quarter. At the end of the year, well, in March of this year, when we talked about the results of 2023, we said that 2023 had an amazing result for the trading company and that in 2024, we would have also an important result with one of the best margins in the industry, but that it would not be the same result of 2022 because that was a window of opportunity that we had when we sold energy at prices over BRL 200. So when we look at the recurring EBITDA of Cemig GT, it was down 1% and that is because of this lower margin I mentioned, it has had already been shared with the market. So in the nonrecurring for Cemig GT and which was also highlighted during this presentation, is the conclusion of the disposal of 15 SHPs, and we will have the disposal for more assets in July. About our net profit, we had a greater reduction because of rate in 2023, the FX exchange of the Eurobond and the remaining installment that will be due in 2024, in 2023. It was a higher installment and it did have a positive effect in 2024. In addition to having a debt in foreign currency that is lower than 2023. Now I have a negative effect. So this drop is explained because of the effect closure we have already mentioned. And on the bottom, we show you the trading activity. Once again, we started a transfer of contracts trading to Cemig H. This is not 100% concluded. So we still have part of trading under Cemig GT. But if we add both EBITDAs to show the EBITDA of the trading company, we had a drop of 3.5% because of the same reason I already mentioned lower margin in 2024 when compared to 2023. Now moving on Cemig,as you already know, is consolidating that mix results. We had a reduction in the EBITDA explained by 2 reasons. First, because in 2024, we did not have a condensatory parcel. This compensatory parcel works as a CVA, a variable compensation account for distribution, but different because in the gas regulation, it is added to the quarters. In 2023, we did have an additional compensatory parcel. And in 2024, we did not have any balance for this compensatory parcel. And the other explanation is the volume. There was a volume reduction of around 10%, which has affected the EBITDA drop. And therefore, the net profit as well. But Cemig has a very significant EBITDA in the group. We always say that, and it represents around BRL 850 million, BRL 900 million a year. This is our last slide, I would like to bring our CFO once again, to close the presentation today. Thank you very much for your participation. And after his remarks, we will open for the Q&A.
Leonardo Magalhaes: That's great. Carol, we like to conclude with this slide because it represents a summary of the commitments the company has taken with shareholders. We believe it's an opportunity that we have to show you what we have been doing, what we have done and we'll be doing. We see here a number of actions that have been completed, the compliance with the regulatory levels, the strengthening of Cemig D investment program, the liability management of our bonds. And we already had committed ourselves to gradually reduce our FX exposure, and we have done that. Now we have BRL 380 million less than 25% of total bonds issued abroad in 2017, 2018, which was BRL 1.5 billion. So it's a final parcel to be settled at the end of the year and also the divestment in holdings with complexities. Now in progress, as we already mentioned, we expect to be in compliance with the regulatory OpEx and also the reference EBITDA for the company's concession in this year 2024. We are still in the process of digital transformation, divestment in minority holdings. Aliança is a great example of stake where we have no participation and we are divesting and also investment in renewables and focus on leadership in energy retail trading. And Cemig, the greatest, largest trader in Brazil aims to be a leader and also in this retail trading. And for the next year, the renewals of generation concessions and also to be in compliance with the DEC outage duration indicator, and that has to do with our strategy so that we can focus in providing the best service quality to our clients. So thank you very much for being with us for this presentation. And now we'll turn the floor to a Q&A session.
Carolina Senna: [Operator Instructions]. Our question is from Victor [indiscernible], sell-side analyst from BBA. I will ask Leonardo to take this questions. It looks like Victor did not open his microphone, so we move on, Leonard. Our next question is from Andre Sampaio sell-side analyst from Santander (BME:SAN).
Andre Sampaio: Good morning, everyone. I have a quick question about the regulatory OpEx. Now is voting on the final rules for the regulatory OpEx for distributing companies. I would like to know if you have an initial opinion about that. And still on that topic, one of the important changes in the rule has to do with the DEC of meeting not only the total global DEC, but also the subsets, and you still have work to do there. What is your plan to recover and improve the whole set DEC?
Leonardo Magalhaes: Andre, thank you very much for your question and your participation in our call. I will start talking about the regulatory cost, and I will talk about DEC and if Marney wants to add his or distribution offer. He can also comment. About costs, the regulatory costs that now is defining for the distributing companies. We are following that up and closely in despite of the fact that the company has -- well, this review will affect the company in the next tariff review. But what I can tell you is that we have a commitment with operating efficiency and all the measures that the company takes in terms of post-employment costs have been within the commercial losses, reducing its costs in other areas so that we can privilege whatever can be -- it can be focused in its PMSO and the quality of service to our clients, but also providing positive effects in the revenues, reducing financial losses and fines. And we understand that there is a positive effect when you invest more in the network. And also because of that, we had higher operating costs in these last quarters related to outsourced services in terms of recovery and maintenance of the network, and it has to do with this concern of quality of service to our clients.But in summary, we are following up the process. But we need to say that we are committed to meeting this new regulatory benchmarking established by the regulating agency. About the DEC, we understand that this needs to be met for distributing companies also Cemig, but also, we understand the compliance with DEC and FEC has to do with the strategy of the company of providing the best service to its clients. This DEC reduction also has positive effects with a reduction in the financial offsets paid of the company. And also it has positive effects in our PMSO. In this year, we have a percentage for the [ OSAT ] DEC. This is a trajectory of the company. We believe we will be able to meet the DEC, the whole sales according to announced definition, but I would like to invite Marney to comment if he wishes.
Marney Antunes: Good morning, everyone. Well, just adding to that, we have 58% of the sets met by the end of the year. We have 54% of those within our target in line with Aneel as well. And the 2 programs that were mentioned by our CEO in the beginning, [Minas Gerais] , which is the construction of 200 substations that will help the whole set DEC because it decreased the size of the sites and also Cemig Agro that aims to pay better service to the rural area. So these are 2 large projects and also our maintenance plan and OpEx that we already discussed. We have specific plans to clean areas of 42,000 kilometers. It's just like going around the earth just cleaning the land. That's it.
Carolina Senna: Our next question is from Daniel Travitzky sell-side analyst from Banco Safra. Daniel, you have 2 questions, one about pension funds and health care plan. I will ask her CFO, Leonardo and also the next step for divestments plan, and I will ask Marco Soligo to answer.
Daniel Travitzky: Actually, I just would like to have an update on the negotiations of liabilities related to health care plan and pension funds, just to understand where we are at in these negotiations. If we can see any progress on those fronts still in this year? And second question, I would like to understand how the divestment plan will follow after this disposal of Aliança and all the other sales of SHPs. So what are the next steps to be implemented?
Leonardo Magalhaes: Daniel, thank you very much. And thank you for your questions. Well, the company for a while now is disclosing the need of managing its post-employment benefits. These have no regulatory coverage, and there are significant amounts is around BRL 6 billion of obligations that are in the balance sheet of the company. And strategically, you understand it is important to take actions that can mitigate our position related to these costs. I understand that the company already has a successful history in those topics. We had benefits related to life insurance, where we were paying part of that to retire employees. No other listed companies were paying that benefit. And by a collective agreement, we were able to remove that benefit from our financial statements and our obligations. And now we have issues that involve the pension fund and health care plan. As we have already disclosed to the market, these are very complex issues that involve a number of discussions and a lot of study, and we would like to have convergence still this year, allowing us to have social justice in terms of health care plan to our retirees that have a lower income. And at the same time, that we can reduce the company's exposure related to that topic because these are very relevant costs. And once again, they are not covered by the company's tariffs. So it's important for the company to address this as well. So once again, for this year, we believe that we will have positive news on those topics. These are complex and difficult topics, but we are working hard to find a solution. And again, we want to be socially acceptable and responsible. And also, we want to reduce financial exposure of the company. So this is very relevant. We are still optimistic about solving this issue, and we expect that we can have good news this year on those fronts. Now I will turn to Marco Soligo, our Generation, Transmission and Participation Officer for the comments on your other question.
Marco Soligo: Thank you very much for your question. As our CEO mentioned, we are following strictly our divestment program of minority companies where we have no control. We have Taesa. We have some SHP or have some stake, and we are working to solve to address that to dispose of these assets. I cannot go into the details about specific negotiations, but they are moving on, and we wanted to use something that is smart and that makes sense to the company. So Taesa, for instance, is more complex. The way we do it, how to do it, others are very difficult, such as Belo Monte, it's not something that is easy to dispose of. But we are discussing, we are talking to the market, and we do believe we'll be able to address that. This is what I can bring to you, Daniel. Thank you very much.
Carolina Senna: Our next question is from [Eduardo Lazare], buy-side analyst from GTI. I will ask Leonardo to take your questions.
Unidentified Analyst: I would like to know if you have savings expectations on expenses with these migrations. If you have anything along those lines and also an update on leverage. I would like to understand your mindset for the next years. Where would you feel comfortable to be at in terms of your net debt? If there is an expansion in case you have an opportunity for inorganic expansion.
Leonardo Magalhaes: For your question about post-employment that we just talked about it and about leverage. Our debt policies establish a target that is close to 2.5 million times. We feel that this is comfortable that we'll maintain the company's credit quality and also we will allow the company. Eventually, if there are business opportunities and M&A and investment, we still have room in our balance sheet so that we can take part on possible M&As in a competitive fashion without reducing our credit quality. As Carol mentioned, our leverage is a curve. We have a lot of investments to be made in the next few years. And in 2027, we should be close to 2.5x our EBITDA. This is our target leverage. We feel it's comfortable. It's more efficient financially. So this is our target leverage. Of course, that we have opportunities for new investments, a robust investment program, and we believe this is a winning strategy. This is a company that has low leverage right now. But with this low leverage now, the company can make new robust development investments that will be increasing our revenue, weather and transmission and also mainly in the BRR for a distributing company, considering 2023 and 2027, investments will be integrated to the next tariff review. So these will be relevant amounts that will double the base of asset remuneration of the company, the tax tariff review. And at the same time, it allows the company to keep on being one of the main dividends payment companies. With this strategy, we believe that we'll continue with this leverage and the investment program that are regulated and integrated to the regulatory remuneration base. We believe that this allows our investors to feel safe, they will generate revenue, and they will guarantee that we'll continue to be a company in the industry that most based evidence, considering that we have established in our bylaws, the 50% payout of dividends annually and considering our consistent and sound results, we understand that this winning strategy of a company that we mentioned that will have leverage at great levels with the regulated sectors and also being one of the main dividends payment in the electric industry. This is our strategy and considering leverage, regulated investment and our attractive policy of dividends distribution.
Carolina Senna: Still with you, we have a few questions from investors that are concerned about the dividend payment, asking if in 2024 because of the investment program and the natural cash consumption, if there is going to be any changes regarding the quarterly results and what they can expect in terms of payments of dividends.
Leonardo Magalhaes: As we mentioned in our last question that I just answered, we are very optimistic about the company's results. We see that our individual investors are very interested in the company. They see that our dividend policy is very attractive, and we aim to just move on as we are doing right now. So our plans create a stability for the company are the minimum payout for the company is 50%, and that allows us to feel safe and optimistic. We are confident because we can provide an attractive dividend payment to our investors, and we understand that the interest on equity posting every quarter is efficient. It creates value for shareholders and we intend to maintain that practice.
Carolina Senna: Our next question is from Giuliano Ajeje, sell-side analyst from UBS.
Giuliano Ajeje: I have a question. Can you give me an update on the federalization process of the company. And also I would like to know if there is a possibility of privatization of the company. And another question. In 2 years from now, the governor will change. I would like to understand what is being done to maintain this legacy and this good management that you have had in the past few years.
Leonardo Magalhaes: I will start with a brief comment. And then if our CEO wishes, he will also comment and comment about your questions. What we are telling the market about federalization and productization is that this is not a company's agenda. This is our controlling shareholder agenda at the state of Minas Gerais but we have a strategic plan that has been approved. And regardless on how these issues will be conducted. We have the strategic plan to be executed. We are executing it, not allowing external issues that are not in the company's agenda to hinder the execution of the program. So we believe we are being successful, and I'm being repetitive here, but it's just to stress the importance of this topic for us. We are being very successful in the execution of this investment program, and this is the company's strategy and also our liability management, the dividend policy so that we are not affected by the controlling shareholders agenda. We are very optimistic about the company's future. We understand that the investments that we are making, especially in the regulated factors and transmission and especially in distribution. This is a strategy that we have, and it's a winning strategy. It is regardless of any changes in state administration, it's good for our shareholders and it's good for our clients. So there is a convergence of interest. Therefore, these are perennial strategies regardless external issues. Reynaldo, would you like to add anything on this topic?
Reynaldo Filho: I don't think so. I think you said it very well. Federalization is a matter that is on the hands of the controlling shareholders. We are managing the company with this strategic plan, focusing Minas Gerais. We are divesting from minority stakes or disposing of assets that do not fit in the company, it's important to say that 75% of this strategic plan is already contracted. So we are working on improving the quality of service when you deliver 100 substations. This has an effect. When you add in prephase when we developed Cemig Agro, the new program, there is a lot coming in that will be really changing. We have DMS that is coming in is going to have a huge impact. All of these topics are contracted. So this is a new managing system for distribution and operation. It will be new from scratch with the best technology. And we also will work on distributed generation and this intermittent aspect of distributed generation. This is the first one in Latin America. This is a huge investment in digitization, 1.5 million of smart reclosers and smart meters. We are working on a number of things that are structural, and they are already ongoing. We end up talking a lot about the past, but everything is already contracted. And I am sure that this will provide great quality and great improvement in service for Minas Gerais population.
Carolina Senna: And we will be closing our call now. And for the other questions that we do not have time to answer, we will be answering them via e-mail from the IR area. Now I would like to thank you once again for your participation in this video conference, and I wish you all a great day.
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