Companhia Energética de Minas Gerais, known as CEMIG (CMIG4.SA), announced outstanding financial results for the fourth quarter of 2023, underscoring the effectiveness of its strategic initiatives.
The Brazilian utility company reported a record adjusted EBITDA of BRL8.1 billion, a net income of BRL5.4 billion, and an attractive dividend yield of 12.4%. These results were attributed to the company's divestment from non-core assets, a focus on regulated and profitable segments, and adherence to regulatory targets. CEMIG also highlighted its commitment to sustainability and future market changes.
Key Takeaways
- CEMIG achieved record adjusted EBITDA of BRL8.1 billion and net income of BRL5.4 billion in Q4 2023.
- The company's successful divestment strategy led to a significant reduction in net debt by almost BRL8 billion.
- Investments increased to BRL4.8 billion in 2023, with a forecast of BRL6 billion for 2024, focusing on distribution and regulatory compliance.
- CEMIG's distribution business EBITDA grew by nearly 35% in Q4 2023.
- The company is preparing for market opening and maintaining leadership in the trading sector.
- CEMIG GT and Gasmig reported significant EBITDA and net income growth.
- Plans to increase capital stock by 30% through a new share subscription using profit reserves were announced.
Company Outlook
- CEMIG is poised to continue its leadership in the trading sector and is preparing for the upcoming market opening.
- The company plans to invest BRL6 billion in 2024, the highest level in its history, with a focus on distribution and sustainability initiatives.
Bearish Highlights
- CEMIG has decided not to participate in the next transmission auction.
- The company is addressing challenges related to actuarial liabilities and regulatory changes in distributed generation.
Bullish Highlights
- The company's strategy of investing in regulated and profitable businesses is yielding positive results.
- CEMIG's commitment to sustainability has been reinforced through various initiatives and compliance with regulatory targets.
Misses
- There were no specific misses mentioned in the earnings call.
Q&A Highlights
- CEMIG confirmed compliance with regulatory thresholds for losses, OpEx, and EBITDA.
- The company discussed the positive impact of digital channels on collections and initiatives to improve them.
- CEMIG is actively seeking structural solutions for the company's actuarial liabilities.
CEMIG has demonstrated a strong financial performance in the fourth quarter of 2023, driven by strategic asset management and a focus on regulated business areas. The company's distribution sector has shown significant growth, and investments in sustainability are aligning with regulatory compliance and market expectations. Despite opting out of the upcoming transmission auction, CEMIG is actively pursuing growth opportunities and addressing its actuarial liabilities. The company's commitment to delivering results and excellent service remains steadfast, as reflected in the CEO's remarks and the plans for capital stock increase through a share subscription. With the Investor Relations department available for further inquiries, CEMIG continues to be a prominent player in Brazil's energy sector.
InvestingPro Insights
CEMIG's remarkable financial performance is further illuminated by real-time data from InvestingPro. With a market capitalization of $5.7 billion USD, the company's valuation reflects its substantial presence in the energy sector. The adjusted P/E ratio as of the last twelve months ending Q4 2023 stands at 4.95, suggesting that the company's earnings are robust relative to its share price. This is particularly compelling when paired with a PEG ratio of 0.12 for the same period, indicating potential undervaluation based on earnings growth expectations.
InvestingPro Tips highlight the company's revenue growth of 6.93% and a gross profit margin of 22.75% for the last twelve months as of Q4 2023, showcasing CEMIG's ability to increase its revenue while maintaining a strong profit margin. Additionally, the dividend yield as of the most recent data point is an attractive 8.48%, coupled with a dividend growth of 13.49% over the last twelve months, which may appeal to income-focused investors.
For readers interested in a deeper dive into CEMIG's financial health and future prospects, InvestingPro offers a wealth of additional tips. In fact, there are 25 more InvestingPro Tips available that can provide further insights into the company's performance metrics and investment potential. To access these valuable tips, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. This exclusive offer can help investors make more informed decisions based on comprehensive, real-time data and analysis.
Full transcript - CEMIG (CIG) Q4 2023:
Carolina Senna: Yeah, thank you. Good afternoon, everyone. My name is Carolina Senna. I'm Investor Relations Superintendent of CEMIG. We now start CEMIG’s Fourth Quarter 2023 Earnings Call and Webcast. We have the following executives, Reynaldo Passanezi Filho, CEO; Dimas Costa Commercial VP; Leonardo George de Magalhaes, Chief Financial Officer and Investor Relations officer, Marco Soligo, Chief Participation Officer; Marney Tadeu Antunes, Chief Distribution Officer; and Thadeu Carneiro da Silva, Chief Generation and Transmission Officer. For the initial remarks, I turn the floor over to our CEO, Reynaldo Passanezi Filho.
Reynaldo Passanezi Filho: Good afternoon, everyone. Again, it is a pleasure to be disclosing our earnings. These results we believe were extraordinary. Okay, you can see my video now. I'll repeat. I'll start again. Good afternoon, everyone. It is a pleasure to be here to present our 2023 earnings. These results are extraordinary. And they show the success of our strategy. I think it is very important to give you a summary of the 2023 results, but you have to understand that these are the results of our strategic planning results of the execution of a strategy that is focused on concentrating our activities on the businesses that CEMIG knows. The electricity sector in Minas trading all over Brazil with control efficiency and operating performance. So this is the strategy. And this is what justifies our record investment plan of BRL35.6 billion. How are we executing? Well, I think that here we have these bullet items. And we see the consequences of this strategy. The first was concentrating, focusing on the assets that we know and divest from our minority equity stakes of assets, which are basically outside the state of Minas. So we divested from light with diversity from Renova. And we ended up divesting this year from Santo Antôni, Retiro Baixo, Baguari and the first lot of SHPPs. And this was extremely positive not just in terms of the cash inflow because of these divestments. But also because we didn't need to inject capital. You will know that Renova required a capital increase. Light also needed a capital increase, Santo Antôni also required a capital increase. So CEMIG if we still have those shareholdings, and if we wanted to keep those share holdings, we would have to inject capital into these companies. So considering the BRL795 million in sale of assets in 2023, so you have to look at this general movement, i.e. divesting from non-strategic assets, where CEMIG make held a minority stake. Now, the cash that we generate, that we that we generate can be reinvested in the business that we know, you see before we had to take part in these capital increases that were required. So the first phase is to focus and concentrate on the assets that we know and divest from minority shareholdings. And this process is well advanced. So we exited light Renoa, Santo Antôni, Retiro Baixo, Baguari and the first lot of SHPPs. So we changed the company's capital allocation. The second part is trying to remain within regulatory thresholds and targets that is fundamental for us to achieve the EBITDA that we're delivering here. You will all remember that CEMIG was the outside the target of regulatory expenses for distribution, and beyond the regulatory threshold for losses. And today, we are proud to say that we have within those regulatory targets or thresholds. We are compliant with the regulatory PMS sold threshold, and technical and non-technical regulatory losses authorized by the agency. This is also the result of an effort to generate cash because before, the resources that we would use for investments were used to pay for expenses. So we divested from the non-strategic assets, and we increased efficiency. This is exactly what enabled the delivery of these results, a strong cash generation, a record adjusted EBITDA of BRL8.1 billion. This is the reflection of the fact that we are now within the regulatory targets. In the past, we were beyond them. And today, this EBITDA no longer needs to be invested in minority shareholdings. It can be fully invested in the business, it's controlled by CEMIG. And we have a second regular investment of BRL4.8 billion. So like I said, this is a summary of the of the transformation movement of the company, we had a first wave of a turnaround, i.e. allocating capital on the businesses that we control and seeking efficiency, and also increasing the operating performance of our assets. Our wind farms, for example, increase the performance a lot. In the sectors where we improve the operating efficiency, we can generate more revenue, we're also trying to improve efficiency. It can come through less expenses or through higher operating efficiency of the assets. So we have more efficiency in terms of expenses and more efficiency in terms of revenue. And we have less need to spend money in those minority shareholdings. So this is what enabled this record EBITDA of BRL8.1 billion. This is what led to the current phase we're living, the highest investment program in our history. So wave one was the turnaround. Phase 2 is executing the investment, when BRL4.8 billion we invested in 2023, and BRL6 billion that were invested in 2023 -- and BRL6 billion to be invested in 2024. When you look at the track record it was under BRL1 billion in 2018. So we increased from BRL950 million in 2018, increasing to BRL4.8 billion in 2023. So in a five year timeframe, we grew investments by 5 times from BRL954 million to BRL4.8 billion, and we continue to grow. Our forecast for 2024 is around BRL6 billion or BRL6.2 billion, or BRL6.1 billion. So I guess that this is kind of the snapshot. We did a turnaround of the company, we turned it around. And now we are at our maximum moment of investments, again, investing in the businesses that we know regulated businesses. And when they are not regulated, this is business that we invested because there is a guarantee of profitability. So we have an associated PPA or generation business, for example, is linked to a PPA, there is no exposure to Power Price risks. At the same time, we're making an effort to preserve our leading position in the markets that we lead in the trading sector, for example, and to be prepared for a movement of market opening. We're moving forward in being present in the free retail market and we want to maintain our leadership in trading. So this is kind of the general strategy that led to these results that you see on the screen of record EBITDA of BRL8 billion record investments of BRL4.8 billion and a record net income of BRL5.4 billion, which is also bringing to you shareholders a spectacular yield, dividend yield of 12.4%. In other words, we remunerated more than BRL3 billion in investments and interest in equity. So this profitability is even greater because a part of this has been reinvested. So my message, my initial message to you is look at these numbers and understand them as results. We're not thinking about a number, we're thinking about executing the strategy. Executing a strategy that makes sense. In other words, focusing on the activities we know, seeking efficiency, reducing expenses, seeking efficiency, increasing revenue, having safe investments, because we're doing this in the regulated market. When it’s a competition environment, we have a PPA. And we are then prepared for the future. And being prepared for the future means having the ability to trade power in the free retail market. So I would like to congratulate the whole CEMIG team, our own employees and third parties. Because we have delivered results, which are the reflection of the dedication of each and every one of you. In depth like to say that this is indeed our commitment to execute our strategy, a strategy, which is clear, easy to understand, and which is bringing all of these results, because we are allocating capital to the sectors where CEMIG has a competitive edge. And to me, that's the most important thing. We have to invest in what we do and be prepared for the future. I truly believe that these results given the execution of our strategy allowed us to get this far, and will allow us to continue to post even greater results in the future. I will turn the floor to Leo. But again, I'd like to congratulate the whole CEMIG team for these results. And let's hear about the results for the quarter. And the more general financial topics to be presented by Leo and Carol, and I'll be around for the Q&A session.
Leonardo George de Magalhaes: Thank you, Reynaldo. As the CEO said the results for the year were excellent. We understand we had an EBITDA greater than BRL8 billion and net income greater than BRL5 billion a result that we believe are delivering we're delivering to the shareholders, while we promised in our strategic planning. The CEO said we're executing our strategy and these results are the reflection of this adequate execution of the plan. As we communicate it to the market, our dividends proposed for 2023 are very attractive. We understand that CEMIG today more than in the electricity sector in Brazil has one of the highest and most attractive dividends considering the dividends for 2023 that represents a remuneration a dividend yield of 12.4%. But that's the remuneration for shareholders the very attractive dividend yield considering declining interest rates. In considering our strategy and regulated sectors ability to execute our operation, we believe that these results are solid and healthy. They bring us optimism that CEMIG will continue to be a company that can ensure attractive remuneration for our shareholders in the future. We understand that the company in the electricity sector, more than that, in the environment of listed companies in Brazil is a company that is among the most attractive companies in terms of dividend payout. Moving on. As mentioned by our CEO, we divested in those equity stakes, where we did not have control that were not core to our business. We divested from these assets that led to about BRL800 million in 2023. This boosts our cash. This is about capital allocation. This is investments to be made in regulated sectors and it also brings important gains for the company. In 2019, if we look at 2019, the divestments from light, Renova and other companies led to almost a BRL3 billion capital injection for the company and more than that. If we had maintained our shareholdings in these assets, we would have had to spend practically BRL5 billion. In other words, an increase in our net debt. If we hadn't changed the strategy, we would have an impact of almost BRL8 billion a significant amount. But more than that, we were able to generate BRL1 billion in tax credits, reducing our cash expenditures. And we reduce the number of financial guarantees, which helped improve the credit rating of the company. Moving on. The company is a benchmark in ESG. We have joined practically all the sustainability indicators either in Brazil or abroad. And here we have some important highlights on 2023. We joined the UN Global Compact 100% Transparency Movement, the energy [Indiscernible] program regularizing energy supply for more than 13,000 households in 16 low-income communities. This means our commitment with the communities in the societies where we operate, in addition to training to provide ESG education for all our suppliers. Talking about our investment program in 2023, we had an execution that was quite significant, almost BRL5 billion invested in 2023. We highlight our investments in distribution greater than BRL3 billion more than 3 times the regulatory depreciation. We understand that this is very important, these investments will be included in the next tariff review these investments transformed society, these investments mean more power available to the state so the new industries can be connected to our grid. In addition to improving the quality of service to our customers and clients, which is very important to us. This is the focus of the company, we are customer centric. So we have almost BRL23 billion expected to be invested in distribution and more it to be invested in transmission generation and distributed generation. All of these investments will bring adequate return for the company and the other stakeholders. Planned investments for 2024 more than BRL6 billion. Again, the highlight greater than BRL4 billion to be invested in our distribution business. In addition to representative investments in transmission generation, distributed generation and gas, BRL6 billion undoubtedly the highest level of investment in the history of the company. Now we'll start speaking about the results for the fourth quarter ‘23 very positive results. I'll turn the floor to Carolina, our Investor Relations Superintendent to discuss and present the results. Adjusted EBITDA in Q4 greater than BRL 2 billion. Interest on equity of BRL1.3 billion showing our ability to remunerate our investors in addition to maintaining our assertive actions, which ensure that OpEx EBITDA and energy losses will remain within the regulatory parameters. So all of our costs are included in the tariffs and we don't want to charge more from customers. Today, the company is very efficient, and we deliver value to our shareholders in a very clear and positive way, considering these indicators. And this is how the company sees and respects and complies with these regulatory parameters. So we see here the conclusion of the sale of Baguari and Retiro Baixo. This led to gain in in trading, the result of CEMIG GT in the quarter will be mentioned momentarily, but we see again, a significant result. That's another strength of the company. The fact that we have a company that is relevant in its several businesses. This brings us consistent and solid results, which we believe are very important for our investors. Carolina over to you.
Carolina Senna: Thank you, Leonardo. So now talking about the consolidated results, we can see that we grow our EBITDA over 2022 recurring EBITDA of 16.6%. The highlight that led to this result is the trading activity which in 2023 gave us a surprising result, which we will show momentarily. Net income, as our CEO mentioned, was record of BRL5,359,000,000. That enables us to continue with our investment program executing our strategic planning. And we'll continue to share part of these resources with our shareholders as we pay 50% of the accounting profit as dividends. In Q4 ‘23, results we see epitope growing 30.5% recurring are better, in other words, net of the Baguari and Retiro Baixo sale, which were events that happened in q4, which helped grow our accounting EBITDA and net income growing 39.8% in Q4 ‘23, over Q4 ‘22, partly impacted by the adjustment of the tariff review of the Disco (OTC:DSCSY) [ph] in effect as of May ‘23. So when I compare Q4 ‘23 with Q4 ‘22, the adjustment in tariff is already accounted for in Q4. In addition to higher temperatures, something I will come at in more detail later that brought a positive impact to the result of the disco. When I look at the evolution of operating costs and expenses. Consolidated we see a 0.9% increase in PMSO costs below inflation. Here we show the impact of them, profit sharing programs, we have a reversal in 2022. So when I compare 2023 with 2022, it feels like we had a significant increase in this expense. But in 2022, we also had a higher personnel costs given the voluntary retirement program, which costs BRL29 million. In 2023, we did not have this program at the company. So again, we improved our personnel expenses. But I'd like to remind you of a commitment we made. We want to comply with the regulatory OpEx thresholds. So we have tariff coverage for our expenses and costs. As mentioned by our CEO, the company is a strong cash count. We invest in assets, when we invested in companies in assets where we had minority shareholders, but now we are focusing on assets and investments that we have full control of. So along 2023, we had an operating cash of BRL1,344,000,000, very close to the accumulated EBITDA of the company and a cash outflow of about BRL5 billion of the investment program. Execution in 2023 alone. We ended with a cash and cash equivalent of BRL2.3 billion. By the end of the year, we had a buyback of the bonds of CEMIG partial. We're going to show you that in more detail in a moment. Now I turn the floor over to Leonardo because he’s going to speak a little about that management, liability management and then I'll speak about the results of CEMIG GT and CEMIG D.
Leonardo George de Magalhaes: Last week. The company completed it debenture issuance. And this was a very successful move. It represents and reflects investors’ confidence in CEMIG management. We had a demand of almost 3 times by issuance. It wasn't an important issuance of debentures, BRL2 billion barrels. The resources the proceeds will be used in our investment program, that was BRL6 billion to be invested in 2024. BRL35 billion from 2023 to 2028. So the company will be frequently making issuances in the market, because that's then the need to access the capital market. But we understand that our leverage is low, we have a very positive credit rating. And that ensures that the company will have a demand of almost 3 times almost BRL6 billion considering our issuance of BRL2 billion. And the rates were very attractive. They were reduced compared to our offer. So we were very happy with this issuance and we also reduced our exposure to foreign exchange. Let me remind you in 2017-18, the company had practically BRL1.5 billion bonds issued in dollars and the international market. During this period from 2019 to date, we started buying bank of these bonds to reduce our foreign exchange exposure. Now we have practically 25% Of this amount, close to $381 million. In other words, we reduced our foreign exchange exposure quite substantially in this timeframe, thus reducing the risk level of the company. Here we see our net debt over EBITDA close to 1 time in the end of 2023. We believe that this ratio is low. And as we said before, this will allow the company to frequently access the capital market without impacting our credit rating and credit quality. And will continue to be a company that pays good dividends. We believe that this is a sustainable strategy, investing in the regulated sector where we have the highest guarantee of a return to our shareholders maintaining our credit quality even going resorting more frequently to the capital market, maintaining an adequate net debt over EBITDA and at the same time ensuring a dividend yield that is very attractive to our shareholders. And we'll continue to be one of the companies that pays the best dividends among listed companies in Brazil. Okay, so now let's speak about CEMIG Distribution and Q4 ‘23. We can see that EBITDA grew almost 35%. We do not have any non-recurring effect in Q4 of the disco. And this result was partly impacted by the tariff review, which, as I mentioned before, in May 2023, is accounted for the 2023 results compared to 2022. And later on, I'll show you a slide showing that because of increased temperatures, we had an increased demand in both the captive and the free markets because of transmission. So this is a significant result for the distribution, despite an increase in expenses with third party maintenance services. I follow the review of some reports and this is information that we have disclosed to you in 2023. In addition to increasing investment, and my asset base, we are changing our corrective maintenance. We are now focusing on preventive maintenance. And in Q4, like I said had higher temperatures. So we had increased not only in transported energy but energy to end users. And I'd like to remind you that our concession was very much impacted and continues to be impacted by the migration of clients to distributed generation. Today 18.4% of the total captive market has migrated to distributed generation. And this investment program ends up helping us with market growth. Because I allow the existence of new industries, I enabled the development of agri-business, which was an important segment for the state of Minas. And are also enable better levels of service to my end customers. So when I look at the market of CEMIG D with CEMIG D in the area of consumption of the disco, we had an accumulated growth of 2.4% in CEMIG D market. And in looking at DG, we can see how distributed generation grew significantly in our concession area. We ended 2023 comparing with 2022 with 55% increase in energy injected, while 14,300, which was a law to address the subsidies that DG one does not pay to the disco is a law that they've gone into effect in January 2023. And we can see that connection cost estimates issued posted a reduction when I look at 2023 compared to 2022. When I say -- when I look at this for micro almost 40% for mini 56%. As mentioned before, now that company complies with all regulatory limited thresholds for losses OpEx and EBITDA. This is a commitment that we take on and that we pursue, and we continue to show quarter after quarter. How we remain compliant within the regulatory limits? So regarding losses in 2023, well, we achieved that in 2021 And every year, we show that we are complaint. We need to continue to invest in inspections and replacing obsolete meters and replacing conventional meters by smart meters. So, in addition to the energy, legal energy program, which brings a great benefit not only for the company reducing losses, but also bringing technology and security for low income communities. Regarding the fault the delinquency, it is important to say that digital channels have helped collection, they reached 65%. Every quarter we show that pics. Although this was deployed only two years ago, it already accounts for 21.8% of our collection. In addition, our farm is an indicator that shows how much of the revenue we actually can collect. It is very important it is the receivables collection index. It is important to show how we are collecting, we are delivering every year and indicator close to 100% showing the effectiveness of our initiatives to improve collection. As mentioned before OpEx and EBITDA have two regulatory limits that we now comply with. Regarding OpEx which is my coverage in my tariff compared to what was realized we are below the coverage in 0.7% and EBITDA 3.8%, showing our commitment, our investment in our capital allocation. So we won't have any capital outlay due to non-compliance to regulatory thresholds. Now speaking about some CEMIG GT results. You have to remember that part of the trading activity of CEMIG GT’s part of CEMIG Holdings. But there is a part of the trading activity, which is under CEMIG GT. In 2023, as we communicated to you was surprising for the trading activity given our strategy to sell power which started in 2021. When I compare Q4 ‘23, with Q4 ‘22, recurring EBITDA net of the sale of Retiro Baixo and Baguari, EBITDA grew 37.7%, and net income grew 58.9% at CEMIG GT. Gasmig, Gasmig is a company that we consolidated. It is a natural gas distributing company in the state of Minas. When I look at 2023, over 2022, we posted an EBITDA growth of 21.9%. Part of this EBITDA increase is explained by the tariff review when partly by the offsetting portion, which was added in the quarters of 2023. But in Q4, there was no balance of this offsetting portion and that's why we see a negative reduction of 25.3. It is important to remember that we are investing not only in distribution transmission generation in the state of Minas but also Gasmig is building a pipeline in the Midwest region, an investment estimated at BRL800 million after spending many, many years without investing in its concession area. To end we like to show this slide it, it reinforces what we have been promising to the market and what we have been delivering. While we have achieved what is in progress, and the challenges and opportunities, I'd like to draw your attention to challenges and opportunities investments in floating distributed generation. We've shared this with you in the renewal of a generation concession [Indiscernible] say in ‘26. And another one in 2027. We have shown interest in renewing those concessions and these two commitments remain in our agenda. Now. We will begin the Q&A session. Thank you very much.
A - Reynaldo Passanezi Filho: We will now begin the Q&A session. Please ask all of your questions at once and hold for the company's answers. [Operator Instructions]. I was looking at the questions here in the chat. And I see that there are many questions around three areas divestment, federalization and dividends. So I'll make a general comment. And then Leo, and the other officers can add to my comments. Regarding divestment. I think that Leo has already spoken about this during the presentation. We have divested from the assets with more complexity. Those divestments that would have entailed expenses to us. They would have required a lot of capital injection, and that has a big effect. If we add the resources that we received the avoided cost from having to participate in capital, injections plus tax credits, we're talking about BRL9 billion coming from these divestments of these assets, as we mentioned. Now, obviously, the main divestment portion has been carried out. We still have some divestments to make. And this is public information. And the rationale is always very simple. We divest where we believe there's a third party that can operate better than us, given our characteristics. So we had a lot of SHPPs, but there are still some small hydropower plants. And we sold them at a very good premium, which shows that a third party can use these assets better than we can. And we have some divestments, such as Aliança, Taesa, Belo Monte. But of course, these are complex, slow processes. But they're part of our plan. I should say that this is all I have to say about divestment. What else? About federalization? I'd say that this is a theme of for our shareholders. We have very little to say about this. Except what is public knowledge? What's in the media, in the press? And we are waiting for a reply from the Ministry of Finance regarding the proposal that has been negotiated. We don't have anything to comment on that. We are working businesses usual seeking the best earnings and results for the company. Because this is our role, regardless of who is the controlling shareholder. Regarding dividends, many questions about dividend payout terms. And my comment is all divestment program will lead to capital gains. And this capital gain will be distributed 50% of our result, actually, it's more than 50% because it's 50% of the result of plus the interest on equity benefits. So in practice, we have a dividend payout greater than 50%. It's 50% of the result, plus the tax cost of interest on equity. So we understand that this is quite a reasonable number, way higher than the law. The law requires a minimum dividend payout at 25%. So actually, it's a lot more than 50. Again, 50% plus interest on equity. And I believe that you need to know that, we are now reviewing the capital structure of the company. And we are investing a lot. So again, we are exiting some sectors but we are entering new sectors. We saw a record investment plan that we had in 2023 and 80% were invested in regulated business distribution natural gas transmission. So, our expectations are then yes, we are creating profitability for the company in two ways when we remunerate shareholders with a cash outlay, and also when we invest in create value for the company. So dividends that were not distributed, that's because they are being reinvested in regulated sectors, creating value to our shareholders. So, we create value either through the cash that we distribute, or the resources we keep in the company to invest and appreciate the company. So of course, these topics are always discussed dividend payout, when the dividend payout will happen, but we do have a large investment program. We understand it is critical to better serve our clients and at the same time remunerating our shareholders. We believe that the current practice 50% of net income plus differential effect of interest on equity allows us to adequately remunerated our shareholders. It enables a remuneration based on capital gain. Also, when we sell an asset, at the same time, resources kept in the company being reinvested creating even more value to shareholders and more results in terms of improved services to clients. I don't know Leo whether you want to add to that, but I think that these are the three main topics that were asked in the chat. So they asked about the vestments federalization. Again, we have very little to comment on that. And dividends. I just want to make clear that everything we do aims to create value to our shareholder base, either when we have a dividend payout or when we make investments. All investments aim to create value to the company and to our shareholders.
Leonardo George de Magalhaes: I agree, Reynaldo. I think you spoke very well about dividends. When we look at dividends in 2023 we have capital gains with the sale of some generation assets. They were part of the dividend calculation base. So BRL3.1 billion divided by the recurring operating profit, we are talking about almost 60% payout. So, if we have future additional capital gains with futures sale of assets, this will mean an additional payout which will continue to make the company, now decide one of the best companies in Brazil in terms of dividend payout, a company with consistent results concessions which are very profitable. Our distribution concession was renewed from 2015 to 2045. So we have predictability of results and cash generation for the company. So we understand that we are already one of the most attractive companies in terms of investor and shareholder remuneration.
Carolina Senna: Have a question to our distribution of Vice President, Marney, it is about deck in 2023. The question is, could you comment on the growth on the increase of DEC in 2023? Do you see any OpEx expectation at the disco to maintain that level with a regulating agency now asking for more quality?
Marney Tadeu Antunes: Well, Guillerme, thank you. Indeed, DEC did increase last year, more specifically in Q4, where we had a considerable increase of extreme weather events. You will all follow what happened in the southeast of Brazil. And of course it impacted Minas state. To give you an idea in the previous year we had about 800,000 lightnings in the state of Minas, last year 2.4 million lightnings. And they contributed a lot to the increase in DEC. And also the scheduled DEC we had a lot of these connections done for several works to better serve the market. So that contributed to DEC a little outside the thresholds intended. But I can assure you that in the month of February already, DEC is back within the regulatory threshold in March, again, an expectation to remain below regulatory threshold. And of course, within with our regulatory OpEx within thresholds. Now, Leonardo will answer two questions regarding share subscription that we will approve in the shareholders meeting of April 2024.
Leonardo George de Magalhaes: As given the profit reserve, exceeding the capital stock, the company will increase the capital using profit reserves capital reserves through the share subscription. We've done that in previous years. And we will suggest this 30% new share subscription for our shareholders in the meeting to be held by the end of April. That's the expectation of the company considering compliance with the as a law of Brazil. So we'll use the profit reserves to increase the capital stock of the company.
Carolina Senna: And next question regarding the company's participation in the next transmission auction. I'll turn the floor to the transmission VP, Thadeu.
Thadeu Carneiro da Silva: Hello. As we had informed before, to the market and the last earnings conference call, we will not be participating in the next auction to be held next week. [Indiscernible] Sao Paulo.
Carolina Senna: Thank you, Thadeu. Next question regarding distributed generation DG, I turn the floor to Reynaldo our CEO.
Reynaldo Passanezi Filho: There are two questions here, Carol, about DG, and another one about actuarial liability. So for DG there was a recent decision by the Federal Court of Accounts in a model of power by subscription. We understand that will comply with absolutely all requirements for CEMIG to participate in the distributed generation market. I have a lot of peace of mind regarding all the shining walls. We have here, there was some comments here. And some comments about my Portuguese I apologize. I will take Portuguese lessons. But we have Chinese walls. The distributions and CEMIG activities are totally shared. There's no relationship between one area and the other. Of course, they're all part of the CEMIG Economic Group, where the activities are totally independent, including CEMIG SIM. And of course, the TCU decision includes a subsidies for distributed generation, which I believe will be analyzed by TCU. The Federal Court of Accounts and other control agencies of the country but specifically regarding CEMIG SIM, we have a lot of peace of mind that we fulfill all the requirements. If there is any debate regarding charges and subsidies of the DG if there is any decision it will not be specific for CEMIG SIM. It will be for the whole sector. Regarding actuarial liabilities, it is public knowledge that we aim to look for structural solutions for the company's actuarial liabilities. Apart if these issues are at the court, we have to wait for the court decisions.
Carolina Senna: Thank you. And now we are closing the Q&A session. For the conclusion of the call, I will turn the floor over to our CEO, Reynaldo Passanezi Filho.
Reynaldo Passanezi Filho: Again, thank you very much for attending our earnings video conference call for your questions. Please continue to trust CEMIG, and we will continue to deliver more and more results to our shareholders. Always seeking to deliver a level of excellence of service to our consumers. That's our purpose to continue transforming the lives of the people of Minas with our energy. We want to drive the development, the sustainable development of Minas because all our energy is clean energy, and at the same time creating value to the company's shareholders. Thank you very much and enjoy your weekend.
Carolina Senna: This concludes semi acts of fourth quarter 2021 earnings conference call. Thank you for your participation. The IR department of the company is available to answer any further questions you might have. Thank you very much for your participation and have a good day.
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