CIG

Business Context and Reporting Period

Company: Energy Company of Minas Gerais (Cemig)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Second Quarter 2013 (Ended June 30, 2013)
Filing Date: August 26, 2013

Cemig is a Brazilian integrated electricity utility operating in generation, transmission, and distribution. The filing summarizes Q2 2013 financial results, strategic acquisitions, and significant corporate governance decisions.

Key Financial Metrics (Q2 2013)

Note: Financial amounts are in Brazilian Reais (R$) millions unless otherwise indicated. Data reflects IFRS adoption.

Material Changes vs. Prior Period

• Revenue Decline: Net revenue decreased slightly by 0.7% due to a 3.1% reduction in electricity sales volume to final consumers in the concession area, partially offset by higher spot market sales.
• EBITDA Growth: EBITDA increased 3.1% driven by a robust sales and trading strategy on the CCEE (wholesale market), generating R$ 262 million in revenue (up 147% YoY).
• One-Time Gains: Net income was boosted by a R$ 107 million net gain from the transfer of TBE (transmission assets) to Taesa. Without this gain, net income would have been lower.
• Cost Increases: Operational expenses rose 5.9%, primarily due to a 20.7% increase in electricity bought for resale (higher market prices and volume) and increased operational provisions.
• Debt Profile: Total consolidated debt stood at R$ 9.46 billion (76.3% of equity). The average tenor of debt is 3.9 years.

Guidance, Outlook, and Strategic Developments

Guidance and Outlook

• 2013 EBITDA Guidance: Management maintains full-year 2013 EBITDA guidance between R$ 5.8 billion and R$ 6.4 billion.
• Performance: H1 2013 EBITDA achieved 54.27% of the lower limit of the guidance range.
• Dividends: The company maintains a policy of distributing 50% of net income as mandatory dividends, with potential for extraordinary dividends from retained earnings.

Strategic Transactions and Management Commentary

• Brasil PCH Acquisition: Cemig concluded the acquisition of 49% of Brasil PCH S.A. (a renewable energy generator) for R$ 650 million. This aligns with the strategy of sustainable growth in renewables.
• Renova Investment: Cemig signed an investment agreement to enter the controlling block of Renova Energia S.A. (wind power focus) via a capital increase, with a potential value of up to R$ 1.41 billion.
• Itaocara Concession Rescission: The Board decided to apply for the rescission of the Itaocara Hydroelectric Plant concession due to environmental obstacles and the inability to maintain financial equilibrium after regulatory delays. The company expects no financial charge for this rescission under applicable laws.
• TBE Transfer: The transfer of transmission assets to Taesa was completed, resulting in a significant one-time gain.

Risks and Contingencies

• Regulatory Environment: Ongoing impacts from Law 12.783 (formerly MP 579) regarding tariff reviews and concession renewals.
• Hydrological Conditions: Results remain subject to hydrological variability affecting generation.
• Macroeconomic Factors: Exposure to Brazilian economic slowdown, industrial consumption weakness, and currency fluctuations (Real vs. Dollar).

Investor Verification Checklist

• Verify the sustainability of EBITDA growth excluding the one-time R$ 107 million gain from the TBE sale.
• Confirm the closing conditions for the Renova investment agreement and the final capital increase amount.
• Monitor the status of the Itaocara concession rescission and any potential future costs or regulatory changes.
• Review the impact of Law 12.783 on future tariff adjustments and concession renewals for plants like Jaguara and São Simão.
• Assess the leverage ratio given the total net debt of R$ 5 billion and the planned capital expenditures for growth.