Business Context and Reporting Period
Company: Energy Company of Minas Gerais (CEMIG)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: First Quarter 2011 (ended March 31, 2011)
Filing Date: June 15, 2011
Business Overview: CEMIG is a Brazilian holding company operating in electricity generation, transmission, distribution, and gas. It operates primarily in the state of Minas Gerais but has national and international interests. The company is subject to Brazilian accounting standards (BRGAAP) and International Financial Reporting Standards (IFRS).
Key Financial Metrics (Q1 2011)
| Metric | Q1 2011 (R$ '000) | Q1 2010 (R$ '000) | Change (%) |
|---|---|---|---|
| Net Operational Revenue | 3,386,587 | 2,877,653 | 17.69% |
| Net Profit for the Period | 526,151 | 520,066 | 1.17% |
| EBITDA | 1,292,259 | 1,164,222 | 11.00% |
| EBITDA Margin | 38.16% | 40.46% | -2.30 pp |
| Net Debt | 19,572,736 | 19,100,008 | 2.47% |
| Cash and Cash Equivalents | 2,733,242 | 2,979,693 | -8.27% |
| Stockholders' Equity | 12,003,107 | 11,476,133 | 4.59% |
Note: All figures are in Brazilian Reais (R$) thousands unless otherwise noted. Q1 2010 figures have been restated to reflect IFRS adoption.
Material Changes vs. Prior Period
- Revenue Growth: Net operational revenue increased 17.69% year-over-year, driven by a 15.60% increase in electricity volume sold to final consumers and higher transmission revenues following the acquisition of TAESA in May 2010.
- Profitability: Net profit rose slightly by 1.17%. Despite higher revenue, EBITDA margin decreased from 40.46% to 38.16% due to a 22.23% increase in operational costs (excluding depreciation), primarily driven by higher electricity purchase costs and outsourced services.
- Financial Expenses: Net financial expenses increased significantly to R$282.8 million (from R$129.4 million in Q1 2010) due to higher interest rates (Selic/CDI) and increased debt volumes from new financings.
- Dividends: The Board approved a dividend distribution of R$1.196 billion for the 2010 fiscal year. A payment of R$598 million (50% of the total) was scheduled for June 29, 2011.
Guidance, Outlook, and Material Events
Financial Guidance (2011-2015)
At the 16th Annual CEMIG-APIMEC Meeting (June 3, 2011), management presented EBITDA guidance (in constant R$ million as of June 2011):
- 2011: R$5,012 million (Lower) to R$5,616 million (Upper)
- 2012: R$5,074 million (Lower) to R$5,838 million (Upper)
- 2013: R$4,707 million (Lower) to R$5,416 million (Upper)
- 2014: R$5,123 million (Lower) to R$5,895 million (Upper)
- 2015: R$5,302 million (Lower) to R$6,097 million (Upper)
Material Acquisitions
TAESA Acquisition: On June 2, 2011, CEMIG's affiliate TAESA signed agreements to acquire transmission assets from the Abengoa Group for approximately R$1.1 billion. This transaction is expected to increase TAESA's market share in Brazilian transmission from 6.5% to 8.6% and add over R$200 million to TAESA's EBITDA (based on 2010 figures).
Risks and Contingencies
- Regulatory Risk: The company faces potential risks regarding the non-renewal of concessions or the imposition of additional costs ("concessions for consideration").
- Legal Contingencies: Significant provisions exist for tax matters (ICMS, PIS, Cofins) and labor-law litigation. The company estimates that disbursements in excess of provisions will not materially affect financial position.
- Energy Scarcity: As a hydro-heavy generator, the company is exposed to rainfall variability, which could impact generation volumes and increase costs for purchasing energy on the spot market.
Investor Verification Checklist
- Debt Covenants: Verify compliance with the strategic plan targets: Debt/EBITDA < 2.0x and Net Debt/(Net Debt + Equity) < 40%.
- TAESA Transaction Closing: Monitor the status of regulatory approvals (ANEEL, CADE) and financing consent required to close the R$1.1 billion Abengoa acquisition.
- Tariff Adjustments: Confirm the impact of the April 2011 tariff adjustment for Cemig D (average increase of 6.04%) on future cash flows.
- Interest Rate Exposure: Review the sensitivity of financial results to increases in the Selic/CDI rates, given the high proportion of debt indexed to these rates.
- Dividend Payout: Confirm the receipt of the second portion of the 2010 dividends (R$598 million) scheduled for late June 2011.