Business Context and Reporting Period
Company: Energy Company of Minas Gerais (CEMIG)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: June 2010 (covering events from April to June 2010)
Business Overview: CEMIG is Brazil's largest integrated energy company, operating in generation, transmission, and distribution. As of December 31, 2009, the group reported consolidated operating revenues of R$ 17.4 billion. The company is a mixed-economy entity controlled by the government of Minas Gerais (51% stake) and is listed on the NYSE, Bovespa, and Madrid Stock Exchange. Its generation matrix is 98% renewable, primarily hydroelectric.
Key Financial Metrics
Historical Performance (2009):
- Consolidated Operating Revenue: R$ 17.4 billion
- Net Profit: R$ 1.3 billion (Generation segment contributed R$ 1.3 billion; Distribution R$ 417 million; Transmission R$ 271 million)
- EBITDA: R$ 2.1 billion (Generation); R$ 1.2 billion (Distribution); R$ 517 million (Transmission)
- Dividends Paid (2005-2009): R$ 12.363 billion (exceeding 40% of current market cap)
- Total Debt: R$ 11.825 billion (Consolidated)
- Net Debt: R$ 7.330 billion
- Net Debt / EBITDA: 1.74x (Consolidated); 1.64x (Cemig GT); 2.62x (Cemig D)
- Net Debt / (Equity + Net Debt): 40.6% (Consolidated)
- Average Cost of Debt: 5.7% per annum (real terms)
- Cash Position (Q1 2010): R$ 4.495 billion at period end
- Scope 1 Emissions: 21,921 tonnes CO2e (90% reduction from 2008 due to reduced thermal plant operation)
- Scope 2 Emissions: 889 tonnes CO2e
- Emissions Intensity: 0.62 kg CO2e/MWh
Material Changes and Operational Updates
Legal Settlements:
- Rima Industrial S.A.: Reached a settlement agreement regarding a tariff adjustment dispute dating to 1986. CEMIG agreed to a debtor balance of R$ 85 million, to be paid via deduction from future electricity invoices. This resolved a long-standing legal impasse where the claimed amount had grown to approximately R$ 800 million with interest.
- Court Settlements: Board decisions in May 2010 authorized the signing of court settlements for both Cemig Distribuição and Cemig Geração e Transmissão.
- Debenture Issuance: Management confirmed the possibility of raising approximately R$ 600 million in debentures in the local market before the end of 2010 to maintain debt indicators within bylaw limits.
- Acquisitions and Investments: Acquired a 49% stake in three wind farms in Ceará (99.6 MW total capacity). Investing in the construction of two hydroelectric plants and six small hydroelectric plants (SHPPs) totaling 406 MW.
- Personnel Reduction: Implemented voluntary retirement programs (PPD and PDV). Employee count dropped from 10,818 in 2008 to 9,073 projected for 2010. Payroll costs reduced from R$ 87.3 million (2008) to a projected R$ 57.3 million (2010).
- Cost Savings: Operational Efficiency Program identified potential gains of approximately R$ 200 million.
Guidance, Outlook, and Risks
Financial Guidance (2010-2014):
- Consolidated EBITDA (R$ million, constant June 2010 prices):
- 2010: R$ 3,825 – R$ 4,400
- 2011: R$ 4,773 – R$ 5,491
- 2012: R$ 4,832 – R$ 5,560
- 2013: R$ 4,483 – R$ 5,158
- 2014: R$ 4,879 – R$ 5,614
- Key Assumptions: GDP growth of 4.5% (2011-2014); Average Selic rate of 10.7% (2011-2014); Exchange rate of R$ 2.0/USD (end of period).
- Generation Mix: No construction of new thermoelectric plants planned for 2010-2013. Focus remains on hydroelectric expansion and renewable sources (wind, solar, biomass).
- Market Balance: Analysis of the Brazilian National Grid indicates a structural energy balance surplus through 2014, with potential deficits emerging post-2015 without new large-scale projects like Belo Monte.
- Climate Change: Identified risks include changes in precipitation patterns affecting hydroelectric generation (97% of capacity) and extreme weather events. Regulatory risks include potential carbon taxes and emissions trading schemes post-2012.
- Regulatory: Exposure to tariff adjustments and regulatory changes in the Brazilian energy sector.
- Forward-Looking Statements: Actual results may differ materially due to risks outlined in the most recent Form 20-F.
Investor Verification Checklist
- Debt Management: Verify the execution and terms of the proposed R$ 600 million debenture issuance to ensure compliance with bylaw debt limits.
- Settlement Impact: Confirm the accounting treatment and cash flow impact of the R$ 85 million Rima Industrial settlement.
- Hydrological Conditions: Monitor rainfall and reservoir levels in Minas Gerais and the Paraná River basin, given the company's 97% reliance on hydroelectric generation.
- Regulatory Tariffs: Track ANEEL decisions regarding tariff reviews, specifically the retroactive adjustments mentioned for transmission revenues.
- Acquisition Integration: Assess the progress and financial performance of recent wind farm acquisitions and SHPP projects.
- Dividend Policy: Review the declaration of Interest on Equity (R$ 51.8 million for Distribution; R$ 69.8 million for Generation) and its impact on future cash distributions.