Business Context and Reporting Period
This Form 6-K filing by Energy Company of Minas Gerais (CEMIG) covers material events and financial results for the period ending June 11, 2019. The filing aggregates minutes from Board and Stockholder meetings held in March and May 2019, material announcements regarding corporate actions and acquisitions, and the consolidated financial results for the first quarter of 2019 (1Q19).
Key Financial Metrics (1Q19)
| Metric | 1Q19 Value | 1Q18 Value | Change (%) |
|---|---|---|---|
| Net Revenue | R$ 5,913 million | R$ 4,935 million | +19.81% |
| EBITDA | R$ 1,461 million | R$ 1,007 million | +45.10% |
| Net Profit | R$ 797 million | R$ 465 million | +71.60% |
| EBITDA Margin | 24.71% | 20.41% | +4.30 p.p. |
| Net Debt | R$ 12,748 million | R$ 13,069 million | -2.45% |
| Electricity Sold (GWh) | 13,758 | 12,954 | +6.21% |
Dividends: Stockholders approved the allocation of R$ 867 million from 2018 net profit as minimum obligatory dividends, comprising R$ 210 million in Interest on Equity and R$ 657 million in cash dividends.
Material Changes and Corporate Actions
- Merger Completion: On April 24, 2019, CEMIG completed the absorption of its wholly-owned subsidiaries, Rio Minas Energia Participações S.A. (RME) and Luce Empreendimentos e Participações S.A. (Lepsa).
- Asset Sales: Affiliated company Renova signed an agreement to sell the Alto Sertão III wind farm complex to AES Tietê for approximately R$ 440 million (R$ 350m for Phase A and R$ 90m for Phase B), with an option for up to R$ 76 million for development projects.
- Acquisitions: Affiliated company Taesa concluded the acquisition of 23.0355% of Empresa de Transmissão do Alto Uruguai S.A. (ETAU) for R$ 32.9 million and acquired additional stakes in Brasnorte and Transmineiras companies via Eletrobras Auction 01/2018.
- Shareholder Changes: Itaú funds reduced their total holding of common shares (ON) to 4.375% (below the 5% threshold). BNDESPar notified the exercise of a tag-along right to sell its 5.01% holding in Renova to CEMIG GT.
- Management Changes: The Board elected Paulo Mota Henriques as Chief Generation and Transmission Officer. The Executive Board was restructured, reducing the number of officers from eleven to seven.
Guidance, Outlook, and Risks
Guidance (2019-2023): Management presented guidance projecting consolidated EBITDA growth, with 2019 EBITDA estimated at R$ 5,239 million. The Net Debt/Corporate EBITDA ratio is projected to improve from 3.48x in 2018 to 1.94x by 2020.
Operational Outlook:
- Tariffs: The 2019 annual tariff adjustment resulted in an average increase of 8.73%, driven primarily by non-manageable energy costs (7.49%) and charges (2.03%).
- Hydrology: Reservoir storage levels in 2019 have improved compared to the adverse conditions of 2017-2018, reducing the need for expensive thermal generation.
- Efficiency: CEMIG D (Distribution) reported its best-ever operational efficiency result in 2018, with 2019 Opex expected to be fully compliant with regulatory benchmarks.
Risks and Contingencies:
- Light S.A. IPO: Light S.A., a major subsidiary, is considering a primary public offering of shares to reduce indebtedness. Proceeds and timing are subject to market conditions.
- Default Rates: While residential default rates decreased by 12% in 1Q19, the company maintains a robust disconnection plan to combat economic instability.
- Regulatory: Tariff adjustments remain subject to regulatory approval and hydrological conditions affecting the "Flag" tariff system.
Investor Verification Checklist
- Verify the final terms and closing date of the Light S.A. primary public offering.
- Confirm the settlement of the Renova wind farm sale to AES Tietê and the assumption of the R$ 988 million debt by the buyer.
- Monitor the execution of the 2019-2023 investment plan, particularly the R$ 6.458 billion capex for CEMIG D.
- Track the impact of the 2019 tariff adjustment on consumer demand and collection rates.
- Review the status of the tag-along sale of BNDESPar's stake in Renova to CEMIG GT.