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 2014 (ended June 30, 2014)
Filing Date: August 22, 2014
Business Overview: Cemig is a Brazilian utility company operating in electricity generation, transmission, and distribution, as well as natural gas distribution. The filing includes board meeting minutes, material announcements regarding acquisitions, and detailed financial results for 2Q14.
Key Financial Metrics (2Q14)
| Metric (R$ '000) | 2Q14 | 2Q13 | Change % |
|---|---|---|---|
| Net Revenue | 4,737,758 | 3,438,990 | 37.77% |
| Ebitda (IFRS) | 1,576,907 | 1,252,406 | 25.91% |
| Net Profit | 740,874 | 617,238 | 20.03% |
| Total Debt (as of June 30, 2014) | 11,554,000 | 14,830,000* (Dec 31, 2013) | (22.17%) |
| Cash Position | 3,200,000 (approx.) | N/A | N/A |
*Debt comparison based on text stating 22.17% reduction from Dec 31, 2013.
Material Changes vs. Prior Period
- Revenue Growth: Net revenue increased 37.77% year-over-year, driven primarily by a 259.41% surge in sales on the CCEE (wholesale market) due to higher spot prices and increased availability of supply.
- Profitability: Net profit rose 20.03% to R$ 741 million. Adjusted net profit (excluding non-recurring items) increased 45.11%.
- Cost Increases: Operational costs rose 34.30%, largely due to a 43.58% increase in electricity purchased for resale, attributed to low hydroelectric reservoir levels forcing purchases in the expensive spot market.
- Debt Reduction: Consolidated total debt decreased by 22.17% compared to the end of 2013.
- Share Performance: Cemig shares significantly outperformed the Ibovespa index in 2Q14, with preferred shares rising 29.53% and common shares rising 27.58% year-to-date.
Guidance, Outlook, and Material Events
Strategic Acquisitions and Investments
- Gasmig Acquisition: Cemig signed an agreement to acquire a 40% equity interest in Gasmig (natural gas distribution) from Petrobras for R$ 600 million. This is part of a strategy to create "Gás Natural do Brasil" (GNB) in partnership with Gas Natural Fenosa. The deal is subject to regulatory approval (CADE) and state consent.
- Wind Farm Participation: Cemig GT signed an agreement to acquire a 50% interest in a project to build 25 wind farms in Bahia (Jacobina Project) with Renova Energia. The maximum acquisition value is approximately R$ 113.5 million.
- Corporate Structure: The Board approved the creation of a wholly-owned subsidiary, "Cemig Participações Minoritárias S.A." (CemigPar), to hold minority interests in energy and telecom companies.
Legal and Regulatory Contingencies
- Jaguara Plant Concession: The judgment on the extension of the concession for the Jaguara Hydroelectric Plant at Brazil's Higher Appeal Court (STJ) was adjourned again on August 14, 2014. An interim injunction remains in force, allowing Cemig to continue operating the plant pending the final decision.
- Regulatory Assets: The filing notes that regulatory assets and liabilities are no longer recorded on the balance sheet under IFRS but are recognized in the P&L upon tariff inclusion. Adjusted Ebitda including these items was R$ 1.86 billion.
Management Commentary
Management highlighted robust cash flow generation and a solid balance sheet enabling the execution of the Long-term Strategic Plan. The CEO emphasized the strategic importance of the Gasmig acquisition and the wind farm project for diversifying the portfolio. The CFO noted that despite higher operational costs due to hydrological conditions, the company maintained strong profitability and liquidity.
Key Facts for Investor Verification
- Regulatory Approvals: Verify the status of CADE (monopolies authority) and State of Minas Gerais approvals for the R$ 600 million Gasmig acquisition.
- Hydrological Risk: Monitor reservoir levels and spot market prices, as low rainfall significantly increased electricity purchase costs in 2Q14.
- Jaguara Plant Litigation: Track the resumption date of the STJ judgment regarding the Jaguara Hydroelectric Plant concession extension.
- Debt Profile: Confirm the sustainability of the debt reduction trend and the impact of new acquisitions on leverage ratios.
- Dividend Policy: Review the company's commitment to distributing 50% of net profit as obligatory dividends and the potential for extraordinary dividends from retained earnings.