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 and First Half ended June 30, 2013
Filing Date: October 7, 2013
Business Overview: Cemig is a Brazilian holding company operating in electricity generation, transmission, and distribution, as well as gas and telecommunications. The company is listed on the NYSE, BM&F Bovespa, and Madrid Stock Exchange.
Key Financial Metrics (Consolidated)
Figures in Brazilian Reais (R$) thousands, unless otherwise noted.
| Metric | 1H 2013 | 1H 2012 (Re-presented) | 2Q 2013 | 2Q 2012 (Re-presented) |
|---|---|---|---|---|
| Revenue | 7,116,584 | 6,655,043 | 3,438,990 | 3,463,114 |
| Net Profit | 1,482,585 | 1,235,620 | 617,238 | 604,232 |
| Ebitda | 2,843,135 | 2,454,487 | 1,252,406 | 1,214,173 |
| Cash and Cash Equivalents (June 30, 2013) | 1,630,058 | 1,919,125 (Dec 31, 2012) | - | - |
| Total Debt (Loans, Financings, Debentures) | 9,463,183 | 10,415,793 (Dec 31, 2012) | - | - |
| Stockholders' Equity (June 30, 2013) | 12,408,516 | 11,549,996 (Dec 31, 2012) | - | - |
| Profit Per Share (Basic & Diluted) | R$ 1.54 | R$ 1.28 | R$ 0.64 | R$ 0.63 |
Material Changes vs. Prior Period
- Profit Growth: Net profit for the first half of 2013 increased by 19.99% compared to the same period in 2012. This was driven by a 6.94% increase in operational revenue and a significant one-time gain.
- Asset Disposal Gain: The company recorded a net gain of R$ 284,298 thousand from the disposal of its equity interest in the TBE Group (transferred to Taesa) in May 2013.
- Revenue Drivers: Revenue from transactions in the spot market (CCEE) increased by 274.25% due to higher spot prices resulting from low hydroelectric reservoir levels. Conversely, revenue from captive consumers decreased due to tariff reductions mandated by Law 12,783.
- Cost Increases: Personnel expenses rose 25.26% primarily due to a R$ 112 million provision for the PID Incentive Retirement Program. Electricity purchase costs increased 17.45% due to higher market prices and exchange rate depreciation.
- Regulatory Relief: Sector charges (deductions from revenue) decreased by 21.36% due to exemptions from the Fuel Consumption Account (CCC) and Global Reversion Reserve (RGR) under new legislation.
Guidance, Outlook, Risks, and Unusual Items
- Legal Contingencies (Jaguara Plant): The Mining and Energy Ministry refused to extend the concession for the Jaguara Hydroelectric Plant. However, the Superior Court of Justice (STJ) granted an interim injunction allowing Cemig to continue operating the plant until a final judgment is reached.
- Debt Covenants: The subsidiary Cemig D was non-compliant with certain restrictive covenants (Debt/Ebitda and Debt/Equity ratios) as of June 30, 2013. Creditors granted a waiver on June 28, 2013, preventing early maturity of debt until June 30, 2014.
- Tariff Adjustments: The Third Tariff Review for Cemig D resulted in an average tariff increase of 2.99% effective April 8, 2013. Management expects further adjustments following appeals to the regulator (Aneel).
- Investment Activity: Cemig GT signed an investment agreement to enter the controlling block of Renova Energia S.A. and structured a vehicle for growth with Chipley SP Participações S.A.
- Rescission of Concession: The company applied to rescind the concession contract for the Itaocara Hydroelectric Plant due to environmental obstacles and the inability to maintain financial equilibrium after the Ministry refused to alter the concession period.
Key Facts for Investor Verification
- Accounting Restatements: Comparative figures for 2012 have been re-presented due to the adoption of new accounting standards (CPC 33/IAS 19 for employee benefits and CPC 19/IFRS 11 for joint arrangements).
- One-Time Gain Impact: Verify the sustainability of earnings by excluding the R$ 284 million gain from the TBE asset transfer when analyzing operational performance.
- Hydrological Risk: Monitor the impact of low reservoir levels on spot market prices and the associated government compensation mechanisms (CDE funds).
- Debt Covenant Compliance: Confirm the status of the waiver obtained by Cemig D and monitor future compliance with Debt/Ebitda ratios.
- Regulatory Appeals: Track the outcome of appeals filed with Aneel regarding the Regulatory Remuneration Base (BRR) for the distribution subsidiary.