Business Context and Reporting Period
This Form 6-K filing by Energy Company of Minas Gerais (CEMIG) covers the period ending June 13, 2012. The filing primarily serves to disclose the results of several Board of Directors meetings held between May and June 2012, announce the first dividend payment for the 2011 fiscal year, and include the company's full 2011 Annual Report. CEMIG is a Brazilian mixed-ownership utility company controlled by the State of Minas Gerais, operating in electricity generation, transmission, distribution, and natural gas.
Key Financial Metrics (2011 Full Year)
The filing includes the audited consolidated financial statements for the year ended December 31, 2011. Key metrics are as follows:
- Net Profit: R$ 2.415 billion (an increase of 6.95% from 2010).
- Net Operating Revenue: R$ 15.814 billion (an increase of 14.21% from 2010).
- EBITDA: R$ 5.351 billion (an increase of 17.79% from 2010).
- Cash Flow from Operations: R$ 3.898 billion.
- Dividends Paid: R$ 2.036 billion in 2011 (including R$ 850 million in extraordinary dividends).
- Total Debt: R$ 15.779 billion (consolidated loans, financings, and debentures).
- Cash and Cash Equivalents: R$ 2.862 billion as of December 31, 2011.
Material Changes and Board Decisions
Several significant corporate actions were approved by the Board of Directors during the reporting period:
- Asset Restructuring: The Board authorized the transfer of minority equity interests in the TBE Group transmission companies to Transmissora Aliança de Energia Elétrica S.A. (Taesa). Taesa agreed to disburse approximately R$ 1.732 billion (R$ 1.668 billion to CEMIG and R$ 64.1 million to CEMIG GT) for this transaction.
- CRC Account Settlement: The Board approved a Term of Agreement for the full settlement of the CRC Account Balance with the State of Minas Gerais and the CEMIG FIDC. This agreement provides for a 35% discount on the updated debtor balance in exchange for early payment.
- Guarantees: CEMIG signed guarantees for financing contracts involving Norte Energia S.A. (Belo Monte project) and a loan of R$ 200 million contracted by CEMIG D with Banco do Brasil.
- By-Law Covenant Ratification: The Board submitted a proposal to stockholders to ratify the 2011 exceedance of financial covenants. The consolidated Net Debt/(Net Debt + Equity) ratio reached 52.4% (limit 40%), and Capex/EBITDA reached 71.7% (limit 40%), primarily due to a R$ 3.8 billion increase in debt to fund the investment program.
Guidance, Outlook, and Risks
Outlook and Forecasts: The filing includes financial forecasts for 2012-2016 presented at the 17th CEMIG-APIMEC Annual Meeting. Key assumptions include a GDP growth of 4.4% and an average SELIC rate of 11% for 2012. Management expects EBITDA to grow, driven by tariff adjustments and new transmission assets, though a tariff review in 2013 may reduce transmission revenue due to a new WACC adoption.
Risks and Contingencies:
- Covenant Compliance: As of December 31, 2011, the company was not in compliance with three financial covenants (Debt/EBITDA, Current Debt/EBITDA, and Debt/Equity ratios). However, the company obtained consent from creditors not to demand immediate payment.
- Regulatory Risk: The renewal of generation, transmission, and distribution concessions is expected to be defined by the Federal Government in 2012. Non-renewal or onerous renewal terms could adversely impact profitability.
- Hydrological Risk: As a hydro-dependent utility, prolonged drought could reduce reservoir levels and compromise revenue recovery.
- Legal Contingencies: Significant provisions exist for labor claims, civil lawsuits (including personal injury and tariff increases), and environmental matters, totaling R$ 549.4 million in provisions as of year-end 2011.
Important Facts for Investor Verification
- Dividend Payment: Verify the receipt of the first 2011 dividend installment of R$ 0.9485 per share, scheduled for payment on June 27, 2012.
- CRC Settlement Impact: Monitor the execution of the CRC Account settlement agreement, which involves a 35% discount on the state debt and requires approval by the FIDC unit holders.
- Debt Refinancing: Confirm the successful issuance of R$ 1.35 billion in debentures by CEMIG GT in March 2012, used to redeem commercial promissory notes and strengthen working capital.
- Acquisition of Gasmig Stake: Verify the completion of the acquisition of a 4.38% stake in Gasmig from the State of Minas Gerais, subject to independent valuation and transfer conditions.
- Concession Renewal Criteria: Watch for the Federal Government's 2012 decision on concession renewal criteria, which will determine future tariff structures and profitability.