CIG

Business Context and Reporting Period

Company: Energy Company of Minas Gerais (Cemig)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: First Quarter 2011 (January 1 – March 31, 2011)
Filing Date: May 19, 2011

Cemig is a Brazilian electricity utility operating in generation, transmission, and distribution. The filing reports Q1 2011 consolidated results, highlighting a strategy of growth through acquisitions and operational efficiency. The company operates in a regulated environment in Brazil, with significant exposure to the state of Minas Gerais.

Key Financial Metrics (Q1 2011)

Debt and Liquidity (as of March 31, 2011):

• Total Debt: R$ 13,317 million
• Net Debt: R$ 10,584 million
• Net Debt / EBITDA (LTM): 2.27x
• EBITDA / Interest (LTM): 4.07x
• Net Debt / (Equity + Net Debt): 46.9%

Material Changes vs. Prior Period

• Revenue Growth: Net revenue increased 18% year-over-year, driven by a 16% increase in electricity sales volume (17,981 GWh vs. 15,518 GWh) and higher transmission revenue following the acquisition of Taesa.
• Cost Increases: Operating expenses rose 21%, primarily due to a 50% increase in electricity bought for resale (linked to higher sales volume) and increased outsourced services for maintenance.
• Financial Expenses: Net financial expenses increased 119% to R$ 283 million, attributed to higher interest rates (Selic rate increases) and new financings obtained in late 2010.
• Segment Performance:
  • Generation (Cemig GT): Net income R$ 206 million; EBITDA R$ 571 million.
  • Distribution (Cemig D): Net income R$ 143 million; EBITDA R$ 388 million.
  • Transmission (Taesa): Contributed R$ 75 million to consolidated EBITDA.

Guidance, Outlook, and Material Events

Strategic Acquisitions:

• Redentor Energia: On May 12, 2011, Cemig's affiliate Parati S.A. acquired control (54.08%) of Redentor Energia S.A. for approximately R$ 403 million. This acquisition increases Cemig's total stake in Light S.A. to 27.82%.
• Light S.A. Stake: The company now holds 26.06% directly and 1.76% indirectly in Light.

Management Commentary:

• Management describes the results as "exceptional," reflecting the success of the long-term strategic plan focused on balanced growth and operational efficiency.
• The company maintains a robust cash position (R$ 2.7 billion) to support dividends, debt servicing, and investments.
• Dividend policy: 53% of 2010 net income was approved for distribution, with a yield of 6% (Preferred) and 8% (Common) as of April 28, 2011.

Risks and Contingencies:

• Regulatory: Tariff adjustments are subject to ANEEL (regulator) approval. The third tariff review cycle for Cemig D and Light SESA is scheduled for 2013.
• Hydrological: Results are sensitive to hydrological conditions affecting hydroelectric generation.
• Interest Rates: Financial results are impacted by the Brazilian Selic rate and inflation indices (IGP-M, IPCA).

Key Facts for Investor Verification

• Acquisition Integration: Verify the integration progress and synergy realization from the Redentor Energia acquisition and the increased stake in Light S.A.
• Debt Servicing: Monitor the impact of rising interest rates on financial expenses and the company's ability to maintain its debt ratios (Net Debt/EBITDA target of 43% for 2011).
• Regulatory Assets: Confirm the status of regulatory assets and liabilities, particularly regarding the Fuel Consumption Account (CCC) and Energy Development Account (CDE), which are non-controllable costs passed through to tariffs.
• Dividend Payout: Verify the actual cash flow availability for the approved 2010 dividend distribution (R$ 1.75 per share).
• Operational Efficiency: Track the effectiveness of cost reduction programs, specifically regarding personnel expenses (which decreased 4% YoY) versus rising outsourced service costs.