Business Context and Reporting Period
This Form 6-K filing by Companhia Energética de Minas Gerais (CEMIG) covers the month of December 2010. The filing aggregates various corporate announcements, board meeting summaries, and restated quarterly financial results for the third quarter ended September 30, 2010. CEMIG operates as a holding company with primary subsidiaries in electricity generation and transmission (Cemig GT) and distribution (Cemig D). The company is listed on the São Paulo, New York, and Madrid stock exchanges.
Key Financial Metrics (Restated Q3 2010)
The filing includes restated consolidated financial results for the nine-month period ended September 30, 2010 (9M10), and the third quarter (3Q10). Figures are in Brazilian Reais (R$).
| Metric | 9M 2010 (Consolidated) | 9M 2009 (Consolidated) | 3Q 2010 (Consolidated) | 3Q 2009 (Consolidated) |
|---|---|---|---|---|
| Net Operational Revenue | R$ 9,047,835,000 | R$ 8,322,636,000 | R$ 3,183,177,000 | R$ 2,988,939,000 |
| Net Profit for the Period | R$ 1,263,059,000 | R$ 1,427,074,000 | R$ 553,320,000 | R$ 567,038,000 |
| EBITDA | R$ 3,011,142,000 | R$ 2,888,413,000 | R$ 1,187,899,000 | R$ 1,072,505,000 |
| Adjusted EBITDA | R$ 3,355,627,000 | R$ 3,124,043,000 | R$ 1,184,512,000 | R$ 1,082,710,000 |
| Total Debt (Loans, Financings, Debentures) | R$ 12,783,973,000 | R$ 12,652,960,000 (6M10) | N/A | N/A |
| Cash and Cash Equivalents | R$ 4,178,835,000 | R$ 3,754,516,000 (6M10) | N/A | N/A |
Note: The filing does not provide a specific "margin" percentage, but EBITDA margin for 9M10 was 33.28% compared to 34.71% in 9M09.
Material Changes vs. Prior Period
- Net Profit Decline: Consolidated net profit for 9M10 decreased by 11.49% compared to 9M09. This was primarily driven by a significant increase in net financial expenses (from R$ 81.3M in 9M09 to R$ 433.3M in 9M10) due to higher interest rates and new financings, partially offset by higher operational revenue.
- Revenue Growth: Net operational revenue increased by 8.71% in 9M10, driven by a 5.17% increase in energy volume sold to final consumers and tariff adjustments.
- EBITDA Growth: Adjusted EBITDA increased by 7.41% year-over-year, reflecting operational improvements and the consolidation of assets acquired in late 2009 (Taesa and Lightger).
- Dividend Payments: In December 2010, CEMIG paid the second installment of 2009 dividends (R$ 465.35M) and declared an extraordinary dividend of R$ 900M (R$ 1.32 per share), payable in late December 2010.
Guidance, Outlook, and Management Commentary
- Strategic Acquisitions: Management highlighted the positive contribution of companies acquired in 2009 (Taesa and Lightger) to the 2010 results. The company also authorized participation in the Aneel Auction 04/2010 for the Teles Pires Hydroelectric Project.
- Sustainability Ratings: CEMIG was included in Brazil's new Carbon Efficiency Index (ICO2) and maintained its position in the Corporate Sustainability Index (ISE) for the 6th consecutive year. Oekom Research awarded CEMIG a "Prime" sustainability rating for the second year running.
- Regulatory Environment: The company noted the impact of the Second Transmission Tariff Review, which resulted in a negative repositioning of -15.88%, reducing revenue by R$ 64.6M in 2010. Conversely, the First Tariff Review in 2009 had a positive impact of R$ 158M.
- Corporate Governance: The Board approved alterations to the Bylaws and authorized the issuance of commercial promissory notes up to R$ 500M to replenish cash positions following 2010 investments.
Risks and Contingencies
- Legal Contingencies: The company faces various legal proceedings regarding tax obligations (PIS, Cofins, ICMS), labor laws, and civil disputes. Provisions for "probable" losses totaled R$ 363M (consolidated) as of September 30, 2010. A significant settlement with an industrial consumer regarding tariff increases from the 1986 Cruzado Plan resulted in a R$ 177.6M expense.
- Regulatory Risk: Risks include the non-renewal of concessions or the imposition of additional costs ("concessions for consideration") by regulators (Aneel/Ministry of Mining and Energy).
- Financial Risks: The company is exposed to exchange rate fluctuations (USD/EUR) and interest rate variations (CDI/Selic). Sensitivity analysis indicates potential negative impacts on results from currency depreciation and interest rate hikes.
- Energy Scarcity: As a hydroelectric-dependent utility, prolonged droughts could reduce reservoir levels, increasing costs for purchasing electricity or necessitating rationing programs.
Key Facts for Investor Verification
- Dividend Entitlement: Verify share registry dates for the R$ 900M extraordinary dividend (Record date: Dec 16, 2010; Payment: Dec 29, 2010).
- Debt Covenants: Confirm compliance with restrictive covenants on loans and financings, specifically debt-to-EBITDA ratios and debt service coverage indices, which were compliant as of September 30, 2010.
- Restated Results: Note that the Q3 2010 results were restated in December 2010 to correct accounting classifications and reclassifications related to the "Emergency Acquisition Charge" and regulatory assets.
- State Ownership: The State of Minas Gerais remains the controlling shareholder (approx. 50.97% of voting stock), while AGC Energia S.A. holds approx. 32.96% of voting stock.
- Accounting Standards: The financial statements are prepared under Brazilian accounting practices (CVM/CPC) and have not yet fully adopted IFRS for concession contracts (ICPC 01), which may impact future asset/liability recognition.