Business Context and Reporting Period
This Form 6-K filing by Energy Company of Minas Gerais (Cemig) covers the period ending December 13, 2007, primarily reporting on the third quarter (3Q) and first nine months (9M) of 2007. The filing consolidates earnings releases for two wholly-owned subsidiaries: Cemig Distribuição S.A. (distribution) and Cemig Geração e Transmissão S.A. (generation and transmission). The company operates in Brazil's regulated electricity sector.
Key Financial Metrics
Cemig Distribuição S.A. (Distribution)
- Revenue (3Q07): R$ 2,210,887 thousand (7.81% increase vs. 3Q06).
- Net Income (3Q07): R$ 270,832 thousand (29.77% increase vs. 3Q06).
- EBITDA (3Q07): R$ 504,721 thousand (35.96% increase vs. 3Q06).
- EBITDA Margin (9M07): Increased to 30.48% from 22.58% in 9M06.
- Consumption: Total consumption was 5,154,248 MWh in 3Q07, up 1.82% year-over-year.
Cemig Geração e Transmissão S.A. (Generation & Transmission)
- Revenue (3Q07): R$ 775,992 thousand (17.47% increase vs. 3Q06).
- Net Income (3Q07): R$ 243,783 thousand (25.06% increase vs. 3Q06).
- EBITDA (3Q07): R$ 479,817 thousand (31.61% increase vs. 3Q06).
- EBITDA Margin (9M07): Increased to 64.73% from 60.58% in 9M06.
- Key Driver: Revenue growth driven by a 46.24% increase in sales to other concession holders, including exports to Argentina.
Material Changes vs. Prior Period
- Tariff Adjustments: Both subsidiaries benefited from tariff adjustments effective April 8, 2007 (average 5.16% impact) and April 8, 2006 (full effect in 2007).
- Operational Efficiency: Cemig Distribuição reported a 5.00% reduction in operational costs (excluding depreciation) in 9M07, contributing to margin expansion.
- Financial Results: Net financial results improved significantly due to the appreciation of the Brazilian Real against the US Dollar (4.53% in 3Q07 vs. depreciation in 3Q06), resulting in lower foreign currency expenses.
- Regulatory Assets: An Aneel audit identified a regulatory asset (CVA) on energy purchases, providing a positive impact of R$ 30,793 thousand to Cemig Distribuição.
- Cost Deductions: Deductions for the Fuel Consumption Account (CCC) decreased significantly (approx. 50% in 3Q07) due to lower thermal plant operation costs passed through to tariffs.
Guidance, Outlook, and Material Events
- Debt Issuance (Cemig Distribuição): The Board authorized a Second Public Issue of non-convertible, unsecured debentures totaling R$ 400 million. The issue has a 10-year maturity (2017), IPCA-indexed principal, and interest capped at 7.96% per annum. Proceeds are intended to settle promissory notes.
- Commercial Paper (Cemig Geração e Transmissão): The Board authorized a Second Issue of Commercial Paper (Promissory Notes) totaling R$ 200 million with a 180-day maturity. Proceeds will replenish cash used for debt payments (including R$ 143 million to BNDES) and pay debts due by year-end.
- Strategic Investments: The Board approved participation in tenders for the Santo Antônio Hydroelectric Project (Rio Madeira Complex) and feasibility studies for wind farms in Minas Gerais and Espírito Santo.
- Asset Sale: Cemig received regulatory consent to finalize the sale of 100% of its stake in WAY TV Belo Horizonte S.A. to TNL PCS Participações S.A. for R$ 132 million, with settlement occurring in November 2007.
- Corporate Governance: Cemig was selected for the São Paulo Stock Exchange's Corporate Sustainability (ISE) Index for the third consecutive year.
Investor Verification Checklist
- Debt Structure: Verify the final interest rate and closing of the R$ 400 million debenture issue and the R$ 200 million commercial paper issue.
- Regulatory Risks: Monitor Aneel decisions regarding tariff adjustments and the treatment of non-controllable costs (CCC, CDE, RGR).
- FX Exposure: Assess the impact of continued Real appreciation on foreign currency-denominated debt and financial results.
- Project Execution: Track the progress of the Santo Antônio Hydroelectric Project tender and the Irapé plant startup impacts on depreciation.
- Operational Costs: Confirm the sustainability of the reported 5% reduction in operational costs for the distribution subsidiary.