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 2011 (2Q11) results presented in September 2011.
Business Overview: Cemig operates in electricity generation, distribution, and transmission in Brazil. The company maintains a balanced portfolio across these three segments and is expanding its presence in the Free Market and alternative energy sources.
Key Financial Metrics (2Q11)
| Metric | 2Q2011 (R$ million) | 2Q2010 (R$ million) | Change |
|---|---|---|---|
| Net Revenue | 3,820 | 3,431 | +11% |
| EBITDA | 1,267 | 1,057 | +20% |
| Net Income | 523 | 407 | +29% |
Debt and Liquidity (as of June 2011):
- Total Debt: R$ 13,879 million
- Net Debt: R$ 3,360 million
- Cash Position: R$ 3 billion (approximate based on cash at end of period)
- Net Debt / EBITDA (LTM): 2.10x
- EBITDA / Interest (LTM): 3.92x
- Average Real Cost of Debt: 7.3%
Material Changes vs. Prior Period
- Revenue Growth: Net revenue increased 11% driven by a balanced portfolio, increased grid use revenue from transmission holdings, and a R$ 47 million increase in natural gas revenue (Gasmig).
- Profitability: EBITDA grew 20% and Net Income grew 29%, supported by operational efficiency programs and cost reductions (personnel expenses reduced).
- Sales Volume: Consolidated sales volume increased 1%. Sales to final consumers rose 6.4% due to economic expansion, though total sales were impacted by a reduction in overcontracting in the CCEE (spot market).
- Strategic Acquisitions: Light (Cemig's distribution subsidiary) increased generation capacity by 54.3% via a 26.2% stake in Renova. Taesa (transmission) expanded its line portfolio to 5,173km through a partnership with Abengoa.
Guidance, Outlook, and Management Commentary
Management Commentary:
- Operational Efficiency: Management highlights "excellence in operational efficiency" and rapid approach to optimum performance levels.
- Market Position: Cemig leads the Free Market with a 25% share. The company aims for a long-term target of 20% market share across various electricity segments.
- Investment Program: Planned investments for 2011 total R$ 2,295 million, with R$ 1,156 million planned for 2012. Key areas include "P1" projects, generation, transmission, and acquisitions.
- Dividends: The Board approved the allocation of 53% of 2010 net income for dividends, equivalent to R$ 1.75 per share.
- Hydrological Conditions: Results depend on hydrological conditions affecting hydroelectric generation.
- Regulatory Environment: Subject to Brazilian regulatory changes (ANEEL) and tariff adjustments.
- Macroeconomic Factors: Exposure to Brazilian and international economic conditions and financial market volatility.
In response to a CVM inquiry regarding press reports of negotiations for a stake in the Belo Monte Power Plant, Cemig confirmed there are no negotiations in progress regarding a direct holding in the project.
Important Facts for Investor Verification
- Sustainability Recognition: Verify Cemig's inclusion in the Dow Jones Sustainability Index (12th consecutive year) and the Brazil Carbon Efficient Index (2nd consecutive year).
- Debt Profile: Confirm the average tenor of debt (3.5 years) and the mix of indexors (60% FINEL/RGR, 15% Dollar, 12% CDI).
- Strategic Expansion: Monitor the integration of the Abengoa stake in Taesa and the Renova acquisition by Light for projected EBITDA contributions.
- Regulatory Assets: Review the status of the Deferred Tariff Adjustment (RTD) and Extraordinary Tariff Restatement (RTE) mentioned in the glossary as potential regulatory assets.