Business Context and Reporting Period
Company: Energy Company of Minas Gerais (Cemig)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Full Year 2011 and Fourth Quarter 2011
Filing Date: April 12, 2012
Cemig is a Brazilian integrated electricity utility operating in generation, transmission, and distribution. The filing reports record-breaking financial results for 2011, driven by a strategy of growth through acquisitions and new projects. The company operates primarily in the state of Minas Gerais but has expanded its transmission portfolio nationally. The results are reported under International Financial Reporting Standards (IFRS).
Key Financial Metrics
| Metric (R$ '000) | 2011 Full Year | 2010 Full Year | Change % |
|---|---|---|---|
| Net Revenue | 15,814,000 | 13,846,000 | 14% |
| EBITDA | 5,351,000 | 4,542,000 | 18% |
| Net Income | 2,416,000 | 2,257,000 | 7% |
| Electricity Sold (GWh) | 70,178 | 66,255 | 6% |
| Dividends Allocated | >2,000,000 | N/A | N/A |
Fourth Quarter 2011 Highlights:
- EBITDA: R$ 1.29 billion (up 20% vs. 4Q10).
- Net Income: R$ 710 million (up 6% vs. 4Q10).
- Electricity Sales: 17,848 GWh (up 2% vs. 4Q10).
Liquidity and Debt:
- Cash and Equivalents (End of 2011): R$ 2.86 billion.
- Net Debt (Light subsidiary only): R$ 3.38 billion (Net Debt/EBITDA of 2.9x).
- Consolidated Debt: Current loans and financings were R$ 4.38 billion; Non-current loans and financings were R$ 5.36 billion.
Material Changes vs. Prior Period
- Revenue Growth: Net revenue increased 14% year-over-year, driven by a 6% increase in electricity sales volume and tariff adjustments (Cemig D tariff adjustment of 10.47% and Light adjustment of 6.57%).
- EBITDA Expansion: EBITDA grew 18% to a record R$ 5.35 billion. This was supported by higher sales activity and improved operational performance.
- Financial Expenses: Net financial expenses increased 28% to R$ 1.06 billion, primarily due to higher interest rates (Selic rate) and increased loan volumes to fund acquisitions and investments.
- Operational Costs: Total operating expenses rose 12% to R$ 11.4 billion. Notable increases included electricity bought for resale (15%) and operational provisions (87%), the latter driven by higher provisions for doubtful receivables and legal actions.
- Acquisitions: The consolidation of Abengoa assets by Taesa in December 2011 expanded the transmission network to over 10,000 km, making Cemig the third-largest transmission group in Brazil (13% market share by RAP).
Guidance, Outlook, and Management Commentary
Management Commentary:
- Management described 2011 as a "landmark" year with the highest net income in the company's 60-year history.
- Share price appreciation was significant: Common shares (ON) rose 48.6% and Preferred shares (PN) rose 37.2% in 2011.
- Dividend yields were 14% for common shares and 11% for preferred shares.
Strategic Outlook and Transactions:
- Capital Increase: The Board proposed a 25% stock dividend, increasing registered capital from R$ 3.41 billion to R$ 4.27 billion via capitalization of retained earnings.
- Dividend Proposal: Allocation of R$ 1.29 billion in dividends (50% mandatory + complementary) to be paid in two installments in 2012.
- Restructuring Study: Cemig is studying the transfer of certain transmission stockholdings (ECTE, ERTE, ENTE, ETEP, EATE, EBTE) to its affiliate Taesa to consolidate the transmission sector.
- Public Offering: Taesa has retained advisers to assess a potential public offering of units to meet free float requirements.
- Consortia: Approved formation of consortia with CPFL Energia and EDP-Energias do Brasil to bid for new hydroelectric concessions (São Manoel and Sinop).
Risks and Contingencies:
- Regulatory: Tariff adjustments are subject to ANEEL approval; financial components of tariffs are temporary.
- Legal: Significant provisions were made for legal actions and doubtful receivables.
- Market: Exposure to interest rate fluctuations (Selic) and inflation indices (IGP-M, IPCA) affecting debt costs and revenue indexing.
Investor Verification Checklist
- Dividend Payout Dates: Verify the exact payment dates for the proposed R$ 1.29 billion dividend (proposed June 30 and December 30, 2012).
- Stock Dividend Implementation: Confirm the record date and trading date for the 25% stock dividend and the capitalization of R$ 853 million in reserves.
- Transmission Restructuring: Monitor the progress of the study to transfer transmission assets to Taesa and the potential impact on Cemig's consolidated revenue and asset base.
- Taesa IPO: Track the outcome of Taesa's assessment for a public offering and its impact on Cemig's ownership structure and liquidity.
- Debt Servicing: Review the impact of rising interest rates on future financial expenses, given the 28% increase in 2011.
- Light Subsidiary Performance: Note that Light's EBITDA margin declined to 20.2% (from 26.6% in 2010) due to higher purchased electricity costs; monitor future margin recovery.