Cemig: Growth and Prospects Brazil Day November 2003.
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Transcript of Cemig: Growth and Prospects Brazil Day November 2003.
A Melhor Energia do Brasil.
Cemig: Growth and Prospects
Brazil Day
November 2003
All figures comply with BRGAAP
2A Melhor Energia do Brasil.
Disclaimer
• Certain statements contained in this presentation are “Forward-Looking Statements” within the meaning of the US Securities Laws, and are thus prospective and subject to risks and uncertainties. “Forward-Looking Statements” are matters that are not historical facts and are beyond our control. For a discussion of risks and uncertainties as they relate to us, please refer to our 2002 Form 20F, and in particular Item 3 under “Key information - Risk Factors”.
All figures comply with BRGAAP
3A Melhor Energia do Brasil.
Key Issues
• Fundamentals• Strategic overview
– Growth and value creation
– Regulatory Review
• Projects
All figures comply with BRGAAP
4A Melhor Energia do Brasil.
Regulated Business Assets are the Major Part of CEMIG
Sá C arvalho
Ipatinga
H orizontes
U TE B arreiro
C em ig PC H
N on-regulatedInvestm ent
R $ 294 m illion
Pow er P lants
Transm ission G rid
D istribution N etw ork
Public Service
PPER $ 8.081 m illion
Pow er P lants under C onsortiaInvestm ent
R $ 755 m illion
Electric Energy
Investm entR $ 101 m illion
Natural GasDistribution
Investm entR $ 250 m illion
Telecommunication Efficientia
Cemig owns:• 100% of the electric energy business• 95% stake in Gasmig and• 99% stake in Infovias
Fundamentals
All figures comply with BRGAAP
5A Melhor Energia do Brasil.
Contribution by Business to value creation
Businesses Net Income
EBITDA
Cemig 797 1,188
Gasmig 18 25
Sá Carvalho 9 20
Ipatinga 2 7
Infovias (10) (2)
Efficientia (1) (1.3)
Horizontes Energia (1) 0.4
Total 813 1,238
Values in R$ million
9 months of 2003
1.622.39
3.04
0.21
2.61 3.01
-6.18
5.01
Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Sep-03
Earnings per share
Fundamentals
All figures comply with BRGAAP
6A Melhor Energia do Brasil.
Cemig Has a Low-risk Business Structure
Cost-efficient generating assets97% hydropower plant parkSupply 6 % of the total client demandHigh service continuityLowest operating cost in the industrySixth-largest generating capacity in Brazil
Installed Capacity: 5,771 MW, 7.01% market shareEffective capacity: 3,332 MWTransformer capacity: 6,240 MVA
Sizeable transmission gridCovers 100% of Minas Gerais
Installed transformer capacity: 15,163 MVA
Transmission grid length: 4,856 km
Fundamentals
All figures comply with BRGAAP
7A Melhor Energia do Brasil.
Cemig Has a Low-risk Business Structure
Monopoly in Natural Gas Distribution in State of Minas Gerais
414 million thousand m3 natural gas volume sold in 2002
157 industrial clients served
Distribution network : 161.8 Km
Fundamentals
Largest electricity distribution market share
Supplies 96% of electricity in MG5.7 million client baseSales represent 12.3% of country’s total electricity consumptionDistribution network length
Subtransmission: 16,207 kmUrban and rural distribution grid: 355,674 km
All figures comply with BRGAAP
8A Melhor Energia do Brasil.
Drivers of Value Creation at CEMIG
Drivers 1st Quarter 2nd Quarter Year to date
Operating Income (R$ million) 123 431 816
Retail Sale Revenue Growth (%) (55) 29 32
Free Cash Flow (R$ million) 278 197 292
WACC ( %) 14 14 14
Market Capitalization (R$ million) 3,671 3,901 4,771
EBITDA Margin (%) 24 28 31
Customer Satisfaction Index (%) 71.1 71.1 71.1
Sales to Final Consumer as % of Total Sales 91.1 91.1 91.1
Electricity Distribution Market Share (%) 12.15 12.15 12.15
Fundamentals
All figures comply with BRGAAP
9A Melhor Energia do Brasil.
A Profitable Quarter
Year to date 3rd Q. 2nd Q. 1st Q. Year to date 3rd Q. Year
Net Revenue 4,056 1,513 1,455 1,088 3,821 1,539 5,119
Operating Expenses (3,240) (1,127) (1,148) (965) (3,407) (1,490) (4,593)
EBIT 816 386 307 123 414 49 525
EBITDA 1,238 527 448 263 822 187 1,076
Financial Result 501 70 273 158 (757) (450) (616)
Non-Operating Result (24) (12) (3) (9) (21) (7) (27)
Extraordinary Loss - - - - (1,045) - (1,045)
Income Tax, Social Contribution and Deferred Income Tax (480) (166) (193) (121) 126 149 (71)
Interest on Capital Reversal - - - - 122 2 220
Minoritary Interest - - - - 10 1 12
Net Income 813 278 384 151 (1,151) (256) (1,002)
Statement of Income - Consolidated
Values in million of Reais
20022003
Fundamentals
All figures comply with BRGAAP
10A Melhor Energia do Brasil.
Retail Revenues Increased by 30%
31.5% tariff readjustment as of April 8, 2003 Charge for Emergency Capacity 0.8% increase in the volume of energy sold
Year to date 3rd Q. 2nd Q. 1st Q. Year to date 3rd Q. Year
Retail Sales 5,217 1,903 1,860 1,454 3,943 1,400 5,458
Extraordinary Revenues - - - - 269 8 275
Wholesale 50 20 26 4 489 439 534
Transmission Grid Revenue 191 68 65 58 134 54 185
Others 272 114 90 68 170 67 300 Deductions (1,674) (593) (585) (496) (1,184) (428) (1,633)
Net Revenues 4,056 1,512 1,456 1,088 3,821 1,540 5,119
2003 2002
Fundamentals
All figures comply with BRGAAP
11A Melhor Energia do Brasil.
Consolidated Retail Sales as of September 30, 2003
Category 2003/2002 %
Retail 0.8
Residential 4.0
Industrial (1.5)
Commercial 4.1
Others 5.5
26,724 GWh
61%18%
9%5% 7%
R$ 5,217 millions
33%
14%
5%9%
39%
Industrial
Residential
Commercial
Rural
Others
Fundamentals
All figures comply with BRGAAP
12A Melhor Energia do Brasil.
Rationing still impacts sales
• Total quarterly retail sales up 0,8% YoY
• Weak residential consumption :
– Down 0.3% 3Q03 over 3Q02
– Down 2.3% 3Q03 over 2Q02
• YoY quarterly industrial consumption down 0.7% due to clients with power projects.
7,800
8,000
8,200
8,400
8,600
8,800
9,000
9,200
Gw
h
1st Qtr 2rd Qtr 3rd Qtr
Quarterly Retail Sales
1,400
1,450
1,500
1,550
1,600
1,650
1,700
Gw
h1st Qtr 2nd Qtr 3rd Qtr
Quarterly Residential Consumption
4,9005,0005,1005,2005,3005,4005,5005,6005,700
Gw
h
1st Qtr 2nd Qtr 3rd Qtr
Quarterly IndustrialConsumption
2002 2003
26,000
26,500
27,000
Gwh
9 months
Retail Sales
2002 2003
Fundamentals
All figures comply with BRGAAP
13A Melhor Energia do Brasil.
Nine Month Operating Expenses down 5% Labor expenses : 19% increase year over year• 11.45% salary readjustment in November 2002 • Increase in employee profit sharing• 0,29 % increase in the average number of employees
Year to date 3rd Q. 2nd Q. 1st Q.
Year to date 3rd Q. Year
Energy Purchased 1,037 356 389 292 1,455 793 1,733
Labor 501 162 178 161 420 144 591
Depreciation and amortization 422 141 141 140 408 138 551
Fuel Consumption Quota 220 62 65 93 252 92 345
Energy Development Account 78 41 37 - - - -
Transmission Grid Charges 248 91 80 77 220 78 298
Outsourced Services 222 83 74 65 180 68 265 Forluz – Employee post-retirement benefits 36 12 17 7 162 54 145
Other Expenses 476 179 167 130 310 123 665
Total 3,240 1,127 1,148 965 3,407 1,490 4,593
Operating Expenses (consolidated)
Values in million of Reais
2003 2002
Expense for energy purchased decreased by 28,75% • Reduction in expenses related to energy transactions on the MAE • Energy purchased from Itaipu up 19%
Post-retirement obligations : 78% reduction YoY • higher profitability in pension fund assets.
Fundamentals
All figures comply with BRGAAP
14A Melhor Energia do Brasil.
Strong cash flowNine-month EBITDA of R$ 1.238 million
Nine-month EBITDA margin up to 31%
Growing operating income : 97% up from R$ 816 million
Low leverageDebt-to-equity ratio is 34 %
Debt maturityShort term (12 monts): R$ 981 million
Long term: R$ 2.479 million
Cemig Has Extremely Solid Fundamentals
Values in millions of Reais
Fundamentals
TOTAL SHORT TERM LONG TERM
FOREIGN CURRENCY DEBT 1,393,463 595,284 798,179
CEMIG 1,492,879 669,328 823,551 OTHERS 95,382 21,089 74,293 ROLLOVER SINKING FUNDS (194,798) (95,133) (99,665)
DOMESTIC CURRENCY DEBT 1,572,989 306,516 1,266,473
CEMIG 1,567,334 304,477 1,262,857 OTHERS 5,655 2,039 3,616
SUBTOTAL 2,966,452 901,800 2,064,652
BNDES 493,748 79,537 414,211
TOTAL CEMIG 3,460,200 981,337 2,478,863
DEBT CEMIG CONSOLIDATED
All figures comply with BRGAAP
15A Melhor Energia do Brasil.
Outstanding Debt
R$ million 9/30/03 9/30/02
. Domestic 2,067 1,290
. Foreign 1,393 2,098
US$ Million 477 539
Outstanding Debt
R$ million 9/30/03 9/30/02
. Domestic 2,067 1,290
. Foreign 1,393 2,098
US$ Million 477 539 1.2
38
822
3.4
60
3.3
88
0
1.000
2.000
3.000
4.000
5.000
6.000
1998 1999 2000 2001 2002 3rd Q. 03 3rd Q02
R$ M
I
EBITDA Debt Net Revenue
The goals of the restructuring plan are to:• Reduce FX debt• Extend the term of the local debt• Hedge short-term FX debt
Ratios are within historical levels:Sept/03 Dec/03
Net Debt/EBITDA: 2.1 1.7EBITDA/Interest: 4.0 4.9
Outstanding Debt as of September 30, 2003
Fundamentals
All figures comply with BRGAAP
16A Melhor Energia do Brasil.
Addressing Cash Flow ManagementLiquidity is a concern:
– Short-term loans• Maturing debt rollover• Short-term hedge transactions
– BNDES CVA-related loan still pending– Tight cash flow management– Curb expenditures
Description 3rd Q03 3rd Q02Operating Activities
Net Income (Loss) 813,163 (1,150,905)Depreciation and Amortization 421,766 408,388Extraordinary Revenue for Rationing Loss - (268,913)Energy Purchased on MAE (21,318) (464,976)Energy Purchased on Spot Market - 65,242Net Asset Disposal 52,741 16,205Equity Income - -Long-term Interest and Monetary Variation (594,133) 282,742Defered Income Tax and Contribution 97,739 (245,448)Loss Provision 106,132 91,010CRC Loss Provision - 1,045,325Post-employment Obligations 35,630 162,748Others (769) (10,951)Total 910,951 (69,533)
Changes in Current Assets (116,026) (465,260)Changes in Current Liabilities (208,179) 1,177,169Cash Provided by Operating Activities 586,746 642,376
Fundamentals
Description 3rd Q03 3rd Q02Financing Activities 281,369 (208,300)
Proceeds of New Debt 903,938 287,290Debt Repayment (622,678) (287,949)Advanced Sales - (42,596)Special Obligations - 11,526Dividends and Interest on Equity 109 (176,571)
Total Cash Available 868,115 434,076Investment Activities (698,270) (723,947)
Investments (167,489) (293,392)PP&E (592,478) (528,509)
Consumer funds 61,932 113,141 Increase in deferred charges (235) (15,187)
Net change in cash 169,845 (289,871)
At the beginning of the period 122,975 705,844 At end of the period 292,820 415,973
All figures comply with BRGAAP
17A Melhor Energia do Brasil.
Key Issues
• Fundamentals• Strategic overview
– Growth and value creation
– Regulatory Review
• Projects
All figures comply with BRGAAP
18A Melhor Energia do Brasil.
Keys to our Success
• Unchanged business focus• Low-risk business model• Pursue financial strength• Careful evaluation of non-regulated business
opportunities• Highest standards of Corporate Governance and
integrity
Strategic overview
All figures comply with BRGAAP
19A Melhor Energia do Brasil.
Strategic Directives
• Portfolio analyses– Reviewing business plans
• Internal business value• Size business to market reality
– Careful business opportunity evaluation
• Target setting– Streamline operations– Reduce WACC– Focus on total shareholder value
• Business organization– Improve core competency
• Strengthen relationships with customers
• Corporate Governance best practices– Focus on shareholders’ long-term
interest– New dividend policy
• Higher dividend yield
• Performance management– Performance monitoring– Evaluation of business enablers
• Training program• Technology
– Balanced scorecard
Key strategy: deliver sustainable growth and add value to current shareholder investment through:
Strategic overview
All figures comply with BRGAAP
20A Melhor Energia do Brasil.
Corporate Governance as a Cultural Value
Understand market perceptionTransparencyScrutinyComprehensive IR programGuidance
Broaden the investor baseSocial responsibility
Pursuit of environmentally sound projectsUniversality of service for the concession territoryAffordable rates
Dividend policy which meets shareholder interestContinual scanning for global class practices
Board membership14 members
6 members meet independence criteriaPN share holders appointed one member
Highly educated members in various fieldsPoliticsEconomyBusinessAccountingElectricityResearch and Development
Strengthened relationship with different tiers of government
Strategic overview
All figures comply with BRGAAP
21A Melhor Energia do Brasil.
Related Party Transactions
Arms length relationship with the majority shareholderFace problems directly
Seek viable solutions for CRC receivables
• Repay dividend-backed contract – Total amount: R$ 874 million
– overdue in 2003: R$ 109 million
• Negotiate the accrued contract with Minas Gerais State Government and the Federal Government
– Total amount: R$ 1,467 million
– overdue in 2003: R$ 140 million
• Address tax charges
Strategic overview
All figures comply with BRGAAP
22A Melhor Energia do Brasil.
CEMIG has Adopted a Cooperative Approach
Key aspects :
• Creation of a “Virtual Pool” – Execution of capacity auctions
– Coordination of distributors’ power purchase agreement
• Vertical separation of the distribution business
• Federal Government-driven long-term planning – Long-term generating capacity growth forecast
• Bidding process for new power plants based on lower price
• Roles of free customer and independent power producer lose substance
Summary of the proposal disclosed by the Federal Government
Strategic overview
The major objectives are to :• ensure a sustainable growth for the generating capacity• rate affordability
All figures comply with BRGAAP
23A Melhor Energia do Brasil.
Proposed Regulatory Framework
Generation DistributionBenefits
– Long-term contracts– Lowest revenue bid-based concession auction– Capacity auctions– No operating risks– Higher capacity reserve
– No competition for free consumers– Guarantee of energy cost pass-through
Threats
– Price review every 5 years– New inflation adjustment index – Poor credit quality of the distributors– Penalties on poor asset operation– Concession expiration– Wholesale energy pricing
– No self dealing – Penalties on poor demand forecast– Higher price for electricity purchased– Guarantees pledged on energy contracts– Delinquency risk taken by distributors
Strategic overview
All figures comply with BRGAAP
24A Melhor Energia do Brasil.
8.1
0.3
2.00.65.2
3.9
1.1
9.2
Market Cap MarketPerception
ExpensesAdjust -
ANEEL UtilityBenchmark
WholesalePrice Upside
Market ShareGrowth
Market CapBeforeWACC
WACC Cuton 1%
2006Estimated
Market cap
Strategic Actions to Meet Shareholders’ Long-term Interest
3,93,9
1,21,2
• Better Governance
• ANEEL Regulation Compliance
• Dividend / CRC
•Improved Ratios See disclaimer
Strategic overview
All figures comply with BRGAAP
25A Melhor Energia do Brasil.
2003 Retail Sale Forecast
Values in GWh 2002 2001 2000
Category Cemig Sá Carvalho Ipatinga Out of MG Total
. Residential 6,625 6,625 6,360 6,475 7,576 . Industrial 20,366 482 315 522 21,685 21,906 21,351 22,219 . Commercial 3,372 3,372 3,283 3,269 3,584 . Rural 1,814 1,814 1,705 1,572 1,676 . Others 2,519 2,519 2,380 2,281 2,486Total 34,636 482 315 522 36,015 35,634 34,948 37,541
2003( estimated)
Growth RateCategory 2003 2002 2001
. Residential 4.20% -1.80% -14.50%
. I ndustrial -1.00% 2.60% -3.90%
. Commercial 2.70% 0.40% -8.80%
. Rural 6.40% 8.40% -6.20%
Total 1.10% 2.00% -16.90%
2003 estimated sales show impact of industrial clients’ self supply power projects
Strategic overview
All figures comply with BRGAAP
26A Melhor Energia do Brasil.
31.5%
2.5%
13.5%18.0%
8.0%
11.0%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2003 2004 2005 2006 2007 20080.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
Best case Scenario Most likely Scenario
Worst case Scenario Rate Readjustment
Average yearly consumption growth ranging from 1% to 3% causes expressive impacts on the Company’s results.
Prices as of June 2003
Additional rate recovery of 10%Deferred CVA and rate revision in 2008
EBITDAR$ million
Rate increase %
Scenario for CEMIG’s EBITDA from 2003 to 2008
Strategic overview
See disclaimer
All figures comply with BRGAAP
27A Melhor Energia do Brasil.
Key Issues
• Fundamentals• Strategic overview
– Growth and value creation
– Regulatory Review
• Projects
All figures comply with BRGAAP
28A Melhor Energia do Brasil.
4-year Plan Amounts to R$ 3.4 BillionValues in millions of reaisValues in millions of reais
Capital Expenditure
Expand generating capacity over the next 3 years by 10% to replace electricity purchase contract expiring in the same period.
Connect another 200,000 new clients per yearAchieve 100% penetration in rural areas in 3 years
Improve transmission grid reliabilityReduce outages in number and duration
Reduce energy losses
In all cases, return must be greater than WACC
Projects
See disclaimer
Revised
Power Projects 448 286 388 340 225 274
Transmission 76 63 85 74 104 98
Subtransmission 79 41 38 69 67 62
Distribution 256 166 240 273 275 282
Other Facilities 35 19 38 49 45 42
SUBTOTAL 894 575 789 805 716 758
Non-eletric Facilities 189 46 71 60 0 0
Customers/Subsidies 68 42 56 46 59 62
TOTAL 1,151 663 916 911 775 820
20032004
ItensEstimated
2002 2005 20063rd Q03
All figures comply with BRGAAP
29A Melhor Energia do Brasil.
Generation Capacity Expansion
Plant Category Installed Effective Cemig Start-up Capacity Capacity % Date
MW MWQueimado Hydro 105 58.0 82.5 Out/03Funil Hydro 180 89.0 49 Dez/02Aimorés Hydro 330 172.0 49 Set/04Irapé Hydro 360 206.3 100 Ago/05Capim Branco I Hydro 240 155.0 21.0526 Jan/06Capim Branco II Hydro 210 131.0 21.0526 Dez/06Pai Joaquim Hydro 23 13.91 48.5 Dez/03Barreiro Thermal 12.9 11.5 48.5 Out/03Sulminas Thermal 500 460 ND Dez/05Ipatinga Thermal 99.5 91.5 ND Dez/05Igarapé II Thermal 219.2 201.7 100 Dez/05
Projects
All figures comply with BRGAAP
30A Melhor Energia do Brasil.
MSMS
RIO DE JANEIRORIO DE JANEIRO
DABOLÍVIA
LEGEND:LEGEND:
Exisitng pipeline
Pipeline network to be built
Pipeline to be built
Existing pipeline network
SÃO PAULOSÃO PAULO
MINAS GERAISMINAS GERAIS
ESPÍRITOESPÍRITO SANTOSANTO
PARA RIOGRANDE DO SUL
CAMPOS
SÃO PAULO
GUARAREMA
RIBEIRÃO PRETO
ATIBAIA
UTE Ibirité720MW
UTE Sulminas500 MW
VESPASIANO
UTE Juiz de Fora103 MW
BETIM
BELO HORIZONTE
SANTA LUZIA UBERABA
SETE LAGOAS
UBERLÂNDIA
JUIZ DE FORA
OURO BRANCO
VARGINHA
TRÊS CORAÇÕES
POUSO ALEGRE
IBIRITÉCONTAGEM
ARAXÁ
BARBACENA
PARAGOIÁS / BRASÍLIA
CAMPINAS
ARARAQUARA
POÇOS DE CALDAS
SÃO CARLOS
ARAGUARI
GOIÁSGOIÁS
IPATINGA
OURO PRETO
JOÃO MONLEVADE
SÃO BRÁS DO SUAÇUÍ
BELO ORIENTE
ITAÚNA DIVINÓPOLIS
GASMIG Expansion Plan
UTE Igarapé325 MW
Capex: R$ 303 MM
Distribution Network : 898 kmEstimated Volume : 14,1 MM m³/day
Projects
All figures comply with BRGAAP
31A Melhor Energia do Brasil.
• BOVESPA Level I: CMIG3 and CMIG4BOVESPA Level I: CMIG3 and CMIG4• NYSE Level II ADR: CIGNYSE Level II ADR: CIG• Latibex: XCMIGLatibex: XCMIG• Dow Jones Sustainability Index 2000, 2001 and 2002Dow Jones Sustainability Index 2000, 2001 and 2002
Committed to the Best Practices of Corporate Governance
Best Corporate Governancein Latin America for Electric Utilities