Financial Performance - Total net operating revenue for 2018 was $5,738 million, an increase from $5,004 million in 2017, representing a growth of approximately 14.6%[32] - Energy sales to final customers reached $5,639 million in 2018, compared to $5,004 million in 2017, indicating a year-over-year increase of about 12.7%[32] - Revenue from wholesale supply to other concession holders decreased to $771 million in 2018 from $990 million in 2017, reflecting a decline of approximately 25.5%[32] - The company reported a net income of $448 million for 2018, up from $1,742 million in 2017, which is a decrease of about 74.2%[33] - Basic earnings per common share for 2018 were $0.30, down from $1.17 in 2017, indicating a decline of approximately 74.4%[33] - Operating costs and expenses totaled $5,004 million in 2018, an increase from $19,420 million in 2017, which is a decrease of about 74.2%[32] - The company experienced a finance expense of $133 million in 2018, compared to $518 million in 2017, showing a reduction of approximately 74.3%[32] - The share of loss from associates and joint ventures was $27 million in 2018, down from a profit of $104 million in 2017, indicating a significant change[32] - The company reported a comprehensive income of $329 million for 2018, compared to $1,279 million in 2017, reflecting a decrease of approximately 74.2%[33] Assets and Liabilities - Total assets increased to $59,855 million in 2018, up from $42,240 million in 2017, representing a 41.8% growth[34] - Total current assets decreased to $27,796 million in 2018 from $8,537 million in 2017, a decline of 68.5%[34] - Total liabilities rose to $59,855 million in 2018, compared to $42,240 million in 2017, marking a 41.8% increase[34] - Current loans financing and debentures decreased to $2,198 million in 2018 from $2,371 million in 2017, a reduction of 7.3%[34] - Total equity increased to $15,939 million in 2018, up from $14,330 million in 2017, reflecting an increase of 11.2%[34] - The total current liabilities decreased to $23,394 million in 2018 from $8,663 million in 2017, a decline of 73.1%[34] Dividends - Dividends per share for common shares increased to R$0.59 in 2018 from R$0.03 in 2017, a significant increase of 1,867%[35] - Dividends per ADS for common shares rose to US$0.15 in 2018 from US$0.01 in 2017, an increase of 1,400%[35] - The company reported a total of 487,614,144 basic common shares outstanding in 2018, unchanged from 2017[35] Regulatory and Compliance Issues - CEMIG GT's compliance with concession agreements is critical, as non-compliance could lead to penalties or revocation of concessions by ANEEL[66] - CEMIG has approximately R$11.0 billion of outstanding debt with financial covenant restrictions, and any breach could have severe negative consequences[82] - The company is subject to extensive governmental regulations that could materially affect its business and financial condition[72] - Non-compliance with annual targets for service quality could limit dividend distributions or require capital injections[71] - The company faces risks related to operational disruptions that could adversely affect its financial condition and results of operations[90] Operational Challenges - The total past-due receivables owed by customers was approximately R$1,381 million, representing 6.20% of consolidated net revenue in 2018, up from 4.78% in 2017[109] - CEMIG's Total Losses Index as of December 31, 2018, was 12.82%, with technical losses at 8.77% and non-technical losses at 4.05%, which was above the regulatory target of 11.75%[111] - A provision for doubtful receivables was recorded at R$751 million in 2018, an increase from R$568 million in 2017[109] - The company faces risks related to the construction and expansion of facilities, which may lead to increased costs and lower profitability than expected[106] - Regulatory challenges and environmental demands could impose additional costs and delays on the company's projects[118] Environmental and Market Conditions - Brazil's energy supply is heavily reliant on hydroelectric plants, which are affected by climatic conditions, leading to potential adverse impacts on the company's operations and financial condition[128] - Adverse hydrological conditions in the Brazilian southeast have caused drought and water scarcity, particularly in São Paulo, Minas Gerais, and Rio de Janeiro, which could worsen during the dry season from April to September[128] - The Energy Reallocation Mechanism (MRE) aims to mitigate the impact of variability in hydroelectric generation, but it does not eliminate risks, especially during extreme hydrological shortages[131] - The MRE can reduce assured energy levels by 20% or more in years of poor rainfall, leading to negative exposure in the short-term market[144] Legal and Investigative Matters - CEMIG holds an 11.69% indirect minority stake in Norte Energia S.A., with estimated losses of R$183 million recorded in its consolidated financial statements for the year ended December 31, 2015, due to alleged illegal acts by service providers[153][154] - CEMIG has an indirect stake of 36.23% in Renova, which is under investigation for capital injections by controlling stockholders[156] - An internal investigation by Renova found deficiencies in internal controls, but no evidence supporting allegations has been uncovered so far[157] - CEMIG is also under investigation regarding investments in Guanhães Energia S.A. and MESA, with no current determination on the outcomes[158] - The company hired an independent firm to analyze internal procedures related to these investments, with no effects recorded in consolidated financial statements[159] Governance and Risk Management - CEMIG's internal controls over financial reporting were deemed ineffective for the years ending December 31, 2016, 2017, and 2018, indicating material weaknesses[186] - The company faces risks related to potential fraud and corruption, which could adversely affect its business and reputation[165] - CEMIG's governance and compliance processes may not fully prevent regulatory penalties or damages to its reputation[178] - Cybersecurity threats pose risks of operational interruptions and potential leaks of confidential information, which could lead to financial losses[188] - The company has provisions for legal risks totaling R$641 million as of December 31, 2018, for actions assessed as "probable" losses[210] Economic Environment - Inflation rates in Brazil were recorded at 3.75% in 2018, 2.95% in 2017, and 6.29% in 2016, indicating historical volatility in the economic environment[198] - The company is exposed to fluctuations in domestic interest rates and inflation, which can affect financial expenses and overall financial results[200] Future Outlook - Future outlook includes a focus on expanding energy distribution systems and enhancing operational efficiencies to drive revenue growth[32]
CEMIG(CIG_C) - 2018 Q4 - Annual Report