CIG

Business Context and Reporting Period

Company: Energy Company of Minas Gerais (Cemig)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Fiscal Year Ended December 31, 2007 (Results announced March 2008)
Business Overview: Cemig is a Brazilian electricity utility operating in generation, transmission, and distribution. The company serves over 10 million consumers across 12 Brazilian states and Chile. Key subsidiaries include Cemig Distribuição (Distribution) and Cemig Geração e Transmissão (Generation and Transmission). The company is majority-owned by the State of Minas Gerais (51% of common shares).

Key Financial Metrics (2007 vs. 2006)

Note: All figures are in Brazilian Reais (R$) unless otherwise noted. Net profit remained flat due to higher employee profit shares and financial expenses, despite significant revenue and EBITDA growth.

Material Changes and Operational Highlights

• Revenue Growth: Net revenue increased 21% driven by an 8.69% tariff increase and a 9.44% volume increase in energy sold to final consumers (reaching 57.9 TWh total sales).
• Profitability: EBITDA grew 26.4% to a record R$ 4.1 billion. The EBITDA margin improved to nearly 40% due to operational efficiency and the consolidation of the Light S.A. acquisition (via RME consortium).
• Cost Structure: Operational costs rose 17.5%, primarily due to higher electricity purchased for resale (32.2% increase) and operational provisions. Personnel expenses decreased 11% compared to 2006, which included a one-time R$ 178 million indemnity provision for employee "anúênio" rights.
• Dividends: The Board proposed a mandatory dividend of R$ 867.7 million (50% of net profit) and a stock bonus of 2.02% via capitalization of R$ 49.2 million.
• Strategic Acquisitions: Cemig won the tender for the Santo Antônio hydroelectric plant (3,150 MW) in the Madeira River basin via a consortium, with startup expected in 2012.

Guidance, Outlook, and Risks

• 2008 Outlook: Management projects Capex of R$ 1.5 billion for 2008, a 68.6% increase from 2007, focused on distribution expansion ("Cresce Minas" program) to meet growing demand.
• Tariff Review Risk: Aneel (regulator) is conducting the second periodic tariff review for Cemig Distribuição. A provisional adjustment of -9.72% was disclosed, though this is subject to public hearing and final decision. New tariffs are expected to take effect April 8, 2008.
• Water Resources: Reservoir levels in the Southeast region were below historical averages in early 2008 due to rainfall deficits, though the government ruled out energy shortages for 2008.
• Legal Contingencies: The company faces various legal proceedings regarding tax disputes (PIS/COFINS, ICMS) and tariff adjustments. Management believes provisions are adequate and significant losses are not expected.
• Debt Management: The company maintains a conservative debt policy, with Moody's rating improved to Ba2 (Global) / Aa3.br (National) in March 2007. The average cost of debt was 7.94% p.a. at year-end.

Key Facts for Investor Verification

• Dividend Payment Dates: Verify the payment schedule for the proposed R$ 867.7 million dividend, expected in two installments by June 30 and December 30, 2008.
• Tariff Review Outcome: Monitor the final decision by Aneel regarding the provisional -9.72% tariff adjustment for Cemig Distribuição, which could impact 2008 revenue.
• Stock Bonus Implementation: Confirm the issuance of the 2.02% stock bonus and the increase in registered capital to R$ 2.48 billion.
• Concession Renewals: Verify the signing of the amendment for the renewal of 1,735 MW of generation concessions (Emborcação, Nova Ponte, etc.) expected in the first half of 2008.
• Employee Profit Shares: Note the significant increase in employee profit shares (R$ 455 million in 2007 vs. R$ 210 million in 2006) resulting from collective bargaining agreements.