Business Context and Reporting Period
This Form 6-K filing by Energy Company of Minas Gerais (CEMIG) covers the month of May 2006. The document primarily summarizes the minutes of the Annual General Meeting of Stockholders held on April 28, 2006, and subsequent Board of Directors meetings and market announcements regarding strategic acquisitions and dividend distributions.
Key Financial Metrics
Profitability and Dividends (Fiscal Year 2005):
- Net Profit: R$ 2,003,399,000.
- Total Dividend Distribution: R$ 1,096,949,000 (approx. 54.7% of net profit).
- Interest on Equity: R$ 635,000,000.
- Complementary Dividends: R$ 461,949,000.
- Legal Reserve Allocation: R$ 100,170,000 (5% of net profit).
- Retained Earnings: R$ 383,351,000 allocated for working capital and capital injections into subsidiaries.
- Statutory Reserve: R$ 422,929,000 held in Stockholders' Equity.
Cash Flow and Liquidity (2006 Budget):
- Initial Cash Balance: R$ 298,835,000.
- Total Incoming Funds: R$ 2,349,021,000 (including R$ 900,000,000 from the assignment of a CRC contract to a FIDC).
- Total Disbursements: R$ 2,395,407,000 (revised budget).
- Projected Final Balance: R$ 252,449,000.
- Major Disbursements: Dividends and Interest on Equity (R$ 1,173,449,000) and Extraordinary Dividends (R$ 897,000,000).
Debt and Capital Structure:
- Debentures: Holders of the Third Issue of Debentures approved an extension of a specific period clause from 120 days to 330 days.
- Stockholders' Equity (2005): R$ 7,289,222,000.
Material Changes and Strategic Developments
Acquisition of Transmission Assets:
- On May 4, 2006, CEMIG, in partnership with MDU Brasil Ltda. and Brascan Brasil Ltda., signed agreements to acquire holdings in five electricity transmission companies from Schahin Holding S.A.
- Transaction Value: R$ 656,000,000 (based on September 2005 valuations).
- Target Companies: Empresa Amazonense de Transmissão de Energia (EATE), Empresa Paraense de Transmissão de Energia (ETEP), Empresa Norte de Transmissão de Energia (ENTE), Empresa Regional de Transmissão de Energia (ERTE), and Empresa Catarinense de Transmissão de Energia (ECTE).
- Ownership Structure: CEMIG initially acquired stakes ranging from 15% to 50%. On May 19, 2006, Brascan exercised its option to purchase shares, resulting in a 50/50 split between CEMIG and Brascan for EATE and ETEP, and adjusted stakes for others.
- Strategic Impact: This acquisition expands CEMIG's presence in the Brazilian transmission market from 4% to 5.7% and extends its geographic footprint to include Pará, Maranhão, Santa Catarina, and Rio Grande do Sul.
Corporate Governance:
- Board Elections: New members were elected to the Board of Directors and Audit Board for terms ending in 2009 and 2007, respectively.
- Management Remuneration: A global annual limit of R$ 5,788,000 was approved for the remuneration of Managers and Audit Board members.
- Legal Dispute: The filing notes a resolved legal dispute regarding the annulment of a Stockholders' Agreement with Southern Electric Brasil Participações Ltda., confirming the State of Minas Gerais' controlling position.
Guidance, Outlook, and Risks
Outlook and Management Commentary:
- Management views the Schahin acquisition as a key step in expanding CEMIG's share of the Brazilian electricity market, aligning with the Long-term Strategic Plan approved by the controlling shareholder, the State of Minas Gerais.
- Dividends and Interest on Equity for 2005 are scheduled for payment in two installments (June 30, 2006, and December 30, 2006), subject to cash availability.
- Interest on Equity for 2006 was declared at R$ 169,067,000, payable in 2007.
Risks and Contingencies:
- Regulatory Approvals: The completion of the Schahin acquisition is contingent upon approvals from the Brazilian Electricity Regulator (ANEEL), the Brazilian Development Bank (BNDES), and the Brazilian monopolies authority (CADE).
- Financing: The transaction relies on financing from various bodies, including BNDES.
- Legal Uncertainty: While the Stockholders' Agreement with Southern Electric was annulled, the filing notes that Southern Electric had previously argued that bylaw changes were provisional, though the State of Minas Gerais confirmed the annulment was a final decision on the merits.
Key Facts for Investor Verification
- Dividend Yield: Verify the actual payout dates and amounts for the 2005 dividends (R$ 1.096 billion) and the 2006 Interest on Equity (R$ 169 million).
- Acquisition Closing: Confirm the final closing of the R$ 656 million Schahin acquisition and the receipt of all necessary regulatory approvals (ANEEL, BNDES, CADE).
- Cash Position: Monitor the 2006 cash budget execution, specifically the impact of the R$ 900 million FIDC inflow against the high dividend disbursements.
- Ownership Structure: Verify the final equity split in the five acquired transmission companies following Brascan's exercise of its purchase option.
- Legal Status: Confirm that no further legal challenges remain regarding the annulment of the Stockholders' Agreement with Southern Electric.