Business Context and Reporting Period
Company: Energy Company of Minas Gerais (CEMIG)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Events occurring between February 28, 2007, and July 31, 2007.
Overview: This filing summarizes Board of Directors decisions, Extraordinary General Meetings, and material announcements. Key activities include the restructuring of the Executive Board, the approval of a 50% stock bonus and reverse split, the launch of a new American Depositary Receipt (ADR) program for common shares, and significant dividend distributions for the 2006 fiscal year.
Key Financial Metrics
Net Profit (2006): R$ 1,718,841,000
Dividend and Interest on Equity Allocation (2006): R$ 1,381,781,000 (80.39% of net profit)
- Interest on Equity: R$ 169,067,000 (Total obligation); First installment of R$ 84,533,500 paid June 29, 2007.
- Complementary Dividends: R$ 715,714,000 (Total obligation); First installment of R$ 357,857,000 paid June 29, 2007.
- Extraordinary Dividends: R$ 497,000,000 (Total obligation); First installment of R$ 248,500,000 paid June 29, 2007.
Capital Structure Changes:
- Stock Bonus: 50% bonus in new shares approved via capitalization of R$ 810,769,095.13 from Retained Earnings.
- Reverse Split: 500 shares (R$ 0.01 nominal) to 1 share (R$ 5.00 nominal).
- Registered Capital: Increased from R$ 1,621,538,190.25 to R$ 2,432,307,285.38 (pre-split adjustment).
Electricity Operations (Consolidated to March 31, 2007):
- Total Sources: 17,255 GWh
- Total Uses: 17,255 GWh
- Generation (Cemig GT): 9,362 GWh
Debt and Liquidity: The filing does not provide specific total debt or liquidity figures. It notes guarantees provided for financing obtained by Transchile (Inter-American Development Bank and Santander) and legal actions filed to suspend tax credit demandability.
Material Changes vs. Prior Period
- Executive Board Restructuring: The Board reorganized the Executive Board, creating the positions of Chief Trading Officer and Chief New Business Development Officer, while abolishing the Chief Planning, Projects and Construction Officer role.
- Board Composition: An Extraordinary General Meeting on June 22, 2007, elected new Board members to replace resignations, including the re-election of Wilson Nélio Brumer (who had announced his resignation as Chairman).
- Capital Markets Access: Launch of a new ADR program for Common Shares (ON) to be listed on the NYSE, providing US investors access equivalent to the existing Preferred Shares (PN) program.
- Strategic Shift: The Board decided not to proceed with a transaction to acquire a holding company controlling an electricity sector firm (March 22, 2007).
Guidance, Outlook, and Risks
Management Commentary and Outlook:
- Management presented guidance for the period 2007-2012 to the Board in May 2007.
- External consultants (Roland Berger) presented an outlook for the Brazilian and global electricity sectors.
- The company is pursuing the acquisition of generation assets and partnerships, with a preliminary proposal to acquire up to 100% of capital stock in target companies.
Risks and Contingencies:
- Legal/Tax Disputes: The company filed legal actions against the State of Minas Gerais to suspend the demandability of tax credits and obtain a Tax Release Certificate. This involves significant administrative and judicial proceedings.
- Shareholder Litigation: During the June 22, 2007 meeting, a shareholder (Southern Electric Brasil Participações Ltda.) raised concerns regarding the validity of Bylaw changes made following the annulment of a Stockholders' Agreement. The State of Minas Gerais representative clarified that the annulment was a final decision on the merits, not provisional.
- Operational Guarantees: CEMIG provided guarantees for financing obtained by its affiliate, Transchile.
Unusual Items:
- Dividend Policy: The company is distributing a high percentage of net profit (80.39%) as dividends and interest on equity, with payments split into two installments (June and December 2007).
- Corporate Governance: Significant amendments to Bylaws were approved to define Executive Board attributions, improve decision-making processes, and establish profit-sharing mechanisms for employees and managers.
Investor Verification Checklist
- Dividend Payment Dates: Verify the receipt of the second installment of dividends and Interest on Equity scheduled for December 30, 2007.
- ADR Listing Status: Confirm the successful registration and listing of the new Common Share ADRs on the NYSE as announced for June 12, 2007.
- Reverse Split Execution: Monitor the completion of the 500-to-1 reverse split and the adjustment of share counts.
- Tax Litigation Outcome: Track the status of legal actions against the State of Minas Gerais regarding tax credits, as this impacts future cash flow and tax liabilities.
- Acquisition Progress: Verify if the preliminary proposal to acquire generation assets (up to 100% stake) moves to a definitive agreement.
- Board Stability: Monitor the stability of the newly elected Board of Directors following the contentious discussions regarding the Stockholders' Agreement annulment.