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: First Quarter 2003 (January 1 – March 31, 2003)
Date of Filing: May 19, 2003
Business Overview: CEMIG is a leading fully-integrated electricity company in Brazil, listed on the NYSE (CIG) and BOVESPA. The filing includes Q1 2003 financial results, summaries of shareholder meetings, and corporate governance updates.

Key Financial Metrics (Q1 2003)

Note: All figures are in Brazilian Reais (R$) based on consolidated statements.

Material Changes vs. Prior Period

• Net Income Decline: Net income decreased to R$152 million from R$220 million in Q1 2002. This decline is primarily attributed to the absence of R$315.2 million in extraordinary tariff readjustment revenues recognized in Q1 2002 related to the Rationing Program.
• Revenue Growth: Gross electricity supply revenues increased 23.56% to R$1.458 billion, driven by a 10.51% tariff readjustment (effective April 2002), higher emergency capacity charges, and a 5.58% increase in energy sales volume.
• Wholesale Revenue Drop: Revenues from electricity supply to other concessionaires fell 89.15% to R$4.3 million, largely due to the cessation of specific Wholesale Electricity Market (MAE) transactions that occurred during the 2002 Rationing Program.
• Financial Result Improvement: The financial result improved significantly to a gain of R$158 million (from R$66 million), aided by a R$108 million foreign exchange gain due to the appreciation of the Real against the U.S. dollar and a reversal of provisions for devaluation of National Treasury Notes.
• Expense Management: Operating expenses remained relatively flat (up 0.21%), with a significant 18.90% reduction in energy purchased for resale offsetting an 18.09% increase in personnel expenses.

Guidance, Outlook, and Corporate Actions

• Management Outlook: Management expects profitability to remain a priority. They anticipate stronger cash flows due to the rate adjustment granted by ANEEL in April 2002. Measures to cut operating expenses and review capital budgets are underway to reduce indebtedness.
• Liquidity Focus: The CFO highlighted preserving liquidity amidst currency volatility and wide spreads on Brazilian bonds as a major concern. The company is actively managing debt rollovers and financing costs.
• Corporate Governance:
  • An Extraordinary General Shareholders' Meeting is scheduled for May 28, 2003, to approve by-law amendments.
  • A key amendment will allow holders of preferred shares to elect one director to the Board of Directors, aligning with best corporate governance practices.
  • Other amendments address the Board's composition, executive officer duties, and the State of Minas Gerais' voting rights.
• Dividends/Interest on Capital: Shareholders approved the payment of interest on capital totaling R$220 million, payable by December 31, 2003, subject to cash availability.

Investor Verification Checklist

• Extraordinary Revenue Sustainability: Verify the impact of the one-time R$315.2 million extraordinary tariff revenue in 2002 on year-over-year comparisons and future earnings projections.
• Currency Exposure: Assess the company's sensitivity to Real/U.S. dollar fluctuations, given the significant foreign exchange gains in Q1 2003 and the CFO's warning regarding currency volatility.
• Debt Structure: Review the composition of long-term liabilities (R$5.375 billion) and the cost of rolling over maturing debt in the current Brazilian bond market environment.
• Regulatory Risk: Monitor the status of the 82-month additional tariff readjustment and any potential regulatory changes affecting the "Charges for Emergency Capacity."
• Shareholder Rights: Confirm the outcome of the May 28, 2003, meeting regarding the election of a preferred share director and other by-law changes.