CEMIG 2022 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2022. This is an annual Form 20-F, not a standalone fourth-quarter report. The consolidated financial statements are prepared under IFRS as issued by the IASB and presented in Brazilian reais (R$); financial figures below are in R$ millions unless stated otherwise.
Business context
Companhia Energética de Minas Gerais (CEMIG) is a state-controlled Brazilian utility engaged in electricity generation, transmission, distribution and trading, natural-gas distribution, and energy solutions. Its generation fleet is predominantly hydroelectric. The State of Minas Gerais controls the company.
Key financial metrics
| Metric | 2022 | 2021 | Change / context |
|---|---|---|---|
| Net revenue | R$34,463 | R$33,646 | Up 2.4% |
| Gross income | R$6,812 | R$6,723 | Up 1.3% |
| Operating income before finance and taxes | R$5,686 | R$6,951 | Down 18.2% |
| Net finance expense | R$1,566 | R$2,252 | Expense narrowed |
| Net income | R$4,094 | R$3,753 | Up 9.1% |
| Net cash from operating activities | R$6,612 | R$3,685 | Up 79.5% |
| Net cash used in investing activities | R$3,204 | Net cash provided: R$1,370 | Investing outflow increased |
| Net cash used in financing activities | R$2,792 | R$5,910 | Outflow decreased |
| Cash and cash equivalents at year-end | R$1,441 | R$825 | Up R$616 |
| Loans and debentures | R$10,580 | R$11,364 | Down 6.9% |
| Adjusted EBITDA | R$6,928 | R$5,932 | Company-reported leverage metric |
| Net debt / Adjusted EBITDA | 0.96x | 1.22x | Below the company’s 2.5x ceiling |
At year-end, current assets were R$13,465 and current liabilities R$11,203. The company reported total assets of R$53,671, total liabilities of R$31,887 and equity of R$21,784. Management stated that operating cash flow was sufficient for operating needs and that liquidity is actively monitored. However, R$5,552 of debt was scheduled to mature in 2023–2024. The company reported compliance with its financial covenants at December 31, 2022.
Material changes and operating performance
- Net revenue increased modestly, while operating income declined, partly because 2021 included R$1,032 of hydrological-risk renegotiation gains and R$215 of periodic tariff revision gains that did not recur in 2022.
- Improved hydrological conditions reduced energy-purchase costs and spot-market prices. The average generation scaling factor was 0.86 in 2022 versus 0.77 in 2021; the Southeast/Central-West average spot price fell 78.9% year over year.
- Net income benefited from lower net finance expense and an R$845 share of income from investees, versus R$182 in 2021. The reported income-tax and social-contribution expense was R$26, compared with R$946 in 2021, reflecting deferred-tax effects and other items disclosed by the company.
- Distribution-segment net income fell to R$445 from R$1,701; generation-segment net income fell to R$887 from R$1,394; transmission net income fell to R$350 from R$421; trading net income rose to R$682 from R$433; and investees reported net income of R$1,730 versus a loss of R$196.
- Capital expenditures were R$3,499, up from R$2,069, with most directed to distribution. Distribution construction revenue and costs rose with investment activity; these construction costs are reported as offset by construction revenue.
- Past-due customer receivables reached R$1,825, up from R$1,249. The expected-credit-loss allowance was R$820, compared with R$833 in 2021. The company changed its default-probability measurement period in 2022.
Outlook, risks, contingencies and unusual items
- Management’s strategic targets: The 2023–2032 plan sets an ambition of EBITDA of R$10.0 billion in 2027 and R$13.7 billion in 2032, investment of R$42.2 billion in 2023–2027 and R$85.3 billion in 2023–2032, and R$8.0 billion of divestments. These are strategic ambitions, not a guarantee of results. Planned 2023 capital investment was R$5.726 billion, primarily for distribution, generation and transmission.
- Debt and funding: 37.6% of year-end debt was U.S.-dollar denominated. The US$756 million Eurobond balance matured in 2024. Currency hedges had a US$5.00/US$ ceiling on principal protection; the filing notes potential exposure if the exchange rate exceeds that level at maturity. CEMIG GT and CEMIG D issued debentures in 2022; CEMIG D announced a further R$2 billion offering in May 2023.
- Legal and regulatory exposure: Provisions for probable legal and administrative losses were R$2,029. Separately disclosed possible losses totaled R$8,453; possible-loss matters are not included in provisions. Significant exposures include tax, labor, regulatory, public-lighting contribution and environmental proceedings. Management said timing of cash outflows cannot practicably be estimated.
- Operational and sector risks: Key risks include hydrology and climate change, dam and infrastructure safety, energy losses and customer defaults, regulated tariffs and permitted transmission revenue, concession renewal and compliance, distributed generation, energy-market prices, cyber incidents, inflation, interest rates and foreign exchange. The company operates with limited insurance for catastrophe, third-party liability and business interruption risks.
- Concessions and market transition: CEMIG D’s distribution concessions run to 2045 and Gasmig’s gas concession to 2053. Regulatory changes and tariff decisions may affect returns. Brazil’s planned expansion of the free electricity market may change customer and sales patterns.
- Unusual items and transactions: The company recognized R$626 of post-employment benefit expense in 2022, compared with R$16 in 2021; actuarial measurements of pension and health obligations were identified as a critical audit matter. CEMIG sold its Renova interest for R$60 and Ativas for R$60.02 in 2022. The SEC and DOJ concluded their investigations into CEMIG without further enforcement action, in December 2022 and February 2023, respectively; other Brazilian investigations remained ongoing.
- Dividends: The by-laws generally require dividends of 50% of net income, subject to legal, covenant and liquidity constraints. For 2022, the company recorded R$2,232 of proposed mandatory dividends, including interest on equity; R$249 was proposed as dividends for shareholder approval. Certain 2022 interest-on-equity payments were scheduled for payment in 2023.
Most important facts for investors to verify
- Confirm reported earnings and cash flow against the audited IFRS statements, including the effects of non-recurring 2021 gains, tax items and investee results.
- Review the 2023–2024 debt maturities, refinancing plans, covenant headroom and the Eurobond currency hedge terms and maturity exposure.
- Assess whether planned investment and divestment targets are achievable, and how they will be funded alongside dividends.
- Track customer arrears, expected credit losses, distribution losses and regulatory service-quality measures.
- Review the R$2,029 provisions and R$8,453 possible-loss exposures, including the status and potential outcomes of significant proceedings.
- Monitor concession and tariff decisions, hydrological conditions, distributed-generation growth and related cash-flow effects.
- Confirm subsequent events, including the March 2023 sale of CEMIG’s MESA interest, the proposed Retiro Baixo and Baguari divestments, and the SAAG put-option settlement.
The independent auditor issued an unqualified opinion on the 2022 consolidated financial statements and on internal control over financial reporting. Management and the auditor reported internal controls over financial reporting as effective at December 31, 2022.