Business context and reporting period
CEMIG is a Minas Gerais state-controlled electricity and gas utility engaged in power generation, transmission, distribution and trading, as well as natural-gas distribution and energy solutions. This is its annual Form 20-F for the fiscal year ended December 31, 2021—not a standalone fourth-quarter report. Financial statements are audited and prepared under IFRS as issued by the IASB, in Brazilian reais (R$).
Key financial metrics
Amounts below are R$ millions unless stated otherwise. U.S.-dollar translations are for convenience and are subject to exchange-rate changes.
| Metric | 2021 | 2020 |
|---|---|---|
| Net revenue | 33,646 | 25,228 |
| Gross profit | 6,723 | 5,383 |
| Income before finance income/expenses and taxes | 6,951 | 4,706 |
| Net income | 3,753 | 2,865 |
| Net cash from operating activities | 3,685 | 8,607 |
| Total assets | 52,046 | 54,083 |
| Total loans, financing and debentures | 11,364 | 15,020 |
- Revenue increased 33.4%; gross profit rose 24.9%, while total operating costs and expenses grew 31.8% to R$28,237.
- Gross margin was approximately 20.0% (21.3% in 2020); net margin was approximately 11.2% (11.4% in 2020). These are calculated from reported figures.
- Operating cash flow fell to R$3,685 from R$8,607. Investing activities provided net cash of R$1,370, including proceeds from asset sales and marketable securities; financing activities used R$5,910. Cash and cash equivalents decreased R$855 to R$825. Current assets were R$12,949 and current liabilities R$10,688.
- Debt declined 24.3%. At year-end, R$1,465 was current and R$9,899 non-current; R$5,623 was U.S.-dollar-denominated. The company repurchased US$500 million of its 9.25% Eurobonds, leaving US$1.0 billion principal due in 2024. Management reported covenant compliance at December 31, 2021.
- Dividends per share were R$1.16, versus R$0.99 in 2020. The 2021 dividend proposal and declared interest on equity are subject to the stated payment schedule and cash availability.
Material changes versus the prior comparable period
- Revenue growth reflected higher final-customer energy sales, gas revenue, tariff-adjustment components and CCEE energy transactions. Final-customer energy sales revenue rose 15.8%; gas revenue rose 72.6% to R$3,470.
- Energy-purchase costs rose 32.9% to R$16,101; national-grid charges rose 90.9% to R$3,337; and gas-purchase costs rose 85.7% to R$2,011. Management cited adverse hydrology, increased thermal generation, higher energy-market costs and recovery from pandemic-related disruption.
- Energy generated fell 43.1% to 5,169 GWh, while total energy resources traded increased 2.6% to 84,716 GWh. CEMIG reported a 0.77 average GSF in 2021 amid below-average hydrology.
- Reported earnings included R$1,032 from hydrological-risk renegotiation under Law 14,052/20, R$215 from periodic tariff review and R$109 net gain from the sale of a non-current asset. The 2021 finance line was a net expense of R$2,252 in the audited income statement; the filing’s narrative elsewhere describes net finance income, an apparent inconsistency to verify.
- Capital expenditures were R$2,069, up from R$1,599. CEMIG sold its remaining Light holding for R$1,372 and classified its Renova investment as held for sale; Renova was sold in May 2022 for R$60, with a potential earn-out.
Outlook, risks and unusual items
- Management planned approximately R$3,679 of 2022 capital investment, primarily in distribution, generation and transmission, plus R$122 of subsidiary capital injections. It expected to fund investment mainly with operating cash flow and, to a lesser extent, financing. CEMIG GT stated an ambition to add 1 GW of generation capacity, with R$4.5 billion of capex through 2025.
- Key exposures include drought and hydrology, volatile spot energy and thermal-generation costs, tariff-setting and concession-renewal decisions, foreign exchange and interest rates, debt maturities and covenants, customer collections, regulatory change, and political and economic conditions in Brazil. The company also identifies dam safety, cyber risk, environmental obligations and competition for water as material risks.
- Management reported R$1,889 of provisions for probable legal losses at year-end. Numerous additional claims were assessed as possible; outcomes and potential cash timing remain uncertain. CEMIG states it does not carry general third-party liability or major-natural-disaster insurance.
- Management identified a material weakness in internal control over financial reporting, concluding controls were ineffective at December 31, 2021; the independent auditor issued an adverse opinion on internal-control effectiveness. The auditor nevertheless issued an unqualified opinion on the IFRS financial statements. Management described remediation efforts, but did not conclude that the weakness was resolved.
- COVID-19 effects remained uncertain, though management said operations and collections had improved and it did not expect significant long-term effects. The filing also discusses the Russia-Ukraine conflict as a potential source of commodity-price and macroeconomic uncertainty.
Important facts for investors to verify
- Reconcile the conflicting narrative description of 2021 net finance income with the audited statement’s R$2,252 net finance expense, and assess the effect of hedges and the Eurobond tender offer.
- Review operating cash flow’s decline, the cash-flow statement presentation, and the assumptions behind 2022 capex funding and liquidity.
- Assess hydrological conditions, energy purchase exposure, tariff recoveries and the actual timing and value of concession extensions and indemnities.
- Track remediation of the material weakness in financial-reporting controls and any resulting reporting or audit risk.
- Review probable and possible litigation, the R$162 liability recognized for Madeira Energia-related obligations, Renova sale proceeds and earn-out terms, and the status of ongoing investigations.
- Confirm the proposed 2021 dividends, subsequent share-capital increase approved in April 2022, and the resulting share count and per-share comparisons.