Afluente Geração de Energia Elétrica SA :AFLU3-BR: Earnings Analysis: Q2, 2016 By the Numbers : September 1, 2016

Afluente Geração de Energia Elétrica SA reports financial results for the quarter ended June 30, 2016.

We analyze the earnings along side the following peers of Afluente Geração de Energia Elétrica SA – Energisa SA Pfd Shs Non-Voting (ENGI4-BR) that have also reported for this period.


  • Summary numbers: Revenues of BRL 9.98 million, Net Earnings of BRL 6.86 million.
  • Gross margins widened from 25.36% to 72.57% compared to the same period last year, operating (EBITDA) margins now 75.08% from 30.73%.
  • Year-on-year change in operating cash flow of -34.68% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2015-06-30 2015-09-30 2015-12-31 2016-03-31 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 7.22 7.33 7.86 8.22 9.98
Revenue Growth (%YOY) 17.89 13.94 13.74 32.41 38.38
Earnings (mil) 1.63 -0.91 1.57 -1.96 6.86
Earnings Growth (%YOY) -36.62 -44.23 279.47 -371.05 321.85
Net Margin (%) 22.52 -12.45 19.98 -23.82 68.66
EPS 0.09 -0.05 0.08 -0.1 0.36
Return on Equity (%) 16.33 -9.37 16.14 -20.4 69.07
Return on Assets (%) 14.34 -8.21 13.36 -15.9 55.84

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Market Share Versus Profits

Revenues History
Earnings History

AFLU3-BR‘s change in revenue this period compared to the same period last year of 38.38% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that AFLU3-BR is holding onto its market share. Also, for comparison purposes, revenues changed by 21.53% and earnings by 450.28% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 25.36% to 72.57% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 30.73% to 75.08% compared to the same period last year. For comparison, gross margins were -13.78% and EBITDA margins were -13.32% in the last reporting period.

Gross Margin Versus EBITDA Margin

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

AFLU3-BR‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 32.01 days from 66.68 days for the same period last year.

Gross Margin Versus Working Capital Days

Cash Versus Earnings – Sustainable Performance?

AFLU3-BR‘s change in operating cash flow of -34.68% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth


The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 23.91% to 70.03% and (2) one-time items. The company’s pretax margins are now 72.78% compared to 26.33% for the same period last year.

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

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Company Profile

Afluente Geração de Energia Elétrica SA engages in the study, plan, design, construction, operation and maintenance of electric power generation and transmission of electric energy. The company was founded on August 31, 2005 and is headquartered in Rio de Janeiro, Brazil.

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