Companhia Energética de Minas Gerais SA :CIG-US: Earnings Analysis: Q4, 2015 By the Numbers

Companhia Energética de Minas Gerais SA reports financial results for the quarter ended December 31, 2015.

Highlights

  • Gross margins narrowed from 34.73% to 3.47% compared to the same period last year, operating (EBITDA) margins now 6.46% from 28.74%.
  • Change in operating cash flow of -10.66% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

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

2014-12-31 2015-03-31 2015-06-30 2015-09-30 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 2425.67 2018.29 1741.02 1305.76 1348.56
Revenue Growth (%YOY) 40.95 -0.96 -18.15 -21.15 -44.4
Earnings (mil) 436.22 512.22 172.45 45.55 78.32
Earnings Growth (%YOY) 20.73 -4.28 -48.16 262.71 -82.05
Net Margin (%) 17.98 25.38 9.91 3.49 5.81
EPS 0.35 0.41 0.14 0.04 N/A
Return on Equity (%) 43.32 58.83 18.73 5.15 9.77
Return on Assets (%) 13.32 16.69 5.91 1.68 3.13

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Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 34.73% to 3.47%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 28.74% to 6.46% in this time frame. For comparison, gross margins were 14.40% and EBITDA margins were 10.16% in the previous period.

Cash Versus Earnings – Sustainable Performance?

CIG-US‘s year-on-year change in operating cash flow of -10.66% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 25.30% to 2.54% and (2) one-time items that contributed to a decrease in pretax margins from 20.61% to 3.89%

EBIT Margin History
PreTax Margin History

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Company Profile

Companhia Energética de Minas Gerais SA engages in the generation, transmission, distribution and sale of electricity, gas distribution, telecommunications and the provision of energy solutions. It operates through the following segments: Generation, Transmission, Distribution, and Other Businesses. The Generation segment engages in the generation of electricity through hydroelectric plants, thermoelectric plants and wind farms. The Transmission segment engages in the electric power transmission business, which consists of transporting electric power from the facilities where it broadcasted to the distribution networks for delivery to final users. The Distribution segment engages in the supply electricity to consumers in the state of Minas Gerais. The Other Businesses segment engages in the telecommunications, national and international energy solutions, and exploitation of natural gas. The company was founded by Juscelino Kubitschek de Oliveira on May 22, 1952 and is headquartered in Belo Horizonte, Brazil.

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