Companhia Energetica de Minas Gerais (CIG), known as CEMIG, reported quite disappointing financial results for the third quarter 2010. Earnings per share was R$0.89 (US$0.51 per ADR) compared with R$0.92 (US$0.49 per ADR) in the third quarter of 2009. Earnings per ADR surpassed the Zacks Consensus Estimate of US$0.44 per ADR.
Net income dipped 2.4% year over year to R$553.3 million (US$314.4 million). The year-over-year decline was primarily due to higher operating and financial expenses.
Revenue
Net revenue was R$3,183.2 million (US$1,808.6 million) up 6.5% year over year due primarily to higher volumes sold.
Electricity sold improved 8.1% year over year to 16,478 GWh versus 15,242 GWh in the year-ago quarter due to higher consumption by all final customers. Electricity sold to final customers was 12,187.3 GWh, up 14.75% year over year. Residential sales grew 3.5% year over year while industrial sales increased 16.1% year over year. Rural consumption went up by 10.4% to 748.9 GWh in the quarter.
During the quarter, operating expenses soared 6% year over year to R$2,208 million (US$1,254.5 million) attributable to a 6% rise in purchased energy, 23% in depreciation and amortization, 38% in contract services, 9% in post-retirement employee benefits, 13% in material, 41% in gas purchased for resale, 5% as charges for use of basic transmission network and 25% in other expenses.
Adjusted EBITDA in the quarter was R$1,184.5 million (US$673.0 million), up 9.4% year over year with EBITDA margin improving 100 basis points to 37.2%. Financial revenue dipped 10% year over year while financial expenses escalated 46%.
Balance Sheet/Cash Flow
Exiting the third quarter, CEMIG’s cash and cash equivalents increased 11.3% sequentially to R$4,178 million (US$2,443.3 million). Loans, financing and debentures were R$11,034 million (US$6,452.6 million), up 2.1% sequentially.
Net cash flow from operating activities was down 16% year over year to R$1,147 million (US$651.7 million).
Our Take
CEMIG is one of the largest integrated electric utilities in Brazil with approximately 97% of the company’s installed generation capacity being hydroelectric power. The company is in stiff competition with its peers like Companhia Paranaense de Energia (ELP), EDP-Energias de Portugal, S.A. (EDPFY) and privately-held Eletropaulo Metropolitana Eletricidade de São Paulo SA.
We currently maintain a Neutral rating on the stock.
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