ELP's FY11 Gains on Tax Benefits

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Companhia Paranaense de Energia (ELP), also known as COPEL, reported its financial results for the fourth quarter and fiscal year 2011 on March 26. Net income in the quarter increased 21.4% year over year to R$181.9 million (US$101.1 million), or R$0.66 per share (US$0.33 per ADR).

In the fiscal year, net earnings escalated 17.2% year over year to R$1,157.7 million (US$693.2 million), or R$4.23 per share (US$2.53 per ADR). Results in the year improved from tax benefits related to IOE payment.

Revenue

Net operating revenues in the fourth quarter increased 10.8% year over year to R$2,093.6 million (US$1,163.1 million) due to higher sales volume.

Revenue increased on a year-over-year basis in all the categories mentioned below: 7.8% for Electricity sales to final customers; 11.1% for sales to distributors; 9.9% for use of main transmission grid; 27.3% for construction revenue; 13.4% for telecommunications revenue and 28.5% for distribution of piped gas. However, revenue from other sources declined 41.1% year over year.

In the fiscal year 2011, net revenue jumped 12.7% year over year to R$7,776.2 million (US$4,656.4 million).

Expenses/Income

During the quarter, operating costs and expenses went up 2.5% year over year to R$1,937.1 million (US$1,076.2 million), due primarily to a rise in expenses in almost all the categories except for a 1.6% decline registered in expenses incurred for the use of main transmission grid, 20.6% decline in provisions and reversals and 52.2% decline in other operating costs and expenses.

The company recorded hike in the following categories: 5.6% increase in electricity purchased for resale, 17.6% hike in personnel and management and 34.2% in natural gas and supplies for the gas business.

EBITDA increased by 128.8% year over year to R$301.6 million (US$167.6 million) with an EBITDA margin of 14.4% versus 7.0% in the year-ago quarter.

Balance Sheet

Exiting the fourth quarter of 2011, COPEL’s cash and cash equivalents plummeted 29.6% sequentially to R$1,049.1 million (US$564.0 million) compared with R$1,490.5 million (US$814.5 million) in the previous quarter. Loans, financing and debentures, net of current portion also dipped marginally by 0.6% to roughly R$2,058.0 million (US$1,106.5 million).

Cash Flow

Net cash flow from operating activities in the fiscal year 2011 was R$1,147.9 million (US$687.4 million), down 8.0% year over year while capital spending was R$821.9 million (US$492.2 million), up 132.6% year over year.

For the fiscal year 2012, COPEL plans to spend approximately R$2,257.4 million, with roughly 47.4% on Generation and Transmission, 48.9% on Distribution and 3.7% on Telecommunications.

Companhia Paranaense de Energia is a fully integrated electric utility of Brazil engaged in the generation, transmission, and distribution of electricity to the State of Paraná. The provincial government of the State of Paraná controls 58.6% of the shares of COPEL. The company faces stiff competition from Cia Energetica de Minas Gerais (CIG) and Enersis S.A. (ENI).

We currently maintain a Neutral recommendation on the stock.

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