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Summary

 

 

 

 

 

Rio de Janeiro, August 15th, 2016 - Eletrobras (Centrais Elétricas Brasileiras S.A.)
[ BM & FBOVESPA: ELET3 and ELET6 - NYSE: EBR and EBR- B (suspended trading) - OTC: EBRYY and EBRBY - Latibex: XELTO and XELTB], the largest company in the Latin American power sector, active in the generation, transmission and distribution segments, with 14 subsidiaries, a participations company – Eletropar, a research center – Cepel and 50% of the Social Capital of Itaipu Binacional, announces its results for the period.

 

Eletrobras presented, in the 6MO16, a Net Profit attributed to the controllers of R$ 8,824 million, in comparison with a net loss of R$ 103 million recorded in the 6MO15. In the 2Q16, the company presented a Net Profit attributed to controlling of R$ 12,722 million, compared to a net loss attributed to controlling of R$ 3,898 million in the 1Q16.

 

The Result of the 6MO16 was strongly influenced by several variables, among which the following stand out: (i) effects of MME Ordinance No. 120, of April 20th 2016, which established the terms of payment and remuneration on the Basic Network Existing System (RBSE), with an impact on transmission revenue, in the Transmission return rates updates account, in the amount of R$ 25,810 million; (ii) Provision for Income Tax/Social Contribution for the aforementioned RBSE in the amount of R$ 8,775 million;  (iii) Operating Provisions in the amount of R$ 6,587 million, mainly for the impairment and provision for onerous contract relating to the Angra 3 nuclear power plant in the amount of R$ 4,092 million; and (iv) Losses in distribution subsidiaries, which totaled R$ 1,811 million in 2016.

 

The result for the 2Q16 was also impacted by the following variables:

 

Ø  Positively: (i) Effects of MME Ordinance No. 120, of April 20th 2016, which established the terms of payment and remuneration on the Basic Network Existing System (RBSE), with an impact on transmission revenue, in the Transmission return rates updates account, in the amount of R$ 25,810 million; (ii) Decrease by 110% in fuel cost compared to the 1Q16; (iii) Increase by 8.8% in supply revenue in generation compared to the 1Q16; and (iv) Reversal of provision relating to court proceedings involving compulsory loan in the amount of R$ 1,010 million, resulting in net effect, as compulsory loan lawsuits, in the period's result in the amount of R$ 394 million, in view of the increase by R$ 616 million in the monetary update account related to these lawsuits.

 

Ø  Negatively: (i) Provision for Income Tax/Social Contribution related to the acknowledgment of the aforementioned RBSE in the amount of R$ 8,775 million; (ii) Operating provisions amounting to R$ 3,574 million, mainly for the impairment and provision for onerous contract related to the Angra 3 plant in the amount of R$ 4,092 million; and (iii) decrease by 10.3% in supply revenues in the distribution segment.

 

 

HIGHLIGHTS IN THE CONSOLIDATED RESULT OF THE 2Q16:

 

»NET Operating Income: R$ 33,085 million;

»Accounting Acknowledgment relative to the RBSE with net impact: R$ 17,035 million

»Impairment and provision for onerous contract of Angra 3: R$ 4,092 million;

»EBITDA: R$ 23,385 million; and

»Net Financial Income: R$ 1,232 million negative.

 

 

 

 

 

 

 

 

I.1 Main variations of the Income Statement

 

Variations of the Income Statement (2Q16 x 1Q16)

 

The result of the 2Q16 recorded an increase by 426% relative to the 1Q16, with a Net Profit attributed to controlling in the amount of R$ 12,722 million in the 2Q16, against a net loss attributed to controlling in the amount of R$ 3,898 million in the 1Q16.

The Net Operating Income, amounting to R$ 33,085 million, recorded an increase by 389% in the 2Q16 relative to the 1Q16 (R$ 6,761 million). In the analysis by segment, we present the following highlights:

»     Generation revenues increased by 15.7%, from R$ 4,296 million in the 1Q16 to R$ 4,969 million in the 2Q16. Supply revenue increased from R$ 3,055 million in the 1Q16 to R$ 3,325 million in the 2Q16, due mainly to the acknowledgement of CGTEE's revenue estimate from financial settlements in the Electric Energy Trading Chamber (CCEE). The Itaipu transfer increased from a negative amount of R$ 148.0 million to a positive amount of R$ 11.0 million in the 2Q16, influenced by the effects of the dollar rate variation calculated from the American indices Commercial Price and Industrial Goods. Short-Term Energy revenues (CCEE) increased from R$ 256 million to R$ 364 million, due mainly to the increase in the Settlement Price of Differences (PLD) in the 2Q16. Supply revenues also increased, by 14.3%, from R$ 641 million to R$ 733 million in the 2Q16, reflecting revenue growth of Amazonas Energia Distribuição for thermal plants of the isolated system.  The total amount of energy sold by Eletrobras companies increased from 56.5 TWh in the 1T16 to 57.1 TWh in the 2Q16. Construction revenue increased from R$ 18 million to R$ 23 million in the 2Q16, but with no effect on the result since it has equivalent value at the cost of construction.

»     Transmission Revenues increased by 2,150%, from R$ 1,209 million in the 1Q16 to R$ 27,214 million in the 2Q16, influenced mainly by the effects of MME Ordinance No. 120, of April 20th 2016, which established the terms of payment and remuneration on the Basic Network Existing System (RBSE), with an impact on transmission revenue, in the Transmission return rates updates account, in the amount of R$ 25,810 million. Construction revenue increased from R$ 312 million in the 1Q16 to R$ 474 million in the 2Q16, but no effect on the result, since it has equivalent amount recorded at the cost of construction.

»     Distribution Revenues decreased by 6.1%, from R$ 2,514 million in the 1Q16 to R$ 2,360 million in the 2Q16. The reduction in revenues is due mainly to the decline in supply revenue, from R$ 2,287 million in the 1Q16 to R$ 2,054 million in the 2Q16, due mainly to tariff flag changes and the reduction of energy consumption due to the economic scenario. The amount of energy sold decreased from 4.3 TWh in the 1Q16 to 4.2 TWh in the 2Q16. Construction revenue increased from R$ 157 million in the 1Q16 to R$ 215 million in the 2Q16, but with no effect on the result since it has equivalent value at the cost of construction.

 

- Energy Purchased for Resale increased by 6.8%, from R$ 2,169 million in the 1Q16 to R$ 2,317 million in the 2Q16. Since part of the Energy Purchased for Resale by the distribution companies is reimbursed by the CCC/CDE, pursuant to Law 12,111/2009, this increase is mainly due to reduced recoveries of expenses on behalf of CCC/CDE by Ceron, given that the cost per MWh of bilateral contract with Termonorte II was below the average ACR, which made the company calculate a negative refund.

 

- In the Use of the Electric Network account, a reduction by 1% was recorded. A net expense of R$ 405 million was recorded in the 1Q16 while a net expense of R$ 401 million was recorded in the 2Q16.

- A decrease by 110% was recorded in the Fuel for Electric Power Production account. An expense of R$ 419 million was recorded in the 1Q16, while a reversal of expense of R$ 43 million was recorded in the 2Q16, due primarily to the deactivation of some fuel-powered plants of Amazonas Energia, the transfer of fuel costs to the isolated system's power plant lessors and the reduction of generation in Eletrobras' thermal power plants, mainly Roberto Silveira, Aparecida and Mauá thermal plants, in 2016.

- In the 2Q16, the sum of the Personnel, Materials and Services (PMS) account increased by 12.4%, from R$ 1,988 million in the 1Q16 to R$ 2,234 million in the 2Q16. Personnel, Materials and Services, recorded increase by 0.8%, 21.1% and 43.3%, respectively. The Services account increased from R$ 511 million in the 1Q16 to R$ 733 million in the 2Q16, influenced mainly by expenses on contracts for internal investigation.

 

- Operating provisions increased from R$ 3,013 million in the 1Q15 to R$ 3,574 million in the 2Q16. In the 2Q16, operating provisions were mainly influenced by the impairment and the provision for onerous contract related to the development of the Angra 3 nuclear plant, amounting to R$ 4,092 million, (see Explanatory Notes 19 and 33 in the Financial Statements). This provision was partially offset by the reversal in the Provision for Legal Contingencies, amounting to R$ 596 million, caused mainly by the reversal of provision relating to court proceedings involving compulsory loan in the amount of R$ 1,010 million, (see Explanatory Note 30 in the Financial Statements).

Note:  Negative values in the table above indicate reversals of provisions.

 

- Shareholdings recorded an increase by 106.6% resulting from the accounting of a positive amount of R$ 182 million in the 1Q16 to a positive amount of R$ 376 million in the 2Q16, with emphasis on the equity interest of Furnas, influenced mainly by the improvement in the result of the Madeira Energia SPE which is due mainly to the reduction in costs with purchased energy due to the renegotiation of the GSF (Law 13,203/2015), entry into operation of new power generation turbines and the acknowledgment by Aneel of the claim for "exemption from responsibility" for the delay in the entry into operation of some machines.

 

- Net Financial Result increased from a net expense of R$ 1,345 million in the 1Q16 to a net loss of R$ 1,232 million in the 2Q16, with no relevant variation.

 

 

Main Variation in Results (6MO16 x 6MO15)

 

In the 6MO16, Eletrobras recorded a net Profit attributed to the controllers of R$ 8,824 million, compared to a net loss of R$ 103 in the 6MO15.

The Net Operating Revenue, amounting to R$ 39,847 million, recorded in the 6MO16, an increase by 137% relative to the 6MO15, when an amount of R$ 16,826 million was recorded. In the analysis by segment, we present the following highlights:

»     Generation Revenues decreased by 14.3%, from R$ 10,806 million in the 6MO15 to R$ 9,266 million in the 6MO16. This decrease was influenced by the fall in energy sales revenue in the short-term market, the CCEE, from R$ 1,644 million in the 6MO15 to R$ 620 million in 6MO16, strongly influenced by the decrease in the Settlement Price of Differences (PLD). The decrease by 26.2% in the Supply Revenue, influenced by the adjustments resulting from the extension of contracts with Chesf’s industrial consumers, effective only in the 12MO15, and from the unbundling of Amazonas Energia, since the energy sold, formerly classified as past supply, was then recorded in the Supply account of Amazonas GT, also contributed to the decrease. There was also a decrease in the Itaipu Transfer, from a positive amount of R$ 106 million in the 6MO15 to a negative amount of R$ 136 million in the 6MO16, influenced by the effects dollar variation on monetary adjustment based on the American price indices Commercial Price and Industrial Goods. The total volume of energy sold by Eletrobras companies decreased from 122 TWh in the 6MO15 to 114 TWh in the 6MO16. Construction revenue decreased from R$ 154 million in the 6MO15 to R$ 5 million in the 6MO16, but it has no effect on the result of the 6MO16, since it has equivalent amount recorded at construction cost.

»     Transmission Revenues increased by 1,098%, from R$ 2,373 million in the 6MO15 to R$ 28,424 million in the 6MO16, influenced mainly by effects of MME Ordinance No. 120, of April 20th 2016, which established the terms of payment and remuneration on the Basic Network Existing System (RBSE), with an impact on transmission revenue, in the Transmission return rates updates account, in the amount of R$ 25,810 million. Operating and Maintenance Revenue increased by 11.8%, from R$ 1,313 million in the 6MO15 to R$ 1,468 million in the 6MO16. Construction revenue increased from R$ 651 million in the 6MO15 to R$ 786 million in the 6MO16, with no effect to the result because it has equivalent amount recorded at cost of construction.

 

»     Distribution Revenues decreased by 33.8%, from R$ 7,365 million in the 6MO15 to R$ 4,873 million in the 6MO16 due to the deconsolidation of CELG-D. Excluding CELG-D’s revenues in the 6MO15, distribution revenues would present an increase by 36.6%, from R$ 3,567 million in the 6MO15 to R$ 4,874 million in the 6MO16. This increase was influenced by the 37% increase in Supply Revenues, from R$ 3,175 million (excluding CELG-D) in the 6MO15 to R$ 4,341 million in the 6MO16. The increase seen in Supply Revenue is mainly due to the annual tariff adjustment and implementation of tariff flags, the latter being offset by an increase of sector charges. Construction Revenue increased from R$ 358 million in the 6MO15 to R$ 372 million in the 6MO16, but with no effect to the result as it has equivalent amount recorded as cost of construction. The amount of energy sold increased from 8.47 TWh in the 6MO15 to 8.52 TWh in the 6MO16, showing no variation, therefore, when excluding CELG-D in the 6MO15.

- Energy purchased for resale decreased by 28.3%, from R$ 6,254 million in the 6MO15 to R$ 4,486 million in the 6MO16. Excluding CELG-D’s expenses for the purchase of electricity for resale, this reduction would reach 5.1% and an amount of R$ 4,725 million in the 6MO15. This result was influenced mainly by the recording of the effects of the Hydrological Risk Adjustment Factor (GSF) in the 6MO15, pursuant to Law 13,203/15, which was smaller in the 6MO15.

- In the Fuel for Power Production account, a net expense of R$ 935 million was recorded in the 6MO15, while a net expense of R$ 377 million was recorded in the 6MO16. The result of the 6MO15 was impacted by ANEEL resolution 679/2015, issued on September 1^st 2015, which amended the criteria for refund of fuel, to reduce the period of receipt of these resources by the supplier. In the 6MO16, the result was affected by the reduced generation of Eletrobras companies’ thermal plants.

- In the 6MO16, the sum of the Personnel, Materials and Services (PMS) account increased by 3.5%, from R$ 4,077 million in the 6MO15 to R$ 4,222 million in the 6MO16. The Personnel account increased by 7.9% while the Materials and the Services accounts decreased by 13.0% and 3.4%, respectively. Excluding the expenses relative to CELG-D in the 6MO15, the sum of the Personnel, Materials and Services account presents an increase by 14.7%, from R$ 3,682 million in the 6MO15 to R$ 4,222 million in the 6MO16. Excluding CELG-D, the Personnel account increased by 14.6%, from R$ 2,483 million in the 6MO15 to R$ 2,845 million in the 6MO16, influenced by the collective bargaining agreement of 2015, which began to take effect after the 12MO15. Excluding CELG-D, the Services account increased by 17.9%, from R$ 1,056 million in the 6MO15 to R$ 1,245 million in the 6MO16, due mainly to expenses with internal investigation, and the Materials account decreased by 7.6%, from R$ 143 million in the 6MO15 to R$ 132 million in the 6MO16.

 

 

 

 

 

 

1. Excluding CELG-D, in view of its deconsolidation as of the 1Q16.

2. Including CELG-D, since its deconsolidation was only effective as of the 1Q16.

3. Excluding CELG-D, for comparison in the periods.

 

- Operating Provisions increased from R$ 1,228 million in the 6MO15 to R$ 6,587 million in the 6MO16. In the 6MO16, Operating Provisions were influenced mainly by (i) the impairment and the provision for onerous contract relating to the development of the Angra 3 nuclear plant, totaling R$ 4,092 million; and (ii) the provision for Legal Contingencies, in the amount of R$ 2,353 million, mainly for the provision of R$ 1,901 million relating to court proceedings involving compulsory loan (see Explanatory Note 30 of the Financial Statements).

 

- Shareholdings recorded a positive amount of R$ 36 million in the 6MO15 and a positive amount of R$ 558 million in the 6MO16. This change was caused mainly by the atypical results, in the 6MO15, of SPEs Madeira Energia (Santo Antonio Hydro), and ESBR (Jirau Hydro). The result of these SPEs in the 6MO15 was due mainly to hydrologic exposure and provision for contingencies on the basis of claims with Aneel concerning the "exemption from responsibility" in delaying the entry into operation of some machines.

- Net Financial Result decreased from a net revenue of R$ 330 million in the 6MO15 to a net expense of R$ 2,577 million in the 6MO16. This variation is due mainly to the termination of receipt of interest and updates in the 6MO16 relating to indemnification claims for the first tranche of Law No. 12,783/2013, reflected in the compensation account due to the full payment of the aforementioned tranche. An increase in debt charges, from R$ 2,251 million in the 6MO15 to R$ 2,991 million in the 6MO16, and the net foreign exchange rate variation result, from a net revenue of R$ 242 million in the 6MO15 to a net expense of R$ 362 million in the 6MO16, also contributed to the worsening of the financial result.

 

 

 

I.2 Energy Trading

 

 

I.2.1 Energy Sold in the 6MO16 - Generation-TWh

 

In terms of energy market developments, Eletrobras companies sold 114 TWh of energy in the 6MO16, compared to 122 TWh traded in the same period of the previous year, which represents a decrease by 6.6%.

   

 

 

I.2.2 Energy sold in the 6MO16 - Distribution Companies -TWh

 

In terms of energy market developments, Eletrobras' Distribution Companies sold 8.52 TWh of energy in the 6MO16, compared to 8.47 TWh traded in the same period last year, representing an increase by 0.5%.

 

 

*Celg D became consolidated in Eletrobras' result as of September 2014 and from January 2016 it is no longer consolidated. Therefore these values do not take CELG D's energy sales into account.               

** Only the captive market is considered.

 

 

 

 

 

 

 

 

 

 

 

 

 

I.3 Impairments and Onerous Contracts

 

 

 

 

* The table considers an increase by R$ 50 million in the onerous contract of Amazonas Energia's intangibles, with no effect on the Company's result.

 

 

I.4 Consolidated EBITDA

 

 

 

I.4.1 EBITDA from Subsidiaries*

 

In the 2Q16, the sum of Eletrobras' subsidiaries's EBITDA was positive in the amount of R$ 22,689 million, which represents an increase by 2,862%, compared to a positive EBITDA of R$ 766 million in the 1Q16. In the 6MO16, Eletrobras' subsidiaries' EBITDA was positive in the amount of R$ 23,455 million.

 

 

EBITDA = net profit or loss for the period, plus the taxes on the profit, net financial expenses, financial income and depreciation, amortization and depletion, as determination of follows the Instruction CVM 527/12.

p.p. = percentage points

Source: Financial statements attached to this document.

* The result of the 6MO15 was adjusted to exclude CELG-D in order to maintain comparability between the periods.

 

I.6 Net debt

 

 

 

II. Analysis of the Result of the Parent Company

 

Eletrobras presented, in the 2Q16, a Net Profit of R$ 12,721 million, in comparison with a net loss of R$ 3,898 million recorded in the 1Q16.

Eletrobras presented, in the 6MO16, a Net Profit of R$ 8,824 million, in comparison with a net loss of R$ 103 million recorded in the 6MO15.

The result of the 6MO16 was decisively influenced by: (i) Shareholding earnings in the amount of R$ 18,250 million, influenced mainly by the effects of MME Ordinance No. 120, of April 20th 2016, which established the terms of payment and remuneration on the Basic Network Existing System (RBSE); (ii) Unsecured liabilities in subsidiaries in the amount of R$ 6,379 million, especially at Eletrobras' and Eletronuclear's distribution companies; (iii) Provisions for legal contingencies, amounting to R  1,901 million, mainly due to the provisions relating to judicial proceedings of compulsory loan (See Explanatory Note number 30 of the Financial Statements); and (iv) Negative net foreign currency exchange variation in the amount of R$ 542 million.

The following chart shows a comparison of the results of Eletrobras Holding in the 6MO16 and the 6MO15.

 

 

                                        

 

 

 

 

 

II.1 Eletrobras' Shareholdings

 

In the 2Q16, the result of Shareholdings positively impacted the Company's results by R$ 17,388 million resulting from the valuation of equity investments, mostly due to the result of the equity of subsidiaries, influenced mainly by the effects of MME Ordinance No. 120, of April 20th 2016, which established the terms of payment and remuneration on the Basic Network Existing System (RBSE).

In the 6MO16, the result of shareholdings positively impacted the Company's result by R$ 18,250 million, higher than the result of the 6MO15 (R$ 625 million positive) as shown below:

 

 

 

 

 

II.2 Energy Commercialized by Parent Company

a.Itaipu Binacional

 

 

a. 1 Itaipu Binacional Financial Asset

 

(See Explanatory Note 17.1.1 in the Financial Statements)

 

Pursuant to Law 11,480/2007, as of 2007, the adjustment factor of the financing agreements between Eletrobras and Itaipu Binacional and the credit assignment agreements with the Treasury, based on the American price indices Commercial Price and Industrial Goods, was removed, while the Company's flow of receivables was assured.

As a result, Decree 6265, of November 22nd 2007, was issued, regulating the sale of electricity from Itaipu Binacional, setting the differential to be applied to the transfer tariff, creating an asset related to the part of the calculated annual differential, equivalent to the annual factor from the financing, included annually, as of 2008, in the transfer rate used by the Company, maintaining the flow of receivables originally established in the financing contracts.

 

 

The amounts relative to the annual adjustment factor are set annually by ministerial decree of the MME and shall be effective by the inclusion in the transfer tariff to be charged until 2023.

The balance resulting from Itaipu Binacional adjustment factor, included under Itaipu Financial Assets presented under Current Assets (R$ 691 million) and under Non-Current Assets (R$ 4,223 million), amounts to R$ 4,914 million on June 30th 2016, of which R$ 3,217 million will be transferred to the National Treasury until 2023, as a result of the credit assignment transaction between the Company and the National Treasury in 1999, pursuant to Provisional Measure 1755-9, of December 14 1998.

The figures for Itaipu Financial Assets will be achieved through their inclusion in the current transfer rate until 2023.

Thus, given that the Itaipu Financial Assets is a compensation due to the financing contract granted by Eletrobras to Itaipu, the amount of the receivable financial asset is being considered as a discount in the calculation of Net Debt.

 

 

II.3 Financial Result

 

In the 6MO16, the Financial Result impacted negatively the result of the Parent Company by R$ 331 million, a result that is worse than that of the 6MO15 - R$ 1,678 million positive. This variation is explained mainly by the lower result of the exchange rate applicable to the financing receivable from Itaipu in dollars.

 

In the 2Q16, the Financial Result impacted negatively the result of the Parent Company by R$ 179 million, as shown below:

 

 

The main indices of financing contracts and transfers presented the following variation:

 

 

Evolution of the variation of the IGP-M and the dollar (%)

 

 

 

 

 

 

 

 

II.4 Operating Provisions

 

In the 6MO16, the Operating Provisions impacted negatively the result of the Parent Company by R$ 8,326 million, compared to R$ 1,733 million in the 6MO15. This variation is due to Unsecured Liabilities in subsidiaries in the amount of R$ 6,379 million.

In the 2Q16, Operating Provisions impacted negatively the result of the Company by R$ 3,999 million, also influenced mainly by Unsecured Liabilities in subsidiaries and the provisions for legal contingencies, as follows:

 

 

 

III. General Information

 

 

Portfolio of Receivable and Payable Financing

 

a.    Financing and Loans Granted

Financing and loans are granted with the company's own resources, as well as with sectorial resources and external resources obtained through international development agencies and financial institutions and also from the issuance of bonds in the international financial market.

 

All financing and loans granted are supported by formal agreements with the borrowers. The proceeds of these values, in most cases, are provided in monthly installments, repayable in an average term of 10 years and the average interest rate, weighted by the portfolio balance, is 8.27% per year.

 

The financing and loans granted by the parent company, with currency adjustment clause, account for about 36% of the total portfolio (42% on December 31, 2015). On the other hand, the financing and loans granted that provide for adjustment based on indices that represent the level of domestic prices in Brazil account for 64% of the portfolio balance (58% on December 31, 2015).

 

 

The market values ​​of these assets are close to their book values​, as they are specific operations of the sector and are formed in part through sectorial funds resources that do not find similar comparable conditions at market value.

 

The decrease in the balance of loan receivables in the quarter ended June 30th is mainly due to the foreign currency exchange rate calculated on the loans granted to Itaipu, due to the devaluation of the dollar against the Brazilian real compared to the closing prices of June 2016 and December 2015. The dollar exchange rate ranged negatively about 18%.

 

The long-term portion of financing and loans granted, based on expected cash flows contractually are due in variable installments as follows:

b.    Financing and Loans Payable

Debts are guaranteed by the Federal Government and/or by Eletrobras and are subject to charges, whose average rate in 2016 is at 9.60% p.a. (9.40% p.a. in 2015), and have the following profile:

 

 

 

The portion of long-term loans and financing have maturity programmed as follows:

 

 

 

Ratings

 

 

 

 

Eletrobras  Chart

 

 

 

INVESTMENTS

 

* Budget for 2016 altered pursuant to Decree of 02/25/2016.

 

 

Social Capital

 

Structure of the Social Capital

 

On June 30^th 2016, the capital of Eletrobras was as follows: