apre 2 t03
TRANSCRIPT
1
2nd Quarter of 2003 Earnings Presentation
August, 2003
2
I. Market
II. Investments
III. Tariff Reset
IV. New Model
V. Financial Indicators
VI. Indebtedness
VII. Conclusion
3
I. Market
II. Investments
III. Tariff Reset
IV. New Model
V. Financial Indicators
VI. Indebtedness
VII. Conclusion
4
Eletropaulo’s Market Billed in GWhEletropaulo’s Market Billed in GWh
2.000
2.200
2.400
2.600
2.800
3.000
3.200
3.400
January
Febru
aryM
arch
AprilM
ayJu
ne
July
AugustSep
tem
berOct
ober
Nove
mber
Decem
ber
1999 2000 2001 2002 2003
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Consumption forecast for 2nd Half of 2003Consumption forecast for 2nd Half of 2003
Water and sanitation (+)
Public lighting (-)Other
Low economic activity Industrial class
Seasonal growth (Christmas), automation growth (air conditioning, electronic systems, etc.), absence of holidays
Commercial class
Small holding growth
(aggregation of new consumers)
Maintenance of consumption average
Residential class
6
Consumption Comparison in GWhConsumption Comparison in GWh
4,917 5,2134,272
1,578
15,980
5,3094,835 4,664
1,732
16,540
Residential Industrial Commercial Other Total
1st Half 02 1st Half 03
7.98% -7.26%9.18%
9.76%
9.69%
7
I. Market
II. Investments
III. Tariff Reset
IV. New Model
V. Financial Indicators
VI. Indebtedness
VII. Conclusion
8
Investments During1st Half of 2003
Investments During1st Half of 2003
1st Q 03 2ndQ 03
Distribution Sub-transmissionAdministrative
66% 68%
14%
20% 15%
17%R$ 38 MM
R$ 50 MM
Eletropaulo invested from 1998 to 2002 – R$1,438 million.
1st half of 2003 – R$ 88 million were invested, accounting for an increase of 3% compared to the same period in the prior year.
Investments in 2003 are being made in:
Grid MaintenanceConnection of New CustomersImprovement in consumers’ service rendering
Total of Investments projected for the year – R$ 206 million.
9
I. Market
II. Investments
III. Tariff Reset
IV. New Model
V. Financial Indicators
VI. Indebtedness
VII. Conclusion
10
Tariff Reset MechanismTariff Reset Mechanism
RateRate
DepreciationDepreciation
O & MO & M
Parcel B
BaseBase
Required Revenue
Parcel AParcel A
MWhx
Tariff
MWhx
Tariff
Verified Revenue
x
Reset % = Required RevenueVerified Revenue
WACC(Pre-Tax)
WACC(Pre-Tax)
11
Reconstitution of Tariff ResetReconstitution of Tariff Reset
Reconstitution of Tariff Reset – from 9.62% (NT 097/2003-Aneel – May 21/03) to 10.95% (Final RT – June 30/03)
11.35%Final Increase
0.4%(8) Bubble
10.95%RT Final Index
-0.14%(7) Other Revenues
0.60%(6) Verified Revenue
1.75%(5) Charges
1.10%(4) Energy
0.21%(3) PIS and COFINS
0.48%(2) PMSO
6,94%Initial Proposal after macro adjustment
-2.68%(1) Macro Adjustment
9.62%Initial Proposal
1. Macro Adjustment: dollar variation from R$ 3.10/US$ to R$ 2.87/US$ and IGP-m from 31.41% to 28.22%
2. PMSO – Review of number of employees in the reference company and increase in other expenses of O&M, such as customer service rendering and technical services.
3. PIS/COFINS - Increase in required revenue
4. Energy – Amendment to IC with Cesp in the amount of R$ 65.58/MWh, causing it not to use PMAE (R$ 8.00/MWh) in its energy deficit. Also had its % of losses reviewed.
5. Charges – Major increases in basic grid, connection, and CUSD
6. Verified Revenue – Reduce due to market review
7. Other revenues – Increase in revenue referring to TUSD (which is subtracted from required revenue)
8. Referring to costs incurred during rationing and future expenses with financial collaterals for energy purchase. Valid only for one year.
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Tariff Reset 2003Tariff Reset 2003
Actuarial costs with FCESP are not being considered by ANEEL.
FCESP
Aneel Level - 0,5% of Gross Revenue excluding ICMS. Far below the historical level of Eletropaulo, of 1.87% of Gross Revenue.
PDD
Inconsistency in periods considered in tariff calculation; leads to a lower tariff.
Test Year
Aneel considered personnel costs below the market in Eletropaulo’s area.
PMSO
Aneel considered a percentage of 90% of the fix assets, adjusted by inflation –subject to Public Hearing, with no definition of date.
Rate
Base
DescriptionPending Issue
Main pending issues in TR:Index Composition:
Value R$ thousand Participation in Parcel A Energy Purchase 3.314.595Initial 1.703.796Bilateral 528.660Itaipu 1.082.139Charges 1.255.479Basic Grid 501.952Connection 177.847Transportation Itaipu 59.582CCC/CDE 396.108Other 119.991Total 4.570.074Participation in Parcel B Rate 894.835O&M 624.148PDD 29.437Other 698.520Total 2.246.940Total A+B 6.817.014Other Revenues (-) (81.929)Total Required Revenue 6.735.085Verified Revenue 6.070.338Revision Index 10,95%Bubble 0,40%Total Index 11,35%
13
I. Market
II. Investments
III. Tariff Reset
IV. New Model
V. Financial Indicators
VI. Indebtedness
VII. Conclusion
14
Main Features of The New Model Main Features of The New Model
Proposes two contractual environments that will work in parallelRegulated Contractual Environment – “Pool” – public generation and distribution concessionaires and IPPs that choose to work via “pool”Free Contractual Environment – restricted to free consumers, traders, and IPPs
General Energy Contractual Model
IPP
IPP
IPP: Independent Power Producer; TR: Trader; FC: Free Consumer
Consumption
IPP
IPP
IPP
Generation Transmission Distribution
Regulated Contractual Environment
Free ContractualEnvironment
FCFCFC
FC
TR
IPP
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Main Features of the New ModelMain Features of the New Model
Planning will be centralized and mandatory with two main functions:
Define the amount of energy and the projects that shall be auctioned though the pool
Indicate the need for additional supply agreements and the safety margin for the operation of the system
ACEE will be responsible for managing trade relations between distribution and generation concessionaires and will also carry out the wholesale energy market (MAE) activities as a whole
The tariffs in the pool will be based on the average price between the “old” and “new” energy, with a floor based on the average price of the existing bilateral contracts
Self-dealing will no longer be accepted
PPIs will be able to sell energy in the pool under long-term contracts using a sector index, yet to be defined, and subject to periodic tariff resets
Free consumers
Consumers having contracted demand of 3,000 kW or more may opt to contract energy from a trader or from an IPP
In case of expansion, the captive consumer may opt to contract the additional load in the condition of a free consumer
The choice to become a free consumer or to return to the condition of captive consumer shall be made at least 5 years in advance
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Impacts of the New
Model on Eletropaulo
Distribution companies will have to contract 100% of their five-year market forecast within the poll and will be subject to “undefined” fines in case forecast does no materialize.
Will not be allowed to sell energy to free consumers.
PPAs in force and validated by ANEEL will be honored PPA between Tiete and Eletropaulo
New Model fails to address possible losses in case of rationing
Impacts of the New ModelImpacts of the New Model
17
I. Market
II. Investments
III. Tariff Reset
IV. New Model
V. Financial Indicators
VI. Indebtedness
VII. Conclusion
18
Earnings – 2Q2003 (R$ million)Earnings – 2Q2003 (R$ million)
1Q03 2Q03
NET REVENUE 1,409.1 1.495,2 6.1%
OPERATIONAL EXPENSE (1,255.9) (1.377,1) 9.7%
EBITDA 153.2 184,1 20.2%
FINANCIAL REVENUE (EXPENSE)*
(13.9) 153,8 1,206%
RESULT BEFORE TAXATION 70.5 272,2 286%
NET PROFIT (LOSS) 14.2 110.1 675%� Consumption increase� Appreciation of “Real”
Positive Impact:� Exchange rate variation due to appreciation of Real towards Dollar (14.35%)�Reduction of the account Local Currency Monetary Variation due to deflation of IGP-M in the period of - 0.34%
� Increase in consumption by residential and industrial classes� Increase in billed days
(*) Values of Consolidated
Positive Impact:�Increase in net operational revenue �Reduction in allowance for CVM 371
1,495.2
(1,377.1)
184.1
153.8
272.2
Allowances for contingencies;PDD;Material for grid maintenance
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EBITDA AdjustmentEBITDA Adjustment
R$ 337.3 millionEBITDA
(with the effect of CVM 371)
R$ 215.7 million
R$ 553.0 millionR$ 553.0 million
EBITDA (WITHOUT EFFECT OF
ALLOWANCE FORCVM 371)
Allowance for Actuarial Liability with Fundação Cesp – CVM 371
R$ 394.2 million EBITDA
1st Half of 2002 1st Half of 2003
R$ 394.2 millionR$ 394.2 million EBITDA
R$ 0.00
40.3% Growth
20
TOTAL ACCOUNTED188,4 mn
CVM 371123.6 mn
RESERVES TO BE AMORTIZED
62.0 mn
Fundação Cesp Accountability on Expenses with PersonnelFundação Cesp Accountability on Expenses with Personnel
SPONSOR2.8 mn
CVM 37192.1 mn
RESERVES TO BE AMORTIZED
65.2 mn
SPONSOR2.9 mn
CVM 371215.7 mn
RESERVES TO BE AMORTIZED
127.2 mn
SPONSOR5.7 mn
1st Quarter 03 2st Quarter 03 1st Half 03
TOTAL ACCOUNTED 160,2 mn
TOTAL ACCOUNTED348,6 mn
21
I. Market
II. Investments
III. Tariff Reset
IV. New Model
V. Financial Indicators
VI. Indebtedness
VII. Conclusion
22
Indebtedness in the 2nd quarter of 2003Indebtedness in the 2nd quarter of 2003
In the 2nd quarter of 2003, Eletropaulo maintained 41% of its total indebtedness in dollars
Eletropaulo still has limited access to hedge operationsTotal hedge in July 2003 - US$ 120 million,Hedge corresponds to 16.0% of consolidated indebtedness in dollars
59%
41%
R$
US$
45%
55%
(*) The values were converted by Ptax at the end of each month:Mar/ 2003 – 3.353Jun/ 2003 – 2.872
Consolidated Debt - Jun/30/2003(R$ 5.3 billion,
R$ 2.16 billion denominated in US$)*
Consolidated Debt – Mar/31/2003(R$ 5.8 billion,
R$ 2.6 billion denominated in US$)*
R$
US$
16.0% w/ hedge
14.2% w/ hedge
Exchange rate exposure of 34%
Exchange rate exposure of 38%
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53%
47%
Long-Term Short-term
Indebtedness – Short-term x Long-termIndebtedness – Short-term x Long-term
The total accounted in the Short-term does not reflect the real maturity schedule, once it includes some debts for non-compliance with contractual provisions (financial covenants), cross-default, and payment default.
According to the maturity schedule, approximately 47% of the debt will be due in the Short-term.
Effective – June 2003 Accountable – June 2003
72%
28%
Short-term Long-term
R$ 1,352 million were reclassified
as short-term
24
1 2 4
192
4
171
63 58
35
220
37 37
9 10 10 10 10 10
July August September October November December
Maturity Schedule of Principal in 2003 (R$ million)Maturity Schedule of Principal in 2003 (R$ million)
The company intends to maintain its strategy of accommodating the maturity of its debt to its cash generation, through time extension of the due dates of its loans
US$ R$ BNDES
192
Bank Loan Deustche
Bank
(US$ 60 million)
220
SindicatedLoan
JP Morgan (R$ 160 million)
171
Commercial Paper (US$ 49 million)
Note: The maturity of principal of he debts in dollar as of Jun/30/2003 were converted by the exchange rate of such date (US$/R$ = 2.872)
25
11 11 11 11 12 12 12 12 12 13 13 1320
325
8
106
86
124
0
2013
0 0
50
228
31 31
195
32 32 33
191
39
15 15 15
jan/04 Feb/04 mar/04 Apr/04 May/04 jun/04 jul/04 Aug/04 Sep/04 Oct/04 nov/04 Dec/04
Maturity Schedule of Principal in 2003 (R$ million)Maturity Schedule of Principal in 2003 (R$ million)
US$ R$ BNDES
Syndicated Loan JP Morgan (R$
158 million) and Working Capital (R$ 38 million)
Bank Loan
Itau(US$100million)
Syndicated Loan Bank Boston
(US$ 30 million)
195
228
325
106
Syndicated Loan JP Morgan
(R$ 158 million)
86
Syndicated Loan Bank Boston
(US$ 30 million)
124
191
Syndicated Loan Bank Boston
(US$ 30 million)
Syndicated Loan JP Morgan (R$158 million)
39
Debentures R$ 39 million
Note: The maturity of principal of the debts in dollar as of Jun/30/2003 were converted by the exchange rate of such date (US$/R$ = 2.872)
26
Relevant Fact – August 14, 2003Relevant Fact – August 14, 2003
On August 13, 2003, BankBoston formally notified Eletropaulo that the total debt of US$305 million – obtained at the union belonging to the bank – was being considered due in advance.
Possibility of negotiations is not over.
Eletropaulo will promote a process to re-structure its debts globally at some private creditors.
The company still commits itself to keeping both its indicators and services at adequate and satisfactory levels.
27
Indebtedness Status on Jun/30/2003Indebtedness Status on Jun/30/2003
The loans that are not in payment default or cross-default are:Law 7976/89 –US$Order 96/93 – US$Clube de Paris – US$Law 4131 – US$Fundação Cesp – R$BBA – R$Consumers – R$
R$ US$ Total
With cross default Without cross default With Payment default
R$ 3,115 mn
R$ 2,160 mn
R$ 5,275 mn
13%51% 50%
29%
21%
61%
39%
36%
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Debt Renegotiation ProcessDebt Renegotiation Process
Main Objectives:
Liquidity improvement through accommodation of debt amortizationschedule to the company’s cash generationMitigation of exchange rate risks – conversion of debts denominated in
Dollars to ReaisContractual and financial equalizationCredit ratings improvement
Features of Renegotiation Process:
Paying interests during negotiations, but not the principalAmount to be renegotiated at banks = US$ 800 millionPresenting proposal to creditors in September and finishing process until the end of the year
29
I. Market
II. Investments
III. Tariff Reset
IV. New Model
V. Financial Indicators
VI. Indebtedness
VII. Conclusion
30
EletropauloEletropaulo
Eletropaulo is the major power distribution company in Latin America and its clients account for the part of population having the highest purchasing power in Brazil
Since its privatization in 1998 until 2002, Eletropaulo invested R$ 1,438 million, contributing to update and integrate its distribution grid and improve the quality of services rendered to consumers
Rationing caused a loss of R$ 1,965 milion, partially compensated by the Sector General Agreement, besides having created a change in consumers’ habits, which can be felt until today in the reduction of Eletropaulo’sconsumption level
At present, the company is developing new efforts to restructure its debts in order to accommodate the amortization time schedule to its cash generation and mitigate the exchange rate risks.
The regulatory scenario presents great challenge to Eletropaulo due to the government’s need to reduce the inflationary and social impact of tariff resets and to the uncertainties posed by the New Model proposal
A solid and feasible company, which has constantly tried to equate the due dates of its loans with its cash generation and to mitigate the
outcomes of uncertainty in the regulatory scope
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2nd Quarter of 2003 Earnings Presentation
August, 2003