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3Q17 Results November, 2017
RISK MANAGEMENT AND CONTINGENCIES • MoU with Eletrobras, seeking a settlement for CTEEP/Eletrobras case
MIGRATION TO NOVO MERCADO• Over 60% of preferred shareholders have approved the Migration to Novo Mercado• Withdrawal Rights of R$ 49.2 million and Migration approved by the Board of Directors
INDEBTEDNESS• Leverage reduction to 2.57x in the Net Debt³/Adjusted EBITDA ratio
PRODUCTIVITY PROGRAM¹• 31% improvement in SAIDI and 63% in ADA vs. 3Q16, generating
a reduction of R$ 101.3 million in operating expenses in the 3Q17
FINANCIAL PERFORMANCE• 71% increase in Adjusted EBITDA² in 3Q17 vs. 3Q16• Net Income of R$ 74 million in 3Q17 vs. R$ 33 million loss in 3Q16
1 – in real terms compared to 2016, excluding pension fund and weighted monthly at the effective rate (IPCA in relation to personnel costs and
IGP-M for other costs); 2 – Adjusted by the Pension Fund Expenses; 3 – Covenant-related debt; 2
3Q17 HIGHLIGHTS
FINANCIAL PERFORMANCE
1 - Excludes Private Pension Expenses (R$ 97.6 m in 3Q16 vs. R$ 97.8 m in 3Q17); 2 – Monthly weighted values at the effective rate (IPCA in
relation to personnel costs and IGP-M for other costs); 3 – Compensation of DIC / FIC / DMIC / DICRI 4
OPEX¹ ( in real terms ) 3Q16 – 3Q17 (R$ million)
Productivity Program exceeds expectation, reaching a R$ 101.3 million reduction in real terms in 3Q17
34
Compensations
50
ADA PMSO
548
17
-18.5%
OPEX 3Q17
446
OPEX 3Q16 real
548
Inflation
0
OPEX 3Q16
R$
-101.3million
Reductions in Fines of 52%, as a result of investments and consequent improvement of SAIDI/SAIFI indicators
ADA with a 63% reduction, showing progress on the strategy to fight bad debt
PMSO: increased productivity due to multitasking teams in network maintenance processes
51 –EBITDA adjusted by Pension Fund Expenses
Adjusted EBITDA¹ 3Q16 - 3Q17 (R$ million)
71% increase in EBITDA¹ due to gains with Productivity Program
Margin: reduction in the captive market, offset by higher tariff (Parcel B)
Regulatory/Tax Effects: mainly changes in tax calculation basis, updating of financial assets, overcontracting effects (3Q16)
Productivity Program: improvement in quality indicators and operational efficiency
R$
+165 million
63
102
+71.0%
Adj. EBITDA 3Q17
397
OPEXMargin and
Regulatory/Tax Effects
Adj. EBITDA 3Q16
232
6
Net Income advances R$ 107 million as a result of the Value Creation Strategy
1 - Net changes in IR/CSLL; 2 - Consider difference of rates between quarters
Net Income¹ 3Q16 – 3Q17 (R$ million)
Better Financial Result is mainly due to the reduction of debt charges and exchange variation related to
Itaipu's energy
Depreciation reflects increase in asset base, due to higher investments
R$
+107 million
741312
-33
Financial Result Net Income 3Q17Depreciation,
Amortiz. and Others²
Pension Plan
0
Adjusted EBITDA
(ex-Pension Plan)
109
Net Income 3Q16
Reduction in Gross Debt by 7% (R$ 253 million) and leverage improvement by 0.37x
734 682 878 720
414 386363
342
79
2022-2028
1,984
186
1,797
2021
1,062
2020
1,241
2019
1,067
2018
1,148
2017
248
168
FUNCESP (Pension Plan) National Currency
Covenants:
Net Debt / Adjusted EBITDA² <3.5x
Adjusted EBITDA² / Financial Expenses> 1.75x
Amortization Schedule³ (R$ million)Net Debt¹ (R$ billion)
Debt Profile 3Q16 3Q17
Average term (years) 4.5 4.2
Effective rate4 13.4% 9.9%
Average spread p.a. (CDI +)5 1.85% 2.09%
Increase in the Average Cost (CDI +) mainly due to new issuances and debt payment in the period
71- Net debt according to Covenant; 2 - Adjusted by Fundação CESP (last 12 months); 3 – Schedule consisting of repayment of principal,
accrued interest and deferred balance; 4 - Average value in the period of total indebtedness; 5 - Only for debt linked to CDI
-0.37x
3T17
3.6
3T16
3.7
2.94x2.57x
Net Debt / Adjusted EBITDA²
Net Debt (R$ million)
MANAGEMENT STRATEGY
Recovery of Quality Indicators
Revenue Management
Customer Satisfaction
Risk Management Governance
Investment and improvement of processes to ensure efficiency
▪ New level of investments in the network:
✓ R$ 942 million of investments planned
▪ Productivity Program1: reduction in OPEX in relation to 2016, in real terms:
✓ 2017: R$ 200 million
✓ 2018: R$ 150 million
✓ 2019: R$ 100 million
✓ MoU with Eletrobras
✓ New amendment to the concession agreement
✓ Overcontracting below regulatory limit2 in 2017 and 2018
✓ Migration to Novo Mercado
A B C
Value Creation Strategy progresses on all pillars:Productivity Program, Risk Management and Governance
91 – Values excluding pension fund and weighted monthly at the effective rate (IPCA in relation to personnel costs and IGP-M for other costs); 2 – 105%
Improvement in quality level indicators, 42% reduction in non-scheduled SAIDI
10
SAIDI- hours (last 12 months) SAIFI - times (last 12 months)
Reference Aneel – 2016: 8.01 hours / 2017: 7.75 hours Reference Aneel – 2016: 5.91 times / 2017: 5.64 times
A
Increase in the Scheduled SAIDI is due to the investment in preventive maintenance and pruning
− Replacement of +21k connectors and extensions, + 111k prunings performed and +1k fault detectors installed
Average Duration of Interruptions registered a reduction of 28%
13.40
-42%
-31%
3Q17
8.68
4.72
3Q16
19.47
14.93
4.55
Non-ScheduledScheduled
-5%
-7%
6.821.20
1.23
3Q16
7.18
5.98
3Q17
5.59
Non-ScheduledScheduled
Revenue Management reduces ADA by 63% in 3Q17 vs. 3Q16
ADA
11
29.5
3Q16
80.8
-44%
-63%
9M17
133.2
9M16
238.2
3Q17
ADA (in R$ million)
Negotiation Portal
• Flexibility for Customers
• 223k negotiations made (9M17)
• R$ 170.4 million negotiated (9M17)
Main InitiativesA
Transformation of the Management Model
• Specialized collector
• Field Team Management and Online Audit
• Process digitalization
Meter Reader as Commercial Agent
• Cutting Process and Renegotiation
• Reduction of 56% in power cutting costs
• 90% of negotiations made by meter readers are paid on the same day
MIGRATION TO NOVO MERCADO
Migration approved in Meeting reaffirms strategy
13
Shareholders ✓
Migration approved by 60.4% of the total
Preferred Shareholders
High approval rating reinforces the perception of
value creation with Migration
359 shareholders exercised their withdrawal
rights, totaling R$ 49.2 million to be disbursed
Board of Directors approved the Migration
to Novo Mercado
Fundamentals of Migration
Superior Corporate Governance
Increased Attractiveness to Investors
Greater Access to Capital Markets
Approvals
Best corporate governance practices
One share, one vote
Possible deleveraging of the Company
Improves investment capacity
Increases stock liquidity
Possible reclassification of stock price
Board of Directors✓
Conclusion of the Migration process takes place in November
Indicative Schedule of Transaction
14
Period of exercise of withdrawal rights
Sept./29 Oct./30
Oct./31
Nov./09
September October November
Sept./12
General Shareholders' Meeting (GSM) / Special Meeting of Preferred Shareholders (SMPS)
Appraisal of the amount of withdrawal rights
Nov./21
Beginning of trading with common shares only and migration to the
Novo Mercado
Nov./6
Payment of withdrawal rights
Board of Directors Meeting to approve the withdrawal rights payment and conclusion of the migration
RISK MANAGEMENT AND CONTINGENCIES
MIGRATION TO NOVO MERCADO
INDEBTEDNESS
PRODUCTIVITY PROGRAM
FINANCIAL PERFORMANCE
15
3Q17 HIGHLIGHTS
Statements contained in this document regarding the business perspective, the
projections of operating and financial results and the growth potential of the
Companies are mere forecasts and were based on management's expectations
regarding the future of the Companies. These expectations are highly dependent
on changes in the market, the economic performance of Brazil, the electric sector
and the international market, and are therefore subject to change.
Investor Relations
E-mail: [email protected]
Phone: + 55 11 2195-7048
ri.aeseletropaulo.com.br