Corporate Presentation p

Corporate
p
Presentation
2015
13/07
AES Corporation
Global Company
Natural g
gas and coal fired
thermal plants
36 GW
installed
capacity
Providing
services to over
100 million
people
18.5
thousand
employees
25.6 GW of installed capacity
Over 8.3 GW of
Renewable sources¹
AES Corp is present in 18 countries and 4 continents
Distributed energy
+60MW of solar PV²
projects
World leader in
Energy Storage
Total of 228 MW³
1 – Includes hydro, wind, solar, energy storage, and biomass 2 - PV – Photovoltaic; 3 - Operating and under construction
1
AES Brasil SBU
Represents 13% of 2014 AES Corp adjusted PTC¹
2014 AES Corp adjusted PTC¹
19%
2%
19%
AES Brasil is
one of AES
Corp priority
markets
24%
23%
13%
US
MCAC²
Andes
EMEA³
AES Corp is organized
in Six Strategic
Business Units (SBU),
focused on key
markets
Brazil
Asia
1 – Pre-tax contribution (a non-GAAP financial measure); 2 – Mexico, Central America and Caribbean; 3 – Europe, Middle-East and Africa
2
Leading position in the energy
sector in Brazil
Generation1
Market Share
AES Tietê
2,658 MW
Concession ends in 2029
ç
AES Serviços
AES Uruguaiana
640 MW
Distribution2
Market Share
2%
13%
AES Eletropaulo
20m people served
6.8m customers
Concession ends in 2028
AES Sul
3.7m people served
1.3m customers
Concession ends in 2027
87%
98%
AES Brasil
1 – installed capacity as of 2015; 2 – Consumption (GWh) in 2014 (Source: ABRADEE)
Other
3
History in Brazil
Solid participation in distribution and generation businesses
1995
AES Brasil
+19 years
presence in
Brazil
Beginning of
AES
Uruguaiana
construction
1998
AES Corp
acquired AES
Sul through
privatization
process
1997
Privatization
of AES
Eletropaulo
by a
consortium
comprised by
AES Corp and
other local
and
international
companies
2000
Privatization
of AES Tietê
1999
AES
Uruguaiana
beginning of
operation
2003
AES Corp
increases its
interest in
AES
Eletropaulo
and AES
Tietê
Incorporation
of Companhia
Brasiliana de
Energia and
execution of
shareholders
agreement
with BNDES
2001
2002
4
AES Brasil Mission, Vision and Values
Mission
Vision
Values
To promote well being and development ll b
dd l
with the safe, sustainable and reliable provision of energy solutions
To be the leading power company in b h l d
Brazil that safely provides sustainable, reliable and affordable energy
• Put safety first
f f
•Act with integrity
•Honor commitments
•Strive for excellence
•Have
Have fun through work
fun through work
5
5
AES Brasil environmental responsibility
• Reservoirs repopulation
• Reforesting, border and archeological
management programs
• Water quality monitoring
• Recycling and waste disposal programs
• Programs aiming to reduce CO2 emissions
• Risk Management and identification of
opportunities
t iti related
l t d tto climate
li t change
h
6
6
AES Brasil social responsibility
• Access to reliable energy through social
development
• Education for efficient and safe use of
electricity
• Program which offer cultural and sports
activities simulating citizenship practices
• Sustainable partnership – commitment with
sustainable
bl development at AES Brasil’s value
l
chain
7
7
INVESTMENT
PLAN
2015 - 2019
R$ 3.2 billion
R$ 487 million
2015
1% 10%
89%
48
4.8
billion
2019
Generation
R$ 1.1 billion
R$
Distribution
Services
R$ 19 million
8
AES Brasil widely recognized
AES Eletropaulo
AES Tietê
AES Brasil
AES Sul
AES Sul
9
National Interconnected System
GENERATION
Distribution
Substation
Thermal
Plant
Hydroelectric
and Solar Plant
Renewable
Energy
DISTRIBUTION
Substation
Transformer
Substation
Transformer
TRANSMISSION
COMERCIAL AND
INDUSTRIAL CUSTOMERS
RESIDENTIAL
CUSTOMERS
10
Energy sector in Brazil: businesses segments
Generation¹
Transmission²
Distribution²
• 4,127 power plants
• 77 companies
• 63 distribution companies
• 138GW of installed capacity
• High voltage transmission (>230 kV)
• 342 TWh energy distributed
• System based
System based on hydro plants (66%)
on hydro plants (66%)
• 116,767 km lines (National 116 767 km lines (National
• 190 million consumers
190 million consumers
• Contracting environment: free and
regulated markets
Integrated System)
• Regulated tariff (annually adjusted b i fl i )
by inflation)
Sources: EPE, ANEEL, ONS, ABRADEE and Instituto Acende Brasil
1 – Refers to 2015 data; 2 – Refers to 2014 data
• Annual tariff adjustment
• Tariff reset every four or five years
• Regulated contracting environment 11
Ownership Structure
AES Corp
C 50.00% + 1 share
P 0.00% + 7 shares
T 46.15%
T 99.70%
AES Sul
C 99.99%
T 99.99%
BNDES
Cia. Brasiliana
de Energia
C 99.99%
T 99.70%
AES
Serviços
C 50.00% - 1 share
P 100.00% - 7 shares
T 53.85%
C 71.35%
P 32.34%
T 52.55%
AES
Tiête
AES
Uruguaiana
¹
C = Common Share
P = Preferred Share
T = Total
T t l
¹
T 98.26%
AES Elpa
C 0.00%
P 7.38%
T 4.44%
C 77
77.81%
81%
P 0.00%
T 30.97%
AES
Eletropaulo
Free Float
Others²
Market Cap³
16.1%
19.2%
56.3%
8.5%
US$ 0.9 bi
24.2%
28.3%
39.5%
8.0%
US$ 2.1 bi
1 – Parent, AES Corp and BNDES, have similar voting capital on each of the companies: approx 35,9% on AES Eletropaulo and 32,9% on AES Tietê; 2 – Includes Federal Government and
Eletrobrás shares in AES Eletropaulo and AES Tietê, respectively; 3 – Base: 07/10/2015. FX rate 3.1897 BRL/1 USD
12
● 3rd largest among private generation companies
● Concession expires in 2029
● Market Cap: US$ 2.1 billion1
● 9 hydroelectric plants and 3 SHP³ in São Paulo
● Installed capacity of 2,658 MW, physical guarantee2
of 1,278
,
MWavg
g
● Physical guarantee fully contracted with AES
Eletropaulo through Dec, 2015
Brazil
Água Vermelha (1.396 MW)
Nova Avanhandava (347 MW)
Promissão (264 MW)
Ibitinga(132 MW)
Bariri (143 MW)
Barra Bonita (141 MW)
Euclides de Cunha (109 MW)
Caconde (80MW)
Limoeiro (32 MW)
Mogi‐Guaçu (7 MW)
São Joaquim (3 MW)
São José (4 MW)
● Dividend Yield:
- 2014: 9.7% PN and 10.4% ON
- Last 3 yyears avg:
g 11.0% PN and 11.4% ON
● Investment grade (Moody’s):
- National: Aa1
- International: Baa3
1 – Base: 07/10/2015. FX rate 3.1897 BRL/1 USD; 2 - Amount of energy allowed to be contracted in the long term; 3 – SHP – Small hydroelectric plant (installed
capacity<30MW)
13
Brazil
Brazil
São Paulo
●
Largest distribution company in Latin America
●
24 cities attended in São Paulo metropolitan area
●
Concession contract expires in 2028
●
Market Cap: US$ 902 million¹
●
16% of Brazil’s GDP² in its concession area
●
4,526 km2 concession area
●
46 thousand km of distribution and transmission lines
●
6.8 million customers
●
20 million people served
●
46 TWh distributed in 2014
●
6,294 employees as of July 2015
Investment Grade:
West, South, & ABC
North & East
1 – Base: 07/10/2015; 2 - Source: IBGE, 2010.
Fitch
S&P
Moody’s
National
A+
AA-
Aa3
International
BB
BB
Ba2
14
Brazil
Rio Grande
Do Sul
Metropolitan
Southern Border
Valley Region
Central
Northern Border
1 – as of December/2014. 2 – 2010-2014
●
SAIDI and SAIFI 30% better than in 2009, within regulatory
limits
●
Operating costs 2% below the regulatory levels
●
118 cities attended in Rio Grande do Sul state
●
Concession contract expires in 2027
●
1.3 million customers
●
9 528 GWh sold in 2014
9,528
●
99,512 km² concession area
●
3.7 million people served
●
1 951 direct employees¹
1,951
●
Regional GDP growth of 3.2%²
●
63% dividend
di id d payout in
i 2012
●
R$ 401 million Ebitda in 2014
●
R$ 207 million invested in 2014
●
N ti
National
l iinvestment
t
t grade
d (S&P)
(S&P): A+
A
15
●
●
Beginning of commercial operations in 2000
Located in the State of Rio Grande do Sul – city of
Uruguaiana
●
●
Operations were suspended in 2008 due to lack of gas supply
Initiated arbitration against YPF in Argentina
– ICC¹ awarded the merits in favor of AES Uruguaiana in 2013
– Next and final phase refers to the damages calculation
●
Emergency operations in 2013, 2014 and 2015 to
supportt reservoirs
i recovery in
i B
Brazil
il
Looking for long-term solution
●
Fast Facts
Combined cycle gas turbine (CCGT)
1 – International Chamber of Commerce
Capacity (MW)
640 MW
Authorization expiration
2027
16
•
•
Customer-focused Company, that provides electrical
gy services
energy
Focus on offering integrated and high-added-value
solutions to the electrical energy agents, industrial and
commercial segments, based on AES Brasil strong
p
and know-how
capabilities
•
Main Products
- Commercial technical services
- Consulting in energy efficiency
- Construction and maintenance of substations and
transmission lines
- Commercial service: face-to-face service and debt
collection
- Affinities: insurance
•
•
Over 5 y
years of operation
p
5 major clients – AES Eletropaulo, AES Sul, Level 3,
Palácio do Governo do Estado de SP e Bridgestone
2 operational bases – cities of Barueri and São Paulo
110 vehicles
520 employees
•
•
•
17
Corporate governance
Key for the investment decision
● Operational and Investment Management Committee: robust capital
allocation process
● Corporate policy of Integrated Risk Management¹ monthly assessed by
Companies’ Executive Officers and quarterly by Fiscal committee and
Board of Directors
● Corporate governance
manual; audit
committee installed
● High level of
commitment, with
monthly Board of
Directors meetings
● Listed at BM&FBovespa:
– ELPL3 and ELPL4: level II
– GETI3 and GETI4: traditional market
● ISE Corporate Sustainability Index portfolio
● Tag along rights
1 – Based on COSO_ERM and Brazilian Corporate Governance Institute models
18
Investment focused on power plants modernization
R$
$ 487
8 million
ll o p
projected
ojected for
o 2015-2019
0 5 0 9
206
186
175
155
139
100
80
2011
2012
2013
2014
2015
2016
2017
76
76
2018
2019
Power plants modernization process, aiming for continuous improvement in
operational conditions and ensuring availability in its generation plants
20
Investments and Best Practices in Asset Management,
g reduction
translates into outages
Unscheduled outages (%)
‐86%
Best practices in asset
management¹:
7.47
●
PAS 55 Certification
C ifi i
●
ISO 55001 Certification
7.23
2.03
‐38%
1.59
1.68
1.04
1 31
1.31
0.24
0.35
0.28
0.79
0.25
2011
2012
2013
2014
Unscheduled Outage Rate
Unscheduled Outage Rate
1.32
0.82
0.8
1.18
0.14
0.16
1Q14
1Q15
0.66
EFOF²
EFOF
1 - AES Tietê was the first Latin American company to receive the certification from the British Standards Institute 2 – Equivalent Forced outage Factor - EFOF
21
Energy generation decrease reflects
hydrology behavior in the country
●
Generated energy (MW average1)
●
124%
127%
109%
92%
1,582
1,629
66%
1,392
61%
1,292
944
850
2011
2012
2013
Generation/Physical guarantee
Hydropower plants are dispatched by
ONS²
Dispatch are also related to hydrological
conditions:
 Low hydrology translates into low
generation levels
2014
1Q14
1Q15
Generation ‐ MWavg
1 – Generated energy divided by the amount of hours; 2 – National System Operator
22
Critical hydrological scenario over the last 2 years
Reservoirs (%) vs. Thermal Dispatch (GW avg
avg²))
Historical Level of Brazilian Reservoirs (%)
Max (%)
100
75
50
25
0
Jan
Feb
Mar
Apr
May
Historical data since 2001
Historical data since 2001
Jun
2001
Jul
2012
Aug
Sep
2013
Oct
2014
Nov
2015
Dec
90%
18
80%
16
70%
14
60%
12
50%
10
40%
8
30%
6
20%
4
10%
2
0%
Average Annual Inflow:
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2001
2012
2013
2014
2015¹
82%
87%
97%
81%
76%
2011
2012
Thermal Dispatch
1 – Data base: Jan-Jul/15 (as of July 10th); 2 – Generated energy divided by the amount of hours.
2013
2014
2015
Reservoir Levels
23
Energy Reallocation Mechanism
(MRE) for
f h
hydrological
d l i l risk
i k sharing
h i
●
●
1) Equilibrium (GE1 = PG2)
2A) Deficit (GE1 < PG2)
Buy at MRE3
Buy at MRE3
Buy at Spot
2B) Deficit (GE1 < PG2)
Buy at Spot
Sell at
MRE3
PG2
PG2
PG2
Key drivers for
hydrological risk
●
Generated
Energy
MRE
Assured
Energy
Genco A
Generated
Energy
MRE
Assured
Energy
Genco A
Generated
Energy
MRE
Assured
Energy
Genco B
1 – GE: Generated Energy; 2 – PG: Physical Guarantee; 3 – Enough to cover variable O&M costs
A physical guarantee
(assured energy) is
assigned to support
contracts
Energy
gy dispatch
p
optimized by
centralized system
operator (ONS) on a
tight pool
●
Generated Energy
(hydro) in the entire
system (MRE) influenced by hydrology
Spot Price - marginal
cost influenced by
hydrology and thermal
dispatch
24
Tight
g hydrology
y
gy and lower system
y
storage
g
capacity requires more flexible generation
Thermo São Paulo (503MW)
and Thermo Araraquara
(579MW)
Storage capacity (months)
6.2
57
5.7
5.4
4.6
2001
2005
2009
2013
Actual
4.4
2014
4.3
4.2
2015
2016
3.7
2019
Projection
Current contracted energy is based on renewable (mainly Wind)
and run-of-river hydro projects,
projects which has reduced the energy
storage capacity over the recent years.
Source: ONS and AES
25
AES Brasil g
growth p
perspectives
p
Natural Gas Power Plants
1.5GW of dispatchable source
●
2 natural gas
y
combined cycle
power plants ready
to go to energy
auctions
●
Peak generation:
short-term dispatch
p
solution
●
Assessing M&A
opportunities
pp
Renewable Energy
Solar and Wind
●
30 MW solar
project: located in
Agua Vermelha HPP.
Ready to go to
energy auctions
●
~150MW solar
project: under
development
●
Assessing M&A
opportunities
26
Currently, AES Eletropaulo is our main client
2014 (%) – Clients per net revenue
Billed energy (GWh)
16,728
615
15,797
1,141
15,075
1 932
1,932
1%
2,069
545
2,212
1,671
14%
227
11,138
2012
Eletropaulo
74%
11%
3,834
11,108
11,108
2013
2014
1
MRE
Spot
3,584
538
541
176
3,633
483 274
136
2,329
2,740
2 740
1Q14
1Q15
Other Bilateral Contracts
Other Bilateral Contracts
1 – Energy Reallocation Mechanism
554
Eletropaulo
MRE
1
Spot
Other Bilateral Contracts
Other Bilateral Contracts
27
Contracting environment
and
d opportunities
Regulated Market
Existing Energy
Auctions
Free Market
Bilateral
contracts
2016
and
beyond
Spot Market
Non contracted
energy
Via auctions organized
b ffederal
by
d l government
Via bilateral
agreements
Exposed to Spot
M k price
Market
i
Distribution
companies
Free Consumers¹
CCEE Settlement
1 – Free Consumers (Conventional free consumer - demand above 3MW and connected to a line of 69kV – and incentivized/ special free
consumer - demand above 0.5MW)
28
Commercialization strategy
gy
post-2015 leveraging cash flow
Our goal is to sell the major
part of Company’
Compan ’ ph
physical
sical
guarantee in the free market
• Customized energy with global experience
• Focus on long term contracts and off takers with a strong financial
background aiming to ensure Company
Company’ss cash flow
• Practices and policies to ensure an adequate risk-profile assessment
• Client
Cli
relationship
l i
hi actions
i
to promote AES Ti
Tietê
ê and
d identify
id
if clients
li
needs
d
(i.e.: workshops, site visits, satisfaction surveys)
• 458 visits promoted by the team to clients within 2013 and 2014
• We’ve already sold 83% of the available energy for 2016, 74% for 2017 and 47%
for 2018
29
Commercialization strategy–
C i
Consistent
evolution
l i off client
li
portfolio
f li
Client portfolio1 (MWavg)
Contracting
level
100%
100%
100%
83%
74%
47%
24%
11%
Average price
R$/MWh3
194
206
206
138
139
145
138
137
210
943
1,268
1,268
1,034
1,106
918
585
301
138
2013
2014
2015
Energy available for sale2
2016
Price expectation in the range of R$190/MWh to range of R$190/MWh
to
R$200/MWh for 3 year
contracts, to deliver in 2017 onwards

From 2020, the price expectation is close to the Marginal Cost of g
Expansion, around
R$160/MWh
326
659
1,268

2017
Own energy already sold
2018
2019
2020
AES Eletropaulo PPA
1 – Includes energy contracts firmed until March 31st; 2 – Excludes losses and internal consumption; 3 – Average price (based on March/15)
30
Strong
g and consistent annual results…
Net revenue ((R$ million))
Ebitda ((R$ million))
73%
65%
29%
3,205
+23%
‐23%
2,337
1,542
1,525
2,112
918
‐34%
‐9%
2012
2013
2014
594
756
690
1Q14
1Q15
392
2012
2013
2014
1Q14
1Q15
Ebitda Margin
31
…and attractive returns
Net income (R$ millions)
● 25% of minimum pay-out according to
bylaws
‐29%
901
● Distribution practice: quarterly basis
881
● Average payout from 2008 to 2014: 112%
● Average
A
di
dividends
id d since
i
2008
2008: R$ 836
449
‐44%
million per year¹
358
200
pp
in 1Q15:
Q :
● Dividends approved
R$ 122.4 million
2012
2013
2014
1 – from 2008 until 2014.
1Q14
1Q15
32
Low leverage
g level…
Debt amortization schedule
Net debt (R$ billion)
1.9
800
1.2
05
0.5
0.4
1.1
0.3
0.5
2012
1.4
0.8
0.7
266
266
166
2013
2014
Net Debt/Adjusted Ebitda
1Q14
1Q15
2015
Net Debt
2017
2018
2019
2020
Amortization (R$ million)
Covenants
Debt Cost
●
●
●
●
●
Net debt/Adjusted Ebitda2 ≤ 3.5x
Adjusted Ebitda²/Financial Expenses ≥ 1.75x
1 75x
100
Average cost (% CDI)1
Average term (years)
Effective rate
1Q14
1Q15
108%
2 75
2.75
12.7%
107%
1
1.93
93
14.2%
1 – Brazilian Interbank Interest Rate
2 – Adjusted Ebitda – (i) by the financial expenses/revenues and (ii) by the depreciation and amortization values to improve the reflection of the Company’s operational cash generation
33
…and consistent
cash
h flow
fl
R$ Million
1Q14
1Q15
2013
2014
Initial Cash
446.7
501.4
397
457
Operating Cash Flow
450.5
101.4
1,486
1,187
Investments
(59.9)
(37.1)
(188)
(173)
(5 7)
(5.7)
(18 2)
(18.2)
(62)
(94)
179.1
(120.0)
192
499
(399.6)
(147.0)
(457)
(483)
164.3
((221.0))
971
936
(3.1)
-
(912)
(892)
617.9
280.4
457
501
Net Financial Expenses
Net Amortization
Income Tax
Free Cash Flow
Dividends and IoE
FINAL CASH CONSOLIDATED
34
Capital markets
AES Tietê x IEE x Ibovespa¹
A
B
D
C
E
F
G
H
120
I
A
Mar/2012: 4Q11 results above market
expectations
B
Sept/2012: announcement of the Energy
Reduction Program, through the PM 5794
C
Feb/2013: High thermoelectric dispatch
to conserve water in the reservoirs
increase spot prices
D
Aug/2013: 2Q13 results above consensus
due to higher-than-expected spot prices
E
Nov/2013: weak 3Q13 results affected
by seasonality strategy
110
100
90
F
80
70
60
50
Dec-11 Mar-12
Jun-12
Sep-12 Dec-12 Mar-13
GETI4
Jun-13
GETI3
Sep-13 Dec-13 Mar-14
IEE
IBOV
Jun-14
Sep-14 Dec-14 Mar-15
Feb/2014: 4Q13 results slightly below
consensus but market show high
expectations on 2014 commercialization
strategy
G
May/2014: 1Q14 EBITDA above
expectation benefited from seasonality
strategy
H
Jan/2015: Hydrology for rainy season
worse than expected
I
Jun/2015: Corporate Restructuring
announced
TSR
●
Market cap³: US$ 2.1 billion / R$ 6.6 billion
●
(preferred shares))
BM&FBOVESPA: GETI3 ((common shares)) and GETI4 (p
●
ADRs negotiated in US OTC Market: AESAY (common shares) and AESYY (preferred shares)
1 – Base 100: from 01/01/2012 to 06/19/2015; 2 – Total Shareholders’ Return; 3 – Index: 07/10/2015; 4 – Government program to reduce energy tariffs.
35
We have strong capabilities
and business governance
certification 1st
● ISO 55001 certification,
Generation company in America
● Attractive returns to investors.
investors
Strong cash generation;
Maximization of payout
● AES Tietê has been included
in the ISE since 2007
● Cost efficiency and optimized
capital allocation
● Established risk management
capability
36
2014 investments focused on
system expansion and quality of service
2014 Investments
focused on
• Substation repowering
Investments (R$ million)
831
35
809
and energization adding
309MVA to the system’s
capacity
165
583
594
73
72
510
522
•
30 km
k off new
distribution lines
•
Maintenance in over 4.0
thousand km of the
distribution grid
•
Regularization of 42
thousand connections
796
644
2012
2013
2014
Third party resources
2015 (e)
-13%
136
16
120
118
17
101
1Q14
1Q15
Own resources
38
Consistent improvement in the
quality
li off service
i since
i
2011
●
SAIFI¹: 30% reduction in frequency
q
y of interruptions
p
in the last 4 years
y
●
SAIDI²: 14% reduction in hours of interruptions in the last 4 years
SAIDI (hours)
SAIFI (times)
6.93
6.87
6.65
8.68
‐30%
5.45
2011
4.65
2012
8.67
8.49
6.36
‐14%
-27%
4.37
3.81
4.37
2013
2014
1Q14
Aneel Reference
8.29
10.36
3.21
1Q15
2011
SAIFI
1 - System Average Interruption Frequency Index; 2 - System Average Interruption Duration Index
+8%
8.35
7.99
8.86
8.42
9.08
2012
2013
2014
1Q14
1Q15
Aneel Reference
SAIDI
39
Efficiency in losses reduction
over the last four years
11.5
10.5
10.1
9.7
-8%
10.5
6.5
10.2
10.0
9.7
10.1
9.3
6.1
6.1
6.1
6.1
4.0
4.1
3.9
3.6
4.0
3.3
2011
2012
2013
2014
1Q14
1Q15
Aneel Reference¹
Technical losses²
6.0
17.5% reduction in
non-technical
losses between the
1Q14 and 1Q15 and
total losses within
regulatory limits
Non-technical losses
1 – Aneel benchmark with standardized values for the calendar year; 2 - Values estimated by the Company to Aneel reference for non-technical losses of the low voltage market
40
Large
g and resilient concession area
● AES Eletropaulo
p
concession area consists
of a mature market, representing
approx. 16% of national GDP2
Total Market1 (GWh)
45,557
46,216
46,416
7 987
7,987
8 742
8,742
8 589
8,589
37,570
37,474
37,827
2012
2013
2014
Free Clients
● State of São Paulo’s GDP average growth
of 2.0% p.a. for the last 5 years³
-3%
11,779
2,162
11,384
2,077
9,617
9,307
1Q14
1Q15
Captive Market
1 – Own consumption not included; 2 – Source: IBGE, 2012; 3 – base date: 2010-2014(e)
41
Consumption expansion is mostly in
residential and commercial classes
Consumption by class¹
Consumption by class
29%
36%
20%
34%
35%
21%
16%
9%
Brazil
Residential
1 – 1T 2015 (Own consumption not included) Source: EPE.
AES Eletropaulo
Commercial
Industrial
Other
42
Residential Class
consumption in line with
São Paulo state real income
GWh
R$
4,500
2,400
2,300
2 200
2,200
4,000
2,100
2,000
3,500
1 900
1,900
1,800
3,000
1,700
1,600
,
2,500
2007
1,500
2008
2009
2010
Real Income (SP)
1 – base date: 2007-2014
2011
2012
Residential Consumption
2013
2014
Residential
p
consumption
per client grew
an average
of 0.9% in the
last 8 years¹
43
Industrial class consumption
tied to the industrial p
production g
growth
in the state of São Paulo
Industrial class X Industrial production in SP¹
Economic
crisis
-0,2
Economic
crisis
Economic
recovery
Economic
crisis
0,0
●
Industrial
d
l consumption
impacted by lower industrial
production in Brazil
●
Consumption
C
i focused
f
d on
more resilient segment
(residential and commercial
classes)
0,2
Jul
07
Dec
07
Jul
08
Dec
08
Jul
09
Dec
09
Jul
10
Dec
10
Jul
11
Dec
11
Jul
12
Dec
12
Jul
13
Dec
13
Jul
14
Dec
14
Industrial Production in SP (% 12 months)
Industrial consumption AES Eletropaulo (% 12 months)
1- São Paulo metropolitan area. Information until December 2014.
44
Net revenue 20% greater in 1Q15 mainly due to
2014 tariff readjustment
Gross revenue (R$ million)
9,498
15,314
831
5,355
Costs (R$ million)
8,553
14,239
583
12,611
809
1,670
3,952
7,474
1,602
1,640
3,599
+38%
9,128
2012
9,704
8,203
2013
2014¹
+24%
4,978
3,620
425
944 136
2,115
1Q14²
499
1,819 118
6,883
7 896
7,896
2,280
408
5,834
2,542
1Q15
2012
2013
2014
2,834
509
1,872
2,325
1Q14
1Q15
Opex (ex‐construction costs)
Regulatory Assets and Liabilities
Deductions to Gross Revenue
Construction Revenue
Net Revenue (ex‐construction revenue)
Energy costs and sector charges
1- Does not include the recognition of regulatory assets and liabilities (OCPC-08), in the total amount of R$ 270,5 million.
2 – Adjusted by regulatory assets and liabilities
45
9.3% reduction of the Adjusted Ebitda due
to non recurrent expenses in 1Q15
Adj
Adjusted
d Ebitda
Ebi d 1 (R$ million)
illi )
575
780
476
(166)
Adjusted Net Income (Loss)2 (R$
$ million)
207
55
198
1,469
(132)
(184)
294
248
1,138
758
-50%
-9%
2012
47
2013
2014
104
323
293
1Q14
1Q15
52
‐96
2012
Adjusted Ebitda
Reported Ebitda
2013
2014
Adjusted Net Income (Loss)
1Q14
1Q15
Reported Net Income (Loss)
1 - EBITDA adjusted by expenses related to Pension Plan, regulatory assets and liabilities and possibly inexistent asset. 2 – Net income (loss) adjusted by regulatory assets and liabilities
46
Cost management projects generated R$ 1 billion¹
in savings until 2014
1st wave - 2007-2010
2nd wave – 2010-2012
● Headcount reduction
● Benchmark approach
● Support functions
centralization - shared
services
● Process review and IT
tools to increase
performance
● Overhead reduction management and contracts
renegotiation
i i
● Development of strategic
sourcing capability
● Leadership headcount
reduced by 44% from 2008
to 2013
● Currently operating at the
same PMSO level as in 2007
while every quality
indicators have improved
● Continuous overhead
reduction
● Administrative and
operational
i
l activities
i ii
centralized in a new site
● Real Estate Plan: sale of
assets and maximization
of occupancy rate
1 –Nominal total from 2007 until 2014 FY. Includes recurring and non-recurring reductions and the avoidance of cost increases
3rd wave – 2013-2015
● Efficiency gains through
process transformation
and IT tools integration
● Cost management and
innovation as part of
the Company’s culture
● C
Consider
id the
h totall cost
of ownership for
CAPEX/OPEX allocation
decisions
● Sustainability driving
value (e.g., ABS
initiative with
suppliers)
47
Operational cash flow generation
R$ Million
1Q14
1Q15
2013
2014
974
974
909
814
11
323
1,480
724
(102)
(167)
(741)
(501)
Net Financial Expenses/Net Amortization
(21)
139
(312)
211
Pension fund expenses
(74)
(47)
(221)
(166)
Income Tax
(45)
(36)
(25)
(47)
-
-
(51)
4
49
26
24
(61)
(305)
215
208
(33)
669
1124
974
909
Initial Cash
Operating cash generation
Investments
Disposal of assets
Cash restricted and/or locked
Free cash
FINAL CASH CONSOLIDATED
48
Leverage level within financial covenants
Net debt (R$ billion)
3.0
2.6
2.7
37
3.7
37
3.7
3.3
1Q14
2Q14
Net Debt (R$ billion)
2.7
2.5
3Q14
Average maturity of debt
reaching 5.1
5 1 years

Covenants within the limits
established by debt contracts
3.5
3.4
4Q14

1Q15
Net Debt/Adjusted Ebitda¹
Debt Cost
D
bt C t
 Average cost (% CDI)
 Average term (years)  Effective rate²
1 – EBITDA adjusted by expenses related to pension plan and regulatory assets and liabilities; 2 – Average rate during the period
1Q14
112%
6.0
13.0%
1Q15
113%
5.1
13.6%
49
Capital markets
AES Eletropaulo x IEE x Ibovespa¹
140
A
B
C
D
E
F
G
H
120
100
80
I
A
Apr/2012: Aneel announced 3PTRC
proposal (tariff cut of 8.81%)
B
Jul/2012: Aneel announced official
3PTRC (tariff cut of 9.33%) lowering
dividend payout expectations
C
Dec/2012: Court deems Eletropaulo
liable for Eletrobras lawsuit. Eletropaulo
appealed the decision.
D
Feb/2013: 4Q12 EPS affected by energy
costs and regulatory charges
E
Jul/2013: Low tariff adjustment due to
payment of 2/3 of 3PTRC “Bubble”
F
Aug/2013: 2Q13 results above
expectations. Efficiency in cost reduction.
G
Jul/2014: Tariff readjustment approved by
ANEEL including 50% of “cable” restitution
H
May/15: 4th Tariff Reset Cycle preliminary
numbers released
I
July/15: 4th Tariff Reset Cycle final
numbers released
60
40
20
0
Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15
ELPL4
IEE
IBOV
ELPL4 TSR
●
Market cap³: US$ 0.9 billion/R$ 2.9 billion
●
BM&FBOVESPA: ELPL3 (common shares) and ELPL4 (preferred shares)
●
ADRs at US OTC Market: EPUMY (preferred shares)
1 – Base 100: from 01/01/2012 to 07/04/2015; 2 – Electric Power Index; 3 – Index: 07/10/2015
50
We have strong
g capabilities
p
and corporate governance
●
AES Corporation and BNDES as major shareholders:
long-standing reputation in the market
●
Consumption focused on more resilient segment
(residential /commercial market)
●
2015-2019 investment plan of R$ 3.2 billion mainly
focused on customer services and better quality indicators
●
Efficiency on recognizing investments on the RAB
●
Deleveraging and improving capital structure
51
Brazilian Opportunities
Brazilian Energy Matrix and perspectives
Brazilian Energy Matrix¹
Governmental Expansion Plan
196
13%
21%
125
156
167
71
133
8
142
17
148
24
31
42
125
125
125
125
125
125
2014
2015
2016
2017
2018
2023
66%
2013
Hydro
Renewable³
Thermal ●
Energy matrix based on hydropower plants
●
Thermal source is responsible for system reliability
Additional Capacity by PDE²
●
Current Installed Capacity
Expansion based mainly on renewable and run-of-river
hydropower plants
1 – ANEEL database (07/10/2015). 2 – Energy development plan (PDE 2013-2023); 3 – Includes Biomass, Wind and Solar sources
53
Appendix
54
Recovery of tariff realism
De
escriptions Time
Tariff Flag
Tariff Flag 2.0
Extraordinary
Tariff Reset
• In place since January, 1st 2015
• In place since March, 2nd 2015
• In place since March, 2nd 2015
• Reduce cash‐flow mismatch
Reduce cash‐flow mismatch
• Broaden application:
Broaden application:
• Cover additional costs:
Cover additional costs:
• To partially cover higher energy costs (thermal costs)
– hydrological risk
– CDE
– involuntary exposure
– Itaipu (tariff increase and dollar variation)
– sector charges (ESS)
sector charges (ESS)
R
Risks – A‐1 and Adjustment Auctions
• Costs not fully covered
• Higher bad debt and NTL¹
Higher bad debt and NTL¹
• Costs fully covered
• Higher bad debt and NTL
Higher bad debt and NTL
• Higher bad debt and NTL
Tariff in
ncrease
– thermal costs
• ~11% at AES Eletropaulo
residential tariff
• ~9% at AES Eletropaulo
residential tariff
• 32% AES Eletropaulo average increase:
• 26% residential tariff
• 40% high voltage
40% high voltage
1 – Non-technical losses
55
Tariff methodology for distributors
●
Energy Purchase
Transmission
Sector Charges
Tariff Reset is applied
each 4-5 years
−
AES Eletropaulo next Tariff Reset:
Jul/2019;
−
AES Sul next Tariff Reset: Apr/2018
−
Parcel A: costs are passed on
Regulatory Opex
(PMSO)
through to the tariff
−
●
Parcel B: costs are set by ANEEL
Annual Tariff Adjustment
−
X WACC
Remuneration
Asset Base
Investment
Remuneration
Parcel A Costs
−
Non-manageable costs passed on through
to the tariff
−
Incentives to reduce costs
●
Regulatory Opex
−
●
X Depreciation
Parcel A: costs are passed on
Parcel B: costs are adjusted
by IGPM +/- X Factor¹
Depreciation
Remuneration on
Special
Obligations
Regulatory
Ebitda
1 – X Factor: index that capture productivity gains
Efficient operating cost determined by
ANEEL
Remuneration Asset Base
−
through to the tariff
−
●
●
Prudent
P
d t investments
i
t
t used
d tto calculate
l l t th
the
investment remuneration (applying WACC)
and depreciation
Special Obligations
−
Recognition of the opportunity cost of
equity capital over third party investments
Parcel A - Non-Manageable
g
costs
Parcel B - Manageable costs
56
X Factor methodology
X Factor
=
Pd
+
Q
+
T
Definition
Distribution productivity
Quality of service
Operational expenses trajectory
Objective
Capture productivity ggains
Stimulate improvement of service quality
q
y
Implement operational p
j
y
expenses trajectory
Application
Defined at Tariff Reset, g
considers the average productivity of the sector adjusted by market growth and p
consumption variation
Defined at each Tariff j
,
Readjustment, considers variation of SAIDI and SAIFI and comparative performance of discos.
Includes commercial indexes
Defined at Tariff Reset, makes the transitions to operational costs verified in the last 12 months to the one set in g
the benchmarking models
57
4th Tariff Reset Cycle
Parcel A +
Financial Components
Annual impact
R$ million
R$ million
13.96%
R$ 1,936m
Parcel B
Parcel B
1 27%
1.27%
R$ 176m
R$ 176m
Tariff Reset Effect
15.23%
R$ 2,112m
 Energy CVA including FX rate variation associated with Itaipu
 CDE charge increase (loans and CDE share)
CDE h
i
(l
d CDE h )
 Reduction of AES Tietê’s energy participation due to end of contract in Dec/15
 Involuntary exposure in 2015
 WACC of 8.09%
 Special Obligations remuneration
Special Obligations remuneration
 Opex adjusted to match the concession area’s reality
58
Breaking down the Parcel B
Remuneration (RAB)
R$ 732m
 Net RAB of R$ 6.0 billion  WACC of 8.09%
Depreciation
R$ 458m
 Gross RAB of R$ 12.2 billion  Depreciation Rate of 3.75%
Special Obligations
Annuity (Other Assets)
Operational Expenses
Operational Expenses
R$ 39m
R$ 134m
R$ 1 373m
R$ 1,373m
 Remuneration of 3.34%
 Remuneration and depreciation of IT, vehicles and administrative assets
 Xt Factor of ‐2.37%;
 Inclusion of labor liabilities, São Paulo salaries and underground network Bad Debt
R$ 198m
 0.85% of bad debt, considering Tariff Flag revenues
Oh R
Other Revenues
‐ R$ 88m
R$ 88
 ~60% of non‐distribution revenues
f
d
b
Productivity Gains
‐ R$ 33m
 Xp Factor of 1.13%
Parcel B
R$ 2,812m
59
Ranking of distribution
tariffs in Brazil
Tariff excluding tax (R$/KWh)
Boa Vista
CPFL‐ Piratininga
COELBA
Ranking (out of 64)
0.290
1
0.362
7
0.388
13
CEAL
0.414
COELCE
0.418
CPFL‐Paulista
0.420
ELETROACRE
0.425
25
CELESC‐DIS
0.429
26
BANDEIRANTE
0.433
28
ELETROPAULO
0.436
29
RGE
LIGHT
AES‐SUL
COPEL‐DIS
19
21
23
0.447
0.469
0.480
0.492
ELEKTRO
0.506
CEMIG‐D
0.510
Source: Aneel website. Tariffs as of July/2015.
33
42
45
50
54
56
60
AES distribution companies have been improving their service
level performance over the years
SAIDI ranking
ki 1
6
7
4
10
15
13
6
12
21
SAIFI ranking1
3
10
18
15
2010
4
14
2011
3
City ranking
State ranking
3
17
20
2009
PROCON ranking2 (Eletropaulo)
3
1
1
9
17
6
AES Eletropaulo
8
AES Sul
9
11
21
27
14
2012
2013
2014
2009
2010
2011
2012
2013
2014
1 – X Factor: index that capture productivity gains
1- Considers distribution companies with more than 500k customers; 2- PROCON ranks companies most claimed by costumers
61 61
Abradee’s¹ Ranking
AES Eletropaulo
2007
14º
2008
2009
2010
2011
2012
2013
2014
8º
6º
9º
8º
5º
9º
8º
2008
2009
2010
2011
2012
2013
2014
11º
8º
6º
5º
7º
2º
16º
AES Sul
2007
10º
1 – Association of Brazilian electricity distributors
62
New distribution and sub-transmission
operations center allows efficiency gains
Modern layout maximizes the dispatch
efficiency and decision making during
the outage power restoration
●
Integration
g
of DOC1 and SOC2 technicians
into a modern and collaborative workplace:
−
enabling to rearrange positions at any
time optimizing the use of resources
−
i
improving
i operational
ti
l efficiency
ffi i
−
encouraging a multifunctional profile
1 – Distribution Operating Center; 2 – Subtransmission Operating Center
63
Modern and integrated systems
contributes to the best allocation of resources
Integrated and automated systems allow the
monitoring of sub-transmission and
distribution grid and the best allocation of
resources for operational efficiency gains
●
State of the art in technologies for management of
events and
d teams, providing
idi a global
l b l vision
i i off emergency
teams location throughout the concession area
●
Service orders transmission through data devices,
p
g service teams that are closer to the location,,
dispatching
minimizing attendance time
●
Innovative technology for forecasting and monitoring of
summer rains, strategically located in the Company’s
substations anticipating the resources allocation
64