Morgan Stanley - Annual Latin America CEO Conference*
Transcript of Morgan Stanley - Annual Latin America CEO Conference*
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Summary
Energy market overview
CPFL Energia – Highlights and Results
CPFL Energia – Evolution 4 years since IPO
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Brazilian market has 64 distribution’s companies
Spreading proposes consolidation opportunities
Distribution Business – 2007
13,3%
12,1%
8,6%
7,4%
6,8%
5,7%
4,0%
3,7%
3,5%
34,8%
CPFL Energia
Brasiliana Energia
Cemig
Neoenergia
Copel
EdB
Celesc
Ashmore Energy
Energisa
Others
Distributors (#) 64
61Clients (million)
• The 5 largest groups have 50%of market-share
• State-owned companies: 34%
• Private Company: 66%
Market Breakdown
Distributed Energy (TWh) 376.9
Market Share1 (%)
1) ANEEL – Ref. 2Q07 annualized (Recalculation of CPFL’s participation)
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Brazilian market has 1,695 hydroelectric plants. The public sector concentrates 70% of the assets
Generation Business – 1Q08
Hydroelectric plants (#) 1,695
108,852Installed Capacity (MW)
• The 6 largest groups have 50% of the market
• State-owned companies: 70%
• Private Company: 30%
Market Breakdown
10%
9%
9%
7%
7%
6%
6%
4%
4%
3%
2%
2%
31%
Chesf
Furnas
Eletronorte
Cesp
Itaipu
Cemig
Tractebel
Copel
Petrobrás
AES Tietê
Duke
CPFL Energia
Others
Market Share (%)
Source: Aneel – last information available Market breakdown: Acende Brasil
4th largest private generation company in Brazil
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Summary
Energy market overview
CPFL Energia – Highlights and Results
CPFL Energia – Evolution 4 years since IPO
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CPFL Energia – Highlights
• Brazilian’s largest player in distribution and commercializationbusinesses
• Energy market is concentrated in the most developed regions of Brazil (South/Southeast)
• CPFL is listed in the Novo Mercado in Bovespa and ADR level III in NYSE
• Differentiated Dividend Policy: payment of 50% of the net income on a semi-annual basis
• 100% hydraulic generation portfolio, with a strong growth in theinstalled capacity in the last few years
• Long term generation and distribution concessions
• 5 distribution companies’ acquisition, 9 SPP’s and RGE’s stake (33%), Foz do Chapecó HPP’s stake (11%) and Lajeado HPP’s stake (7%) inthe last 2 years, with a R$ 1.1 billion investment
• First company in the Brazilian electric sector to negotiate carbon credits, through a run-of-stream HPP
• Constitution of CPFL Bioenergia, for investments in energy generation from biomass
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• Operational efficiency focus
• Small distribution companies acquisition, strategically located
• Large distribution companies acquisition
• Cooperatives acquisition
• Private networks incorporation
Distribution
Generation
• Projects’ conclusion
• SPP’s repowering, construction and acquisition
• Energy cogeneration through biomass
• Green field projects - Auctions
Commercialization• Increasing in Value Added Services (VAS) and new products and services
• New opportunities - clients between 0.5 and 3.0 MW, supplied by cogeneration or SPP’s
CPFL Energia’s Investment Case join the current portfolio growth with acquisition opportunities
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6.74
9.808.32
5.695.825.787.76
6.665.85
CPFL Mococa CPFL SantaCruz
CPFL LestePaulista
CPFL Paulista CPFLPiratininga
CPFL Jaguari CPFL SulPaulista
RGE Consolidated '
Increasing scale gains through CPFL Energia’s management expertise
Brazilian Average2
FEC1 - Times
12.0
8.4
14.6
9.57.27.16.46.15.55.4
CPFL Mococa CPFL SantaCruz
CPFL LestePaulista
CPFL Paulista CPFLPiratininga
CPFL Jaguari CPFL SulPaulista
RGE Consolidated'
(1) Sep/2008 – Annualized values (2) Source: ANEEL. Last available figures – Aug/08
3Q08
DEC1 - Hours
DISTRIBUTION
17.0
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Strong growth in the installed capacity and long term concessions in the generation ventures
GENERATION
812
434
854 915 1,072
1,588 1,737 1,7382,174
472 525 571 800 861 862 1,082
2003 2004 2005 2006 20073 2008(e) 2009(e) 2010(e)
Serra da Mesa1
SPP’s CPFL Geração Monte Claro Barra Grande
14 de Julho
Castro Alves Foz do ChapecóCampos Novos
CPFL Sul2 Lajeado
SPP’s CPFL Jaguariúna3
2027 2036 2036 2036 20362035
2028 20362032
2015
Installed Capacity (MW)Assured Energy (MWmedium)Concession Term 48.2%
40.2%
9.3%
7.6%
25.1%
25.5%
(1) CPFL has the right of 51.54% of the Assured Energy until 2028 (2) Hydroelectric projects with installed capacity <= 1,000 kW are not eligible to concession(3) Among the 9 SPP’s of CPFL Jaguariúna, 6 are in the situation mentioned in note 2 Note: Includes expected two SPP’s repowering in 2009
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SPP’s: Greenfield Projects
Partnership to studies and implementation of SPP’s
70 analysed projects and enrollment in ANEEL for 10 projects
• Low Internal Rate of Return• PPA’s already signed with unattractive prices• Impracticable environmental requirements
Feasible in the medium and long
term
Feasible in theshort term
Feasible Projects in the short term (up to 30 months)
GENERATION
Technical studies and enrollment in ANEEL
Installation License and
construction of the SPP’s
Basic projects and
environmental studies
(necessary for the previous
license)
ANEEL and environmental
agencies’approval
OK 2008/2009 2008/2009 24 months
Capacity: 75.6 MW
Estimated investment:
R$ 285 million
60 discarded projects
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• Contract signed: Aug 2008
• Construction of a sugar cane bagasse-fired thermoelectric generation plant
• Location: Pirassununga – SP
• Expected operations: April 2010
Baldin Project – CPFL Bioenergia’s 1st project
CPFL Energia is alert to the opportunities of business involving sugar cane biomass
CPFLInvestment:R$ 98 million
CPFL will have the right to 25 MW of energy exported during harvest season: 112 GWh/year
Energy supply contract
Amount: over R$ 500 millionContract period: 2009 to 2023
% of bioelectricity energy purchased in CPFL Brazil contracts
13%
10%
After the contractCurrent
Business ModelGENERATION COMMERCIALIZATION
• High pressure boilers• Condensing turbines• Back pressure turbines• Substation and transmission
CPFL invests in the generation-related
machinery…
…and receives the exceed
energy, for a certain period
Energy purchased from biomass source to sell in the free market
Sold 100%
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CPFL presents sales growth in the concession area and in the free market
33,076 31,235 27,66235,24531,778
8,8873,28811,230
9,5857,26336,54938,49836,364
46,47541,363
2004 2005 2006 2007 9M08
TUSDCAPTIVE
6,6598,9519,334
7,120
3,209
2004 2005 2006 2007 9M08
Concession Area Sales - GWh Free Market Sales (GWh)27.8%
178.9%
Note: excludes intercompany transactions (consolidation accounting basis), CCEE and generation sales (except to the free market)(1) Source: EPE (3Q08)
Concession Area Sales – GWh – 9M08
4,1% Southeast13,9%
4,5% Brazil14,3%
6,6%
South1
4,9%
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Conclusion of the 2nd Periodic Tariff Revision cycle for the Group’s distributors,with CPFL Paulista and RGE’s indexes released in April
R$ million
Note: Nominal values (1) Values for the 1st and 2nd cycle using the same methodology: 2nd cycle – exclude PIS/COFINS and R&D charges (2) With financial components(3) Includes adjustment of CPFL Piratininga’s Tariff Revision in Oct. 2008
22%4542316%430371Reintegration Quote
45%1,13210431%1,028783Reference Company
31%2,38117321%2,2081,823Parcel B1
25%4,83228418%4,5473,857Net RAB
28%10,42552821%9,8978,173Gross RAB
TotalAcquisitions (CPFL
Santa Cruz and CPFL Jaguariúna)
CPFL Paulista, CPFL Piratininga
and RGE
CPFL Paulista, CPFL Piratininga
and RGE
2nd Cycle 2007/0831st Cycle 20031
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May, 2006
32.69%
414
Aug, 2006
11%
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Oct, 2006
99.9%
203
Apr, 2007
100%
412
AcquiredStake
Investment –Equity
(R$ million)
Asset
CPFL Energia supports investment politics aligned with the Group’s growth strategy
606 627 797
627418
606 6331,133
1,5511,425
2004 2005 2006 2007
Capex Total(1) Acquisitions(2)
Actual Investment (R$ million)
(1) Considers minority shareholder participation’s acquisitions (2) Considers CERFRA Cooperative assets acquisition Note: Hedge not included21
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CPFL’s estimated Capex
Total Capex (R$ million)
519296
108
677828
782 815 783
890 837 789
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1,1241,196
2008E 2009E 2010E 2011E 2012E
DistributionGeneration
391
570515 546 512
285 258 267 269 271
2008E 2009E 2010E 2011E 2012E
Expansion Maintenance
362
225
8117 6
157
7127 5 0,3
2008E 2009E 2010E 2011E 2012E
Debt Equity
CPFL Energia’s investment in the next 5 years: R$ 5 billion
Distribution - R$ million Generation - R$ million
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Summary
Energy market overview
CPFL Energia – Highlights and Results
CPFL Energia – Evolution 4 years since IPO
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CPFL Energia – Evolution 4 years since IPO
1.672 +106%
and
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(1) Considers CPFL’s stake in HPPs
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Since the IPO, CPFL presents an excellent performance in the capital market
Share performance – Since the IPO1
1) Adjusted per dividends – until December 19th, 2008 (ON = R$ 32,68 and ADR = US$ 41.61)
Bovespa NYSE
Good support of the share price during the crisis:
• Defensive share
• Predominance of readjustments indexed by IGP-M, making
the share attractive in times of inflation acceleration
• Financial crisis has limited impact on the company's
performance (energy consumption is inelastic)• Without currency exposure (Debt with hedge; CVA) • Dividends
Dow Jones DJ BR 20 CPLIbovespa IEE CPFE3
68.5%
136.0%158.5%
-15.4%
79.0%
211.7%
Share performance – 20081
Bovespa NYSE
Ibovespa IEE CPFE3 Dow Jones DJ BR 20 CPL
-38.7%
-9.9%
4.7%
-35.3%
-53.1%
-20.8%
Performance CPFL1 vs. main indexes - 2008
+4.7% CPFE3
-36.8% ISE-39.5% IBX-100-40.9% IBX-50
-43.5% IGC-42.4% ITAG
1Q08 2Q08 3Q08 4Q08