Statement of Results for the First Semester 2005Statement of Results for the First Semester 2005
August, 2005
Disclaimer
This presentation may include forward-looking statements of future events or results according to regulations of the Brazilian and international securities and exchange commissions. These statements are based on certain assumptions and analysis by the company that reflect its experience, the economic environment and future market conditions and expected events, many of which are beyond the control of the company. Important factors that may lead to significant differences between the actual results and the statements of expectations about future events or results include the company’s business strategy, Brazilian and international economic conditions, technology, financial strategy, public service industry developments, hydrological conditions, financial market conditions, uncertainty of the results of future operations, plans, objectives, expectations and intentions, among others. Considering these factors, the actual results of the company may be significantly different from those shown or implicit in the statement of expectations about future events or results.
The information and opinions contained in this presentation should not be understood as a recommendation to potential
2
The information and opinions contained in this presentation should not be understood as a recommendation to potential investors and no investment decision is to be based on the veracity, current events or completeness of this information or these opinions. No advisors to the company or parties related to them or their representatives shall have any responsibility for whatever losses that may result from the use or contents of this presentation.
This material includes forward-looking statements subject to risks and uncertainties, which are based on current expectations and projections about future events and trends that may affect the company’s business. These statements include projections of economic growth and energy demand and supply, as well as information about the competitive position, the regulatory environment, potential opportunities for growth and other matters. Several factors may adversely affect the estimates and assumptions on which these statements are based.
Management Presenters
• Joined Energias do Brasil in 2000
• Previously worked for several Brazilian financial institutions such as Banco Axial, Banco BMD, and Guilder (ING brokerage house)
Antonio José SellareCFO
• Joined Energias do Brasil in 2003
• Previously was CEO of Eureko Polska, Vice-President of PZU (Poland) and director of Banco Comercial Português (Millenium BCP) and Director of Eureko BV (Netherlands)
• Graduated in civil engineering and holds a MBA from Universidade do Porto. Attended executive programs at INSEAD, AESE and the Wharton School
António Martins da CostaCEO and Vice-Chairman of the Board
CurriculumPresenters
3
• Joined Energias do Brasil in 2005
• Previous experience as investor relations officer / manager at companies such as Aracruz Celulose, Braskem and Light. Also worked for several financial institutions
• Graduated in industrial engineering at UFRJ and holds an MBA from PUC-RJ
• Experience of over 10 years in the capital market
Vasco BarcellosInvestor Relations Officer
BMD, and Guilder (ING brokerage house)
• Experience in various areas, including treasury, asset management, accounting, IT, human resources
• Graduated in business administration at PUC-SP
CFO
Energias do Brasil: Restructuring
Following a comprehensive restructuring process that started towards the end of 2003, Energias do Brasil implemented a set of operations in the first months of this year for the purpose of:
• Adjusting its capital structure to provide for a self-sustained growth of its portfolio
• Simplifying its corporate structure making it more transparent to the financial community
4
• Controlling the Group’s three distributors with a 100 percent stake to concentrate the liquidity of the shares on a single vehicle and to exploit the synergies among them
• Establishing a long-term partnership with the capital market
• Removing fiscal inefficiencies that existed in the previous structure
Energias do Brasil: Restructuring (cont’d)
The following projects were developed to meet strategic objectives:
• Migration of the distributors’ shareholders:– Independent valuation of the companies;– Migration occurred on April 29, 2005;– Only 0.02% of shareholders pre-emptive rights.
5
• Deverticalization:– Operation completed on June 30, 2005;– Establishment of an optimized corporate structure, because ENBR already owned 100% of the
distributors’ shares.
• IPO
Offering Summary
On August 10, 2005, Energias do Brasil successfully completed its R$ 1.2 bi equity offer
Offering Structure
• Initial Public Offering in Brazil with international sales efforts under Reg S and rule 144ª• Listed in Bovespa’s New Market (ENBR3 code)
Offering Size
• Total offering volume reached R$1,184.7 billion (includes green shoe) with the issuance of 65,816,818 common shares (price of R$18.00 per share)
• Credit capitalization of R$ 670.0 million (37,222,222 shares)
• Total primary offering reached R$500.1 million (27,785,150 shares)� Main use of proceeds: finance generation projects
• Secondary offering: The offering structure allowed the participation of minority shareholders
6
• Secondary offering: The offering structure allowed the participation of minority shareholders (they exchanged their shares for ENBR3 at the subsidiaries) who sold 809,446 shares (R$14.6 million)
Lock up period • 180 days for the controlling shareholder, the company and some directors and officers of the company
Retail• Sales efforts to retail investors and employees
• Retail demand of R$14.4 million from 474 investors• Demand of R$1.3 million from 613 employees
Demand• The book of orders exceeded the offer by 2.5 times• Demand split 60 / 40 between foreign and local investors• About 140 investors were contacted during international road shows (USA and Europe)
Hit Ratio – Road shows
About 140 investors contacted in Brazil, the USA and Europe with “Hit Ratios” of up to 52%
Cities: BostonWashingtonSan Diego
Investors visited: 51One-on-ones 38Group meetings 13
Hit ratio: 51%
Cities: RotterdamMilan
Investors visited: 29One-on-ones 20Group meetings 9
Hit ratio: 28%
Cities: São PauloRio de Janeiro
Investors visited: 58One-on-ones 25Group meetings 33
Hit ratio: 52%
New YorkLos AngelesSan Francisco
LondonFrankfurt
7
Financial Volume per Country/Region
USA45%
Europe14%
Brazil38%
Retail Brazill3%
Offering Summary
A total of 1,473 investors have been attracted, 1,084 of them are individuals. This will provide a higher liquidity ratio to the negotiations of our shares
R$ 26.00
9,48831,583
IPO of ENBR3 at R$ 18.00
Announcement of 2Q05 Results –R$ 21.85
Share PerformanceBase 100: 7/13/05
125.00
135.00
145.00
155.00
8Source: Economática
• Daily negotiation average from the listing: R$ 5.5 million• Share Performance since the listing: +44.4%• Share Performance in September: +5.3%
9,488R$ 21.85
85.00
95.00
105.00
115.00
ENBR3 Ibovespa IEE
Energias do Brasil: Post-IPO and Capitalization Structure
New corporate structure allows for transparency, competitiveness and potential for synergy earnings, contemplating the deverticalization concluded in July, 2005 ...
EDP Group
63.7% 36.3%
100.0%100.0%27.65% 1 60.0% 100.0%100.0%
Market
9
Legend
% of the Total Capital
…with a 36.3% free float of the total capital
Notes:
1 Voting capital, also represents the percentage of installed capacity allocated to Energias do Brasil. Energias do Brasil holds 16.3% of its total capital
2 Includes Escelsa’s generation assets
3 Includes Enersul’s generation assets
DistributionCommercializationGeneration
Peixe Angical Enersul
Escelsa
Enertrade BandeiranteLajeado
100.0%100.0%27.65% 1
100.0%
60.0% 100.0%
Energest2
100.0%
Costa Rica
51.0%
Pantanal Energética3
100.0%
CESA2
100.0%
Energias do Brasil
10
Energias do Brasil
Energias do Brasil
♦ Installed capacity: 250 MW(adjusted for Energias do Brasil’s stake)
♦ Installed capacity: 452 MW
♦ Conclusion: 2006
♦ Installed capacity: 220 MW
♦ Under construction: 75 MW
♦ Customers: 651 thousand
LAJEADO PLANTPEIXE ANGICAL PLANT
CESA e ENERGEST
Energias do Brasil operates in four Brazilian states with an installed capacity of 530 MW. Its power distribution volume in 2004 reached 22 thousand GWh to 2.9 million consumers
ENERSUL
PANTANAL ENERGÉTICA
11
Generation
Distribution
Legend
♦ Customers: 1,274 thousand ♦ Customers: 1,001 thousand
♦ Installed capacity: 16 MW
♦ Installed capacity: 45 MW
BANDEIRANTE ESCELSA
PANTANAL ENERGÉTICA
COSTA RICA
3,000
3,500
4,000
4,500
600
700
800
900
Energias do Brasil: Growth and Profitability
In 2004, Energias do Brasil posted net revenues of R$3.7 billion with a 21% EBITDA margin. In 1S05, its net revenues reached R$2.2 billion with a 24% EBITDA margin.
Net Revenues by Business EBITDA per Business
2,891
3,364
3,703
2%
3%5%
8%
575
775
7%
5%
12
0
500
1,000
1,500
2,000
2,500
3,000
2002 2003 2004 1S04 1S05
(R$ MM)
Distribution Generation Commercialization
0
100
200
300
400
500
600
2002 2003 2004 1S04 1S05
(R$ MM)
2,891
1,842
2,182
93%
89%
518
420
399
575
92%
7%
1%
87%
97%
2%1%
90%
2%8%
89%
2%9%
95%
5%
94%
2%4%
90%
3%7%
• The participation percentages of the segments in the revenue do not include the eliminations.
Distribution Generation Commercialization
Energias do Brasil: Profitability
In 2004, net profit of Energias do Brasil reached R$107 million. Considering net profit before the participation of minority shareholders, the figure was R$279 million.
Net profit before the participation of minority shareholders Net profit
107
229
100
150
200
250
279
231
200
300
400
13
1S04 1S05
95%
(68)
(169)
71
(200)
(150)
(100)
(50)
-
50
100
2002 2003 2004
(R$ million)
(249)
(49)
48
(300)
(200)
(100)
-
100
2002 2003 2004 1S04 1S05
(R$ million)
15.000
20.000
25.000
Distribution Business
Our operating efficiency is demonstrated by our strong increase in productivity, which will be further improved by the growth in demand for electricity
Distributed Energy (GWh)
20,17121,426
22,396
3.4%
14%13%
34%
14%
32%
Productivity (customer / employee)
132.4%
59.1%
54.2%
776
1,059
799
712800
1,000
1,200
14
0
5.000
10.000
15.000
2002 2003 2004 1S04 1S05
Bandeirante Escelsa Enersul
11,48811,112
3.4%32%
54%
34%
53%54%
14%
32%
54%
14%
33%
53%
54.2%
456502
462
654
585
712
0
200
400
600
Bandeirante Escelsa Enersul
1998 2001 2004
Strategy - Distribution
Concessionaire Status Comments
Tariff Revision Process: ANEEL has been defining the RAB of our concessionaires
ENERSUL DEFINITIVE . In April/05 - increase from 43.59% to 50.81%
15
ESCELSA DEFINITIVE . In August/05 - increase from 6.33% to 8.58%
BANDEIRANTE PROVISIONAL . Definition in October 05. In October 04 -decreased from 18.08% to 10.51%
1S05
- 151 thousand inspections made
- 12,3 thousand frauds detected
1S05
- 59.6 thousand inspections made
- 1.6 thousand frauds detected
1S05
- 87.0 thousand inspections made
- 9.7 thousand frauds detected
1S05
- 4.4 thousand inspections made
- 1.0 thousand frauds detected
25
30
35 technical commercial
Distribution Business
In 2005, Energias do Brasil is investing R$ 21.5 million in programs geared to contain growth in the level of technical and commercial losses. These investments are intended to provide a gradual reduction starting in 2006.
Evolution of total losses (% of the electric power distributed in the last 12 months)
16
detected
- Total of 504 thousand inspections scheduled for 2005
ENERGIAS DO BRASIL
detected
- Total of 214 thousand inspections scheduled for 2005
ENERSUL
detected
- Total of 240 thousand inspections scheduled for 2005
ESCELSA
detected
- Total of 50 thousand inspections scheduled for 2005
BANDEIRANTE
7.5 7.8 7.4 7.810.1
13.0
7.9 8.5
1.7 2.25.7 6.0
6.0
5.9
3.64.1
0
5
10
15
20
2004 jun/05 2004 jun/05 2004 jun/05 2004 jun/05
% last 12 months
Generation Business
Energias do Brasil currently has an installed capacity of 530 MW, 100% long-term contracts...
Existing Generation Assets Nwe Generation Capacity
194
4526
16 530
400
500
600
(Installed Capacity MW)
452
25
50 1,057
800
1,000
1,200
(Installed Capacity MW)
20062006
100% of contracted energy through PPAs
527
17
... and this capacity is to double till 2006 as part of its expansion strategy for the generation segment
Note:
1 Adjusted for Energias do Brasil’s stake
2501
0
100
200
300
Lajeado Escelsa Pantanal CESA CostaRica
Total
(Installed Capacity MW)
Geração Energética
Expected start of operationsLegend:
530
0
200
400
600
CurrentCapacity
AHE PeixeAngical
PCH São João 4th Mascarenhasplant
Total
(Installed Capacity MW)
2006
530
Generation: Peixe Angical Plant
• Location: Rio Tocantins• Installed Capacity: 452 MW• Assured annual power supply: 2,374 GWh • Reservoir area: 294 Km2
• Investment: R$1.5 Bi
• 4,780 employees, 3,873 of them on the job site, 278 with the transmission lines and 629 involved in complementary civil works.
• Expected revenue service start-up dates:
1st engine: May 20062nd engine: July 20063rd engine: October 2006
• Until June/05, 93.90% of the project is already implemented. About 86% of the civil works and 50% of the manufacturing and supply of electric and mechanical parts have been completed.
18
Commercialization Business
Energy Volumes Free Customer Market – Expected Growth
Enertrade is the second largest private commercialization company in Brazil characterized by high growth rates...
3,1793,179
2,336
1,101
1,360
520
2,000
2,500
3,000
3,500
(GW
h) 6.94
7.74
8.63
9.62
8.0
10.0
12.0
19
... and is well-positioned to exploit growth opportunities in the free customer market
Source: Abracel
1,235
1,819
2,659
1,101
0
500
1,000
1,500
Sales 1S04 Sales 1S05 Purchases 1S05
(GW
h)
Others Energias do Brasil’s Discos Lajeado
0.0
2.0
4.0
6.0
2005E 2006E 2007E 2008E(GWm)
Financial Performance
20
Financial Performance
420
518
400
500
600
Revenue, EBITDA & EBITDA Margin
Strong growth in revenues, EBITDA and EBITDA margin...
Net Revenues (R$ million) EBITDA and EBITDA margin
30
1,842
2,182
1,500
2,000
2,500
21
183
236
-
100
200
300
2T04 2T05 1S04 1S05
(R$ MM)
... which will be further improved by the expansion of our generation business
21%
22%
23%
24%
EBITDA Margin
%
25
20
893
1,085
-
500
1,000
1,500
2T04 2T05 1S04 1S05
(R$ MM)
Distributed and Sold Electric Power
Consistent growth in the electric power market of our concessionaires in 2005 ...
Eletricity Distributed (GWh) Commercialized Energy (GWh)
11,11211,488
10,000
12,000
14,000
3,179
2,3362,500
3,000
3,500
22
... With an even higher expansion of our commercialization volumes
5,558 5,794
0
2,000
4,000
6,000
8,000
2T04 2T05 1S04 1S05
GWh
1,576
1,224
0
500
1,000
1,500
2,000
2T04 2T05 1S04 1S05
GWh
Distribution – Market Breakdown
Migration of captive customers to the free customer status has been changing the market profile
Eletricity Distributed (GWh) Net Operating Revenues (R$ million)
21% 28%
1%1%
11,11211,488
9%
2%1,815
2,057
23
2T04 2T05 1S04 1S05
Captive Power in transit Others
2T04 2T05 1S04 1S05
Captive Power in transit Others
76% 70%
78% 71%
94%
94%
89%
89%
23% 29%
5%
1% 1%
5,7945,558
9%
5%
9%
1%
2%
1%
896
1,049
Costs and Expenses Breakdown 1
Costs and Expenses Breakdown1 – 1S05
Manageable costs have the potential to be significantly reduced with the recent corporate restructuring and synergy programs
Costs and Manageable Expenses Breakdown – 1S05
Personnel
R$134 million
(37%)
Materials
R$19 million
(5%)
Non-manageable costs Manageable costs
24
Provision
R$43 million
(12%)
Third Parties’ Services
R$98 million
(27%)
R$1,664 million R$360 million
costs
R$1,304 million
(78%)
Manageable costsR$360 million
(22%)
Note:
1 Excludes depreciation and amortization
Others
R$66 million
(18%)
3.9x
3.4x
2.7x
2.0x
3.0x
4.0x
5.0x
Indebtedness – Total Position
Indebtedness – 1S05 (R$ million) Net Debt / EBITDA1
Current capital structure will be strengthened by the IPO and the capitalization of Escelsa’s senior notes...
(479)
(923)
71%
Long Term
43%
Foreign Currency
3,756
(670)
2,354
(500)1,184
25
1.4x
0.0x
1.0x
2.0x
2003 2004 1S05 After Capit. andIPO
…creating financial capacity for the company’s growth
29%
Gross
Indebtednes
s
Cash
Regulatory Assetsos
Short Term
57%
Local Currency
Net Debt
before the IPO and
Capitalization
Capitalization
of Senior Notes
1,184
Net Debt after
capitalization
and IPO
IPO Proceeds
Notes:
1 Based on the EBITDA of the last 12 months
2 Base June 31, 2005
2
Indebtedness – Foreign Currency
The significant reduction in the exposure to the exchange risk after the IPO and capitalization will provide lower volatility
Financial liabilities – effective exposure to foreign currency – 1S05 (R$ million)
(548 )
(118)1,200
1,400
1,600
1,800
26
390
1,060
1,726
(118)
(670)
0
200
400
600
800
1,000
1,200
Gross debt in
foreign currency
Swap / Hedge Cash & equivalentsin foreign currency
Adjusted gross debt
in foreign currency
Capitalization
(Senior Notes)
Adjusted gross debt
in foreign currency
after capitalization
(R$ million)
Indebtedness Management: Strategy
• Reduce exposure to foreign currency by hedging, amortization of debt denominated in foreign currencies and new long term debts in local currency
• Based on the new, less leveraged, capital structure, reduce the indebtedness cost
27
• Reduce the exposure to short-term indebtedness
• Minimize the holding company’s liabilities and raise debt leverage in operating companies in line with their respective capacities of cash generation
Current Investment Plan
We invested R$515 million in the 1S05 and our investment plan for this year is fully equalized. The IPO/capitalization will contribute to the development of new projects
Investment Breakdown (Excludes New Generation Projects)
1,0521,049
1,000
1,200
1,400
28
Generation
65148 105
254238
333
286
204
746
571
162
552
459
0
200
400
600
800
2003 2004 2005E 2006E
(R$ million )
Distribution Universalization
Dividend Policy
Dividend Policy
• Minimum dividend pay-out: 40.0% of annual adjusted net income
• Rationale: the dividend pay-out should be compatible with
The strong cash flow generated will allow Energias do Brasil to implement an attractive dividend policy in compliance with the company’s investment plan
29
Dividend Policy • Rationale: the dividend pay-out should be compatible with Energias do Brasil’s investment requirements and target leverage
Energias do Brasil’s Strategy
30
Energias do Brasil’s Strategy
Key Elements of our Strategy
To be a leading company in the electric power industry, focused on creating value to our shareholders
STRATEGY
OBJECTIVE
31
Benefit from coming growth opportunities, with an emphasis on generation, following strict
investment criteria
Focus on operating efficiency and synergy gains, mainly in the distribution segment
Leverage management skills with the support of an international group that has a proven
track-record in competitive markets
STRATEGY
Maintain a solid financial structure with liquidity and scale to sustain the expansion plan
The impact of the new regulatory framework on a highly fragmented market, where the players have distinct strategies, financial capacity and growth potential
Distribution - Market Share1
Fragmented Market
Generation - Market Share2
Endesa
Others
25% AES
14%
Energias do Brasil
6%
CESP
8%
Tractebel
7%
CEMIG
7%
Copel
5%AES
32
Source: ANEELNote:1 Market share in December 2004
Endesa
5%
CPFL
12%
CEMIG
11%Copel
6%
Elektro
3%
Light
6%
Neoenergia
7%
Celesc
5%
Source: ANEELNote:2 Based on the installed capacity
Eletrobrás
42%
Others
20%
5%AES
4% CPFL
2%
Duke
3%
Energias do Brasil1%
Petrobras
1%
Strategy - Generation
The main drive for short-term growth is the development of hydroelectric generation projects
Why invest in hydroelectric generation projects?
• Clear perspective of return on future investments
• Low regulatory risk, as regulatory model emphasizes hydroelectric production
• Ability to leverage on Group’s expertise
• Balancing our portfolio (generation versus distribution)
• Thermoelectric projects do not yet meet Energias do Brasil’s risk and return criteria
33
• Thermoelectric projects do not yet meet Energias do Brasil’s risk and return criteria
Opportunities
• New energy auctions
• Acquisition of existing assets:
- with potential for improvement and further expansion, and / or
- assets belonging to investors that do not have a long-term commitment to
Brazil or are willing to monetize the generation assets
• Partnership with experienced players
Strategy - Distribution
Focus on operating efficiency and synergy gains
Sources of Synergies
“Best Practices”• Efficiency Program
– already achieved recurring synergies of R$15 million / year
34
Strategic Integration
• Corporate restructuring
• Integrated management of asset portfolio
– competitive capital structure
– achieve higher fiscal efficiency
Operational Integration
• Project “Vanguarda”
– virtual platforms
– standardize policies and procedures
Vanguard Project
Mission: identify and capture synergies within companies of Energias do Brasil, consolidating its reference position in the Brazilian energy sector
1st phase of implementation
� Mapping followed by the optimization and process redesign
35
� Teams made up of employees from all the companiesof Energias do Brasil will work in the survey of thecurrent processes and redesign of the new processes
� The results of each stage of the Process Redesign areclearly defined for the teams
Strategy - Commercialization
Maintain Energias do Brasil’s customer base and expand into new markets
• Explore the free customer market within our existing concession areas
Among the leading players in the sector Commercialization strategy
Market Share1 - 2004
Enertrade
9%
CPFL
18%
Others
47%
36
• Explore the high growth potential of markets outside our concession areas
• Ability to sell generation in the free market
The existing platform already supports the implementation of our commercialization strategy
Source: CCEE
Notes:
1 Excludes Eletrobrás and free customers without commercialization company
2 Includes Petrobras and CIEN
Own business operators
26%2
47%
Conclusion: An Excellent Investment Opportunity
• Brazil’s positive economic outlook should translate into higher energy consumption, creating a need for new investments in generation
Attractive Market Outlook
• New regulatory framework provides a more stable business environment and should lead to the repositioning of the sector participants
New Regulatory Framework
• Expansion strategy with emphasis on generationGrowth Strategy
37
• New corporate structure provides higher efficiency and will create additional synergies, specially in distributionOperational Efficiency
• Strong financial position with sufficient liquidity and scale to finance expansion in Brazil
Financial Strength
• Novo Mercado Listing (100% tag along rights for all shareholders, providing the highest standard of Corporate Governance in Brazil)
Superior Corporate Governance
Statement of Results for the First Semester 2005Statement of Results for the First Semester 2005
August, 2005
Visit our websitewww.energiasdobrasil.com.br