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Eng vi encontro - cenários e estratégias - wilson

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  • 1. Scenarios and strategiesWilson FerreiraCEO of CPFL Energia
  • 2. DisclaimerThis presentation may contain statements that represent expectations about future events or resultsaccording to Brazilian and international securities regulators. These statements are based on certainassumptions and analysis made by the Company pursuant to its experience and the economicenvironment and market conditions and expected future events, many of which are beyond theCompanys control. Important factors that could lead to significant differences between actual results andexpectations about future events or results include the Companys business strategy. Brazilian andinternational economic conditions, technology, financial strategy, developments in the utilities industry,hydrological conditions, financial market conditions, uncertainty regarding the results of futureoperations, plans, objectives, expectations and intentions, among others. Considering these factors, theCompanys actual results may differ materially from those indicated or implied in forward-lookingstatements about future events or results.The information and opinions contained herein should not be construed as a recommendation topotential investors and no investment decision should be based on the truthfulness, timeliness orcompleteness of such information or opinions. None of the advisors to the company or parties related tothem or their representatives shall be liable for any losses that may result from the use or contents ofthis presentation.This material includes forward-looking statements subject to risks and uncertainties, which are based oncurrent expectations and projections about future events and trends that may affect the Companysbusiness.These statements may include projections of economic growth, demand, energy supply, as well asinformation about its competitive position, the regulatory environment, potential growth opportunitiesand other matters. Many factors could adversely affect the estimates and assumptions on which thesestatements are based.
  • 3. AgendaStrategic Planning ScenariosCPFL’s Strategic Plan
  • 4. AgendaStrategic Planning ScenariosCPFL’s Strategic Plan
  • 5. Planning scenarios place strategic challenges inCPFL’s future1 3 Macroeconomic Regulatory Scenario Scenario Main scenarios evaluated in the 2012- 2017 Strategic Plan2 4 Competitive Market Scenario Scenario
  • 6. Planning scenarios place strategic challenges inCPFL’s future1 3 Macroeconomic Regulatory Scenario Scenario Main scenarios evaluated in the 2012- 2017 Strategic Plan2 4 Competitive MarketScenario Scenario
  • 7. We are estimating a world with low growth in the mature economies (effect of the crisis) and greater participation from the emerging economies1 Mature economies will have low growth, due to the financial World: +4.2% p.a. 1 crisis on the European continent and the uncertainties brought by the Europe: +1.5% p.a. US “fiscal cliff” USA: +2.4% p.a. The emerging countries will continue gaining importance 2 on the world economy, led by China China: +7.5% p.a. PIIGS debt crisis – Portugal, Ireland, Italy, Greece and Spain – will continue contaminating the main economies of the region (France and Germany); however, there should be no more critical economic events 2012: -0.5% 3 2013: -0.3% The austerity measures will contribute to reduce demand (and 2014-2017: +1.9% GDP growth) and will not be enough to restore confidence in the short term1) LCA Scenario.
  • 8. We estimate Brazil with sustainable economic growth and monetary stability1 1 Growth of Brazilian GDP : average of 4.2% p.a. between 2013 and 2017 2 Inflation slightly higher than the target: average IPCA of 4.8% p.a. Domestic market continues to stimulate growth between 2013 and 2017 3 (Payroll: 4.3%; Retail: 5.6%; Unemployment: 5.2%) Per capita income growth: +3.5% p.a. Low unemployment and economic 4 growth will sustain the expansion of the middle class and poverty reduction Virtuous investment cycle: infrastructure, decline in the real interest rate, 5 World Cup, Olympic Games and other measures to stimulate investments Institutional stability, low country risk and a comfortable level of 6 reserves will keep the country attractive to external investment1) LCA Scenario.
  • 9. Planning scenarios place strategic challenges in CPFL’sfuture1 3 Macroeconomic Regulatory Scenario Scenario Main scenarios evaluated in the 2012- 2017 Strategic Plan2 4 Market Sompetitive Scenario Scenario
  • 10. Market Scenario | Energy Demand National Interconnected System (SIN) load grows at an average rate of 3.8% p.a. over the 2012-2031 period, with a highlight being the growth of the North (5.3% p.a.) and Northeast (4.5% p.a.) regions CPFL Scenario (GW average)1 CPFL Scenario 2013-2017 2018-2021 Average GDP1 4.2% 3.7% Average Growth2 4.2% 3.7% Southeast / Center-West South Northeast North1) Considers supply to ANDE and Manaus/Macapá connection to the North submarket as of July/2013 (1,284 MW average);2) Growth excluding Manaus/Macapá connection: 4.1%; Source: CPFL (OP); EPE; LCA
  • 11. Market Scenario | National Energy Balance The system is in balance until 2016, despite the problems with the construction of Bertin and Multiner thermoelectric plants Supply and Demand of the National Interconnected System (SIN) GW average 0.0% 4.8% 7.0% 6.1% 3.8% 3.4% 3.4% 0.1% -3.4% -6.8% -1.0% 3.0% 4.3% 3.3% 1.1% -0.9% -0.7% -3.8% -7.2% -10.5%
  • 12. Market Scenario | Expansion of supply will be mostlythrough hydroelectric sources, complemented by renewablesources and natural gas thermal plants The expansion of supply will be mainly through hydroelectric plants supplemented by Natural Gas TPPs and Renewable Sources. Nuclear plants will play an important role in the second half of the 2020s Expansion of Planned Supply CPFL Scenario (GW average)
  • 13. Planning scenarios place strategic challenges inCPFL’s future1 3 Macroeconomic Regulatory Scenario Scenario Main scenarios evaluated in the 2012- 2017 Strategic Plan2 4 Market Competitive Scenario Scenario
  • 14. Regulatory Scenario | Pressure for tariff reductions | PM 579 Concessions renewal and tariff reduction • Government package for the reduction of energy tariffs on 2 fronts: • Concession renewal: PM 579 • Reductions of electric sector charges • Objective: to promote domestic industry competitiveness, once the correlation between the reduction of energy costs and the promotion of development has been identified • Benefits: generation of jobs, reduction of inflation and an increase in investments • Breaking of market expectations versus breaking of contracts • “(...) the regulatory, and even economic and development, logic is that the investments must be conducted with investors’ capital to be remunerated when the energy is made available for consumption.” (Paulo Pedrosa, Abrace) • Amount foreseen in indemnities is less than the market agents expected – indications that some companies will not sign the new contract
  • 15. Regulatory Scenario | Pressure for tariff reductions | PM 579 The Distribution sector’s tariffs were always pressured in order to achieve efficiency and lower tariffs, whereas the Generation and Transmission segments did not suffer the same regulations Industrial Tariffs1 (CPFL Piratininga) - [R$/MWh]2 +5% Impacts on the tariff R$/MWh % • Sector charges and (26%) 1.3 2% Taxes: increase in the Taxes (22%) (22%) tariff of R$23.4/MWh (8%) (120% and 2%Sector charges (7%) (15%) 22.1 120% respectively) Distribution (13%) (9%) -16.1 -41% (15%) • Distribution: reduction of (6%) R$16.1/MWh due to the (8%) -2.2 -10% Transmission (9%) tariff reviews (-41%) • Generation: Increase of R$7.4/MWh Generation (47%) 7.4 6% due to tariff realignment (47%) (47%) (6%) 1st CRTP 2nd CRTP 3rd CRTP 1) Proxy of the industrial segment represented by the Average Tariff of Group A; 2) Real values in October 2011 | Source: CPFL Energia. Amount adjusted by IPCA.
  • 16. Amounts proposed by the PM 579 The average amount of O&M tariff is R$ 9.80/MWh and takes into account a profit margin of 10% (R$ 0.90/MWh). It is estimated that the amount of the final tariff (O&M, Sector Charges and Network Use) will be R$ 27/MWh. Distribution of O&M amounts of the projects with capacity above 100 MW 4,280 4,252 3,162 Capacity (MW) 1,480 1,551 1,440 1,216 O&M (R$/MWh) 1,048 396 380 375 319 260 180 237 102 158 Corumbá I I. Solt. - T. Irmãos Furnas Jupiá Volta Grande Porto Colômbia Salto Grande Parigot de Souza Itaparica Boa Esperança Jacuí Passo Real Xingó Paulo Afonso Marimbondo Estreito Três MariasSource: Based on APINE data
  • 17. Adjustment in the contracting level of the distribution companies 8.6 GW med 11.4 GW med 1.5 GW avg Contracting Level 10.2 GW avg RA RA RA EE Angra Angra Quotas CCEAR CCEAR CCEAR Angra EE EE EE CCEAR EE Angra CCEAR EE CCEAR EE CCEAR NE CCEAR NE CCEAR NE CCEAR NE CCEAR NE CCEAR NE BILATERAL BILATERAL BILATERAL BILATERAL BILATERAL BILATERAL Itaipu Itaipu Itaipu Itaipu Itaipu Itaipu + 1 + + 2 + 3 + 4 + 5 Proinfa Proinfa Proinfa Proinfa Proinfa Proinfa 2012 2013 2013 2013 2013 Before the PM After the PM After the After the PM CCEARs Reduced PM Final Composition Quotas of the Resource (1) Situation in the case there is no allocation of quotas (shutdown CCEARs recontracted in the A-1 as Reposition Amount - RA) (2) Reposition Amount (RA) will be reduced from the Angra I and II quotas (REN 505/2012) (3) CCEAR EE parcel ballasted by TPPs with renewed concessions will be reduced (4) EE Quota is allocated to the Distribution resource and the RA is absorbed. Momentarily, over-contracting is generated (5) Frustration of the thermoelectric projects absorbs an eventual excess of quotas The maintenance of the contracting level is not guaranteed. There is a provision for dealing with an imbalance upon contracting, although it still must be regulatedSource: Based on APINE data
  • 18. Adjustment in the contracting level of the distribution companies 8.6 GW med 11.4 GW med 1.5 GW avg Contracting Level 10.2 GW avg RA RA RA Angra Angra EE Quotas CCEAR CCEAR CCEAR Angra EE EE EE CCEAR EE Angra CCEAR EE CCEAR EE CCEAR NE CCEAR NE CCEAR NE CCEAR NE CCEAR NE CCEAR NE BILATERAL BILATERAL BILATERAL BILATERAL BILATERAL BILATERAL Itaipu Itaipu Itaipu Itaipu Itaipu Itaipu + 1 + + 2 + 3 + 4 + 5 Proinfa Proinfa Proinfa Proinfa Proinfa Proinfa 2012 2013 2013 2013 2013 Before the PM After the PM After the After the PM CCEARs Reduced PM Final Composition Quotas of the Resource (1) Situation in the case there is no allocation of quotas (shutdown CCEARs recontracted in the A-1 as Reposition Amount - RA) (2) Reposition Amount (RA) will be reduced from the Angra I and II quotas (REN 505/2012) (3) CCEAR EE parcel ballasted by TPPs with renewed concessions will be reduced (4) EE Quota is allocated to the Distribution resource and the RA is absorbed. Momentarily, over-contracting is generated (5) Frustration of the thermoelectric projects absorbs an eventual excess of quotas The maintenance of the contracting level is not guaranteed. There is a provision for dealing with an imbalance upon contracting, although it still must be regulatedSource: Based on APINE data
  • 19. PM 579 | Expiration schedule of CPFL Energia’s concessions 2015 … 2027 2028 2032 2035 2036 2039Distribution CPFL CPFL HPP Luis HPP HPP Foz do HPP ~3% Paulista Piratininga Eduardo Campos Chapecó Serra daCPFL Santa EBITDA Magalhães Novos Mesa Cruz CPFL RGE HPP BarraCPFL Jaguari Energia Grande CPFL Sul 19 SHPPs Paulista (CPFL HPP Castro CPFL Leste Renováveis) Alves PaulistaCPFL Mococa <1% 1 TPP HPP Monte Installed (Carioba) Claro capacity CPFL HPP 14 deGeneration Energia JulhoSHPP Rio do Peixe (I/II)SHPP Macaco Branco CPFL Energia requested Aneel to renewal all the expiring concessions
  • 20. PM 579 | Expected Effects Segment For the sector For CPFL • Tariff = operational cost + spread • Long-term concessions (expiring as of • Amortization of the non-depreciated 2032) Conventional amounts calculated by the New • Exposure: almost no impact (<1% of Generation Replacement Value (VNR) installed capacity) • Cost of O&M lower than the band presented by the PM 579 • Renewed energy (cheaper) will destined • More competitive environment for the exclusively to regulated market commercialization segment, pressure on marginsCommercialization • Restriction of conventional energy liquidity on the 2013-15 horizon • Migration A4: from 6 months to 5 years • New quality rules and requirements • Limited impact in view of the low being detailed by ANEEL exposure of assets whose concessions are expiring in 2015 Distribution • Changes in energy contracting due to the allocation of quotas • Larger assets will begin to expire as of 2027 (CPFL Paulista/RGE)
  • 21. Regulatory Scenario | Other regulatory agenda topics Besides pressure to reduce tariffs, quality and technology have been focal points • Electronic Meters and Intelligent Networks • DER/FER regulation – Commercial quality control indicators • DER (Average Duration of Response to Complaint) – average time to solve complaints • FER (Average Frequency of Response to Complaint) – frequency of occurrence of a complaint for every thousand consumer units • Methodology of the 4th Tariff Review Cycle Topics that will be on the sector’s radar in the upcoming years
  • 22. Planning scenarios place strategic challenges inCPFL’s future1 3 Regulatory Macroecomic scenario scenario Main scenarios evaluated in the 2012- 2017 Strategic Plan2 4 Market Competitive scenario scenario
  • 23. With the Brazilian electricity market growing, competitionin the sector has been getting tougher The Brazilian electricity market is notable in the world due to its growth and1 investment opportunities Major international players continue to be highly interested in remaining and 2 boosting their business in Brazil, as a result of the crisis in United States and Europe The very attractive market has increased competition, whether through 3 acquisition of assets or in disputing auctions Large domestic companies have continued their strategy of diversification 4 and may use indemnification funds (PM 579) for growth Some agents could erroneously interpret the recent measures as an 5 increase in the institutional risk for the sector
  • 24. AgendaStrategic Planning ScenariosCPFL’s Strategic Plan
  • 25. CPFL’s corporate ambition CPFL 2017 AMBITION To be the leader of the domestic electric sector, focusing on excellence, maximizing value for shareholders and guaranteeing the sustainability of business
  • 26. Total Shareholder Return | History The results of shares performance and the dividend policy resulted in CPFL’s TSR being above the market average over the past few years Total Shareholder Return1 | 2007 – 20122 | % p.a. Dividends Share appreciation 3.3 11.6 0.8% 7.1 4.8 -0.2 2.0% 6.9 17.7% 3.5 0.5 -10.3 10.8% 8.1% 9.0% 5.1% 7.0% 5.1% 4.4% 4.2% -0.1% -3.3% -3.9% -1.6% -9.2% -14.4% -14.6% For the next few years there is an estimate of reduction in the average TSR of the electric sector due to the macroeconomic stabilization and decline in the cost of capitalNote: 1) TSR = shareholder IRR – Market cap values in Sep/2007 and Sep/2012; 2) Amounts corrected by the IGP-M (Dec/2011) | Source:Economatica
  • 27. CPFL’s Strategic PlanStrategic Guidelines | 2013-2017 Innovation of Strategic1 processes Focus on Performance Growth 2
  • 28. CPFL’s Strategic PlanTransformation | Culture and Behavior Projects were implemented seeking gains in efficiency and productivity Project Description Objectives • Installation of intelligent meters • Application of the smart grid concept and remotely commanded • Productivity and efficiency gains Tauron Program switches/reconnectors Smart Grid • Transformation of management profile focusing on • Intelligent dispatching of teams new skills seeking optimal operating • Annual benefit of around R$ 106 million • Implementation of the Zero • Efficiency gains facing the regulatory challenges Base Budget methodology • Improvements in the organization’s budgeting ZBB Zero Base Budget process and cost culture • Annual average gains of R$ 50 million in 5 years • Transfer of the transactional • Increase in operational productivity and efficiency CSC corporate activities to the • Reduction of corporate costs Shared Services CPFL Shared Services Center Center • Sustenance of Group’s growth at a lower incremental cost
  • 29. CPFL’s Strategic PlanStrategic Guidelines | 2013-2017 Innovation of Strategic1 processes Focus on Performance Growth 2
  • 30. CPFL’s Strategic PlanStrategic Growth Avenues | DistributionEfficiency Benchmarking | ANEEL Methodology Companies with MORE than 400,000 clients | In % Companies with LESS than 400,000 clients | In %
  • 31. CPFL’s Strategic Plan Strategic Growth | Distribution Regulatory Remuneration Higher efficiency in capital Improvement in macro scenario allocation leads to smaller returns Brazil Consolidation and gains in 3 largest distribution companies scale being reverted into have a 34% market share productivity Fragmented Market 42 Relevant number of small 31 South/Southeast Sector consolidation 32 small companies concentrated in the large 21 opportunities South and Southeast regions North/Northeast Center-West1) Large companies: market higher than 1TWh (Source: ANEEL 2009)
  • 32. CPFL Strategic Plan | Strategic Growth | Generation Estimated growth in Generation | Installed capacity (MW) Foz Chapecó CAGR 2000-14e = 25% p.a Epasa Enercan Ceran Baldin Creation Semesa Baesa CPFL Renováveis 1,715 1,934 2,094 1,537 1,297 686 803 835 - - - 42 100 257 - 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Ativos da privatização Privatization assets Brownfield Greenfield CPFL Energia: Conventional Generation + Renewables Ranking | Generators in Brazil EBITDA (12M3Q12) | R$ billion2009 2011 2012 2014 Eletrobras 7.2 CPFL Renováveis Santa Clara wind farm Tractebel 3.1 TPP Bio Formosa Atlântica wind farm Cesp 2.4 TPP Bio Buriti TPP Bio Ipê e Bio Jantus wind farm Pedra Cemig 1.9 TPP Ester AES Tietê 1.5 1,737 MW 2,644 MW 2,948 MW CPFL EDP 1.2 Duke 0.8
  • 33. Solar Energy | Outlook Photovoltaic solar energy is still little Solar energy is abundant and variability exploited in the world is low 5 countries → 88% of installed 0.01% of solar radiation = worldwide capacity (31 GW ) - Brazil still taking demand for energy – Brazil: radiation ≈ its first steps two times the developed nations 49.7% 2,400 1,850 1,650 1,250 11.2% 10.0% 10.4% 7.2% Germany Spain Italy Japan USA Brazil Spain France Germany Brazil CPFL – Tanquinho Plant • Current capacity in operation in • 1st Solar Plant in the state of São Paulo Brazil: 2,578 kW (10 plants) • Possibility of redesign of the energy matrix • Just between 10/31 and 11/05 some and development of a new industry 1.0 GW in projects were requested • 5,380 photovoltaic panels • Photovoltaic Plant with connection to Medium Voltage (1,05 MWp) and connection in Low Voltage (0.075 MWp)
  • 34. CPFL’s Strategic Plan Strategic Growth | Energy Commercialization Number of free clients in Brazil Competitive Client (#) Special Client (#) Greater than 3 MW 0.5 to 3 MW CAGR: 4.1% CAGR: 45.1% 857 514 570 587 456 446 485 455 192 219 Dec/08 Dec/09 Dec/10 Dec/11 Aug/12 Dec/08 Dec/09 Dec/10 Dec/11 Aug/12 Number of sellers CPFL Brasil is in an advantageous position to Sales agents (#) confront the challenges CAGR: 29.6% 144 107 • Diversified portfolio and large energy volume 83 Renowned team of market specialists 51 62 • • Governance and firm finances • Culture of structured risk management in place 2008 2009 2010 2011 2012Source: Aneel and CCEE • Ballast already contracted
  • 35. CPFL’s Strategic Plan | Strategic Growth | Services nect serviços In 2012 the service operations were consolidated and the companies are ready to reach their growth potentials 2012 Highlights • Modernization of network construction (CCM) • Construction of the largest solar power plant in the country (Tanquinho) • Consolidation of the group’s call center operations and the startup of negotiations with the market Solid growth plan • Creation of CPFL Total through 2017
  • 36. CPFL in 2017 Leadership among private companies in the electric sector, with a diversified portfolio in different businesses related to EnergyGENERATION DISTRIBUTION• Operational Excellence, with • Market leader, with up to the greatest profitability of the 30% of the market share in sector Brazil • Operational excellence,• Growth in installed capacity using innovation and new in hydro and thermal plants technologies• Leader in renewable sources (> 4 GW by 2020) COMMERCIALIZATION SERVICES • Leadership in commercialization of renewable • Strong growth of sales energy on the free market • Strong integration with the Group’s other businesses and • Maximize profitability, given clients the new market conditions
  • 37. Scenarios and strategiesWilson FerreiraCEO of CPFL Energia