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November 10, 2006November 10, 2006
3rd quarter 2006 Results3rd quarter 2006 Results
Highlights
Market
Tariff Adjustment and Operating Performance
Financial Performance
Debt Profile
Cash Flow
Conclusion
Highlights
Operating Performance
Bilateral Contract
Financial Performance
Capex
Expansion Requirement
Conclusion
Brasiliana Reorganization
3
BrasilianaBrasiliana ReorganizationReorganization
• Reorganization Rationale• Allow dividends’ distribution to controlling shareholders
• Debt Reduction – early liquidation of Brasiliana’s debentures
• Elimination of dollar denominated debt
• Simplification of Corporate Structure
• Elimination of fiscal inefficiencies
• Secondary Offering – AES Transgás
• 15.83 billion class B preferred shares (38% of Eletropaulo’s total capital)
• Pricing: R$ 85.0 / ‘000 shares, implying a total offering size of R$ 1,345 million
• Free Float increased from 18.3% (R$ 729 million) to 56.2% (R$ 2,233 million)
• Eletropaulo’s PNB shares (ELPL6) increased 11.8% since the pricing (09/21/06) until 11/06/06
• The daily average traded volume increased from R$ 6.0 million in the last twelve months prior to
the pricing (09/21/06) to R$ 19.0 after the pricing (until 11/06/06)
4
BrasilianaBrasiliana ReorganizationReorganization
BNDESAES Holdings
Brasil Ltda
Cia. Brasiliana
De Energia
AES InfoenergyAES Uruguaiana
Inc (Cayman)AES ELPA
EletropauloAES Uruguaiana
Empreend. S.A.
AES Tietê S.A.
C 49.99%
P 100.00%
T 53.84%
C 50.001%
P 0.00%
T 46.15%
C 100.00%
T 100.00%
C 98.26%
T 98.26%
C 100.00%
T 100.00%
C 100.00%
T 100.00%
C 71.27%
P 32.23%
T 52.51%
C 77.81%
P 0.00%
T 30.97%
P 7.38%
T 4.44%
C = Common SharesP = Preferred SharesT = Total
• Reduction of Brasiliana’s and holdco’s indebtedness from R$ 2,044.0 million (principal as of 09.30.2006) to R$ 800.0 million
6
HighlightsHighlights
SubsequentEvents
• Ratings increased by Fitch in national scale from “BBB+” to “A”
and in international scale from “B+” to “BB-” (10/05/2006)
• Ratings increased by S&P in national scale from “BBB+” to “A-”
and in international scale from “B+” to “BB-” (11/06/2006)
3Q06
• Adjusted EBITDA of R$ 1,912.4 million in the first 9 months of
2006, 26.0% higher than the first 9 months of 2005
• Net Profit of R$ 274.4 million in the first 9 months of the year,
compared to a loss of R$ 204.1 million in the equivalent period of
2005
• Tariff Adjustment – 11.45% (07/04/2006)
• Increase in the average life of FCESP Debt - cash savings of
approx. R$ 633 million until the end of 2008 (08/31/2006)
7
1,3121,632
592
1,658
613
2,320
1,915
3,0333,195
2,372
Residential Industrial Commercial Public Sectorand Others
FreeConsumers
3Q05 3Q06
7,882 7,790
9,4489,194
Billed Market Total Market
5.3%
-3.5%
-14.8% 26.3%
-1.2%
2.8%
2.2%
Consumption Comparison in Consumption Comparison in GWhGWhCaptive Market Evolution (GWh)
Increase of 4.6% (12 months)
NOTE: Charts do not consider own consumption
7,5197,6067,4337,2807,2567,119 7,033
7,443
4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06
• All free consumers were excluded from previous periods.
8
Free ConsumersFree Consumers
1,6581,654
1,182
641479
750 806964
1,3121,407 1,500
1930
3848 54
78 8495 99 106 111
1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06
Free Consumers (GWh) TUSD (R$ million)
Net Revenues with TUSD X Free Consumers’ Consumption
% Total Market (3Q06)
1.9%
18.1%80.0% Captive Consumers
Free Consumers
Potentially Free Consumers
9
3.7%6.3% 4.5% 2.5% 3.6% 4.8%
7.5%7.6% 12.1%
11.8% 7.3%1.6% 9.9%
1.6%1.7%
16.9%
-4.3%
1999 2000 2001 2002 2003 2004 2005 2006
Part B Part A PIS/COFINS IGPM
Tariff EvolutionTariff Evolution
2.1%
18.6%
11.6%14.3%
17.6%
11.1%13.8%
11.5%
RESIDENTIAL 308.0 304.0 - 1.3%INDUSTRIAL 235.7 260.1 + 10.3%COMMERCIAL 283.7 292.3 + 3.0%OTHERS 228.5 236.3 + 3.4%TOTAL 277.1 286.1 + 3.2%
3Q06 Variation %3Q05Average Tariff R$/MWh
10
Operating HighlightsOperating Highlights
Collection Rate -% over Gross RevenueLoss Evolution (%)
7.9 7.3 7.4 6.6
13.5 12.9 13.0 12.2
5.65.65.65.6
2004 2005 9M05 9M06
Technical Losses Commercial Losses
99.298.299.097.5
2004 2005 9M05 9M06
-5.9% +1.0%
Fraud Combat and Clandestine Connections (9M06):
367 thousand inspections and 45 thousand frauds detected
56 thousand clandestine connections regularized
Collection Rate
Public Sector: 106.0%
Private Sector: 98.7%
Cuts and Reconnections – monthly average (9M05 x 9M06)
Cuts - increase from 77 thousand to 117 thousand
Reconnections – increase from 55 thousand to 75 thousand
11
CAPEX 9M06CAPEX 9M06R$ millionR$ million
76 73
32
49
15
404
186
297355
70
346
11 16
33
81 92
217
330
88
2003
2004
2005
1Q06
2Q06
3Q06
2006
(e)
Capex Self Financed
Investments 9M06 (R$ 260.7 million)
16%
6%
12%
12% 15%
39%
Customer Service and SystemExpansion
Maintenance
Loss Recovery
Information Technology
Others
Self Financed
12
ResultsResultsR$ millionR$ million
764.7745.7 737.1
2,930.5
2,184.72,007.12,184.71,977.1
745.72,744.22,741.8
2,930.5
3Q05 3Q06 2Q06 3Q06
Net Revenue Deductions from Operating Revenue
1,143.4
744.8 509.0 348.0 509.0
228.4157.6
188.9228.4
1,145.3
1,055.91,143.4
1,880.82,079.0
1,561.51,880.8
3Q05 3Q06 2Q06 3Q06Operating Expenses Sector Charges Electricity + Transport
Gross Revenue Operating Expenses
• Increases in relation to 2Q06 and 3Q05 are explained by:
• The application of the average tariff adjustment since July 4th, 2006
• Tariff mix and total market increase of 2.8% in relation
to 3Q05
• Increase of 20.4% over 2Q06:
• Increase in provisions for labor and civil contingencies – R$ 120.9 million
• Higher expenses with energy purchase and sector charges (CCC and CDE) due to its readjustments – R$ 291.5 million
• Reduction of 9.5% over 3Q05: • Provision of credits with the Municipal Government of São
Paulo - R$ 346.4 million in 3Q05 – (non-recurring event)
+6.9% +6.8% -9.5%+20.4%
13
9M05 x 9M06
Increase of 26.0%
ADJUSTED EBITDA
EBITDAEBITDAR$ millionR$ million
EBITDA
Pension Fund
3Q05 x 3Q06
RTE
(27.5)
60.4
448.6
85.3
SP Municipal Government
0
Provision - RTE 0
Provision - Contingencies 0
ADJUSTED EBITDA MARGIN 22.7%
383.2
60.5
658.9
80.0
0
14.3
120.9
30.2%
826.8
181.6
1,518.1
251.3
(72.0)
0
0
24.4%
1,330.2
181.6
1,912.4
243.5
0
36.1
120.9
31.0%
Increase of 46.9%
330.5 0 330.5 0
PIS/Pasep taxes’ reversion
14
Consolidated Financial ResultConsolidated Financial ResultR$ millionR$ million
(53.0)
(126.1)
(53.0)
(136.2)
3Q05 3Q06 2Q06 3Q06
The financial result’s improvement is due to:
• The reduction of the total debt’s average cost
• The increase of 21.8% of financial revenues in relation to
2Q06:
• Revenues from cash management in 3Q06 (R$ 12.1
million)
• Receiving of Eletropaulo Telecom’s dividends in 3Q06
(R$ 5.0 million)
• The gains in translation of financial statements of Overseas
II of R$ 5.7 million due to the Real depreciation of 0.5% in
3Q06.
Financial Result
-58.0%-61.1%
(193.4)
(160.4)(153.7)
(130.2)(120.4)
3Q05 4Q05 1Q06 2Q06 3Q06
Net Debt - Total Cost
15
Net ProfitNet ProfitR$ millionR$ million
• Reversal of Accumulated Losses from R$ 257.2 million in 12.31.2005 to Accumulated Earnings of R$ 29.6 million in 09.30.2006
274.4
(204.1)
47.3
201.9
47.3
(324.1)
3Q05 3Q06 2Q06 3Q06 9M05 9M06
-76,6%
16
Consolidated DebtConsolidated DebtR$ millionR$ million
Short Term X Long Term
• Gross Debt: reduction of 9.1% (R$ 479.6 million)
• Net Debt: reduction of 18.1% (R$ 893.7 million)
• Foreign Currency: decreased from 9.7% to 2.1% of total debt
Indebtedness Highlights – last 12 months
Libor2.1%
Fixed Rate11.1%
IGP-DI47.7%
CDI/Selic39.1%
Creditors X Indexes – 3Q06
Gross Debt – R$ 4,800 million
• Pension Fund - R$ 2,288 million
• Private Creditors - R$ 2,033 million
• BNDES - R$ 478 million
5,2804,800 4,8004,877
74% 79% 79%77%
26%21% 21%23% 4,0314,2564,031
4,924
3Q05 3Q06 2Q06 3Q06
R$
mill
ion
LT ST Net Debt
-18.1%
-5.3%
17Cash savings of approximately R$ 633 million until the end of 2008
Amortization ScheduleAmortization SchedulePrincipal Principal -- R$ millionR$ million
Increase in average life of the Pension Fund Debt
Total Debt
23458
213 267 263
729
138 138 111
282144
163 181
181
181 181 181
1,505
356159
112
3685
2626
26
26
21
Pre-payments
9M06
Payments
9M064Q06 2007 2008 2009 2010 2011 2012 2013 2014-22
R$ (w/out FCESP) FCESP BNDES US$
282
106
422 422
200 200 200 200 200
800
282
36144 163 181 181 181 181 181
1,505
Payments
9M06
4Q06 2007 2008 2009 2010 2011 2012 2013 2014-22
FCESP (Pre-renegotiation) FCESP (Post-renegotiation)
18
CDI +6.84%
CDI +2.90% CDI +
2.50% CDI +1.82%
Bonds 8th Debenture 9th Debenture CCB
Consolidated DebtConsolidated DebtR$ millionR$ million
Ratings – Fitch
--17.4%%
--1.6%--1.4%%
Average Cost and Average Life
Interest rates evolution
• Last increase in 10/05/06, reflects:
• Improvement of Indebtedness Profile
• Strong cash generation
• De-leveraging of Parent Company
100.4%100.8%99.7%
101.9%
5.44
3.433.81 3.90
3Q05 1Q06 2Q06 3Q06Avg Cost - %CDI Avg Life - years
National Scale
International Scale
BB
BBB
BBB+
B -
B +
B +
Oct ‘04
Dec ‘05
Jul ‘06
AOct ‘06
BB -
National Scale
International Scale
BB
BBB
BBB+
B -
B +
B +
Oct ‘04
Dec ‘05
Jul ‘06
AOct ‘06
BB -
19
Cash FlowCash FlowR$ millionR$ million
R$ million 1Q06 2Q06 3Q06 9M06
Initial Cash 492 356 617 492
Operating Cash Generation 687 653 725 2.065
Investments (101) (88) (75) (264)
Net Financial Expenses (196) (85) (177) (458)
Net Amortization (245) (45) (158) (448)
Pension Fund Expenses (134) (108) (85) (327)
Income Tax (147) (67) (83) (297)
Free Cash Flow (136) 261 147 272
Final Cash 356 617 764 764
Operating Cash Generation (3Q06)
• Average Tariff Adjustment of 11.45%
• Market increase and tariff mix
Pension Fund Expenses (3Q06)
• Renegotiation of debt contracts
20
ConclusionConclusion
• Reversal of accumulated losses of R$ 257.2 million in Dec/05 to
accumulated earnings of R$ 29.6 million in Sep/06
• 26% increase of Adjusted EBITDA, R$ 1,518.1 million (9M05), compared to
R$ 1,912.4 million (9M06)
• Reduction of 18.1% in consolidated net debt
• Reduction of 2.1% in the average cost of consolidated debt
• Increase of total debt’s average life from 3.4 years to 5.4 years
• Ratings increased by Fitch Ratings and S&P
• Free float increased from 18.3% to 56.2% of the total capital
21
22
HighlightsHighlights –– 9M069M06
1H06
Jan,06: 100% of assured energy is sold through the bilateral contract with Eletropaulo
EBITDA = R$ 543 million
Net Income = R$ 306 million
Dividends: payout of 100% of net income
Subsequent EventsDividend and interest on capital of R$ 143 million to be paid on Nov 30th
3Q06
Jul,06: Readjustment of price of bilateral contract with Eletropaulo in 0.9%
EBITDA: R$ 276 million in the 3Q06 and R$ 819 million in the 9M06
Net Income: R$ 143 million in the 3Q06 and R$ 449 million in the 9M06
23
Energy Balance Energy Balance –– 9M069M06
Energy Generated x Billed Energy in GWh
*After deducing own consumption and transmission losses, the difference is addressed to the Energy Reallocation Mechanism – MREand to the Chamber of Energy Marketing – CCEE..
Caconde284.0
Euclides365.1
Limoeiro104.8
Ibitinga501.7
Bariri427.2
Barra Bonita402.3
Água Vermelha5,912.0
Promissão768.4
Nova Avanhandava1,029.0
Mogi Guaçu23.5
MRE/CCEE*1,506.3
Eletropaulo - Bilateral8,311.5
TOTAL
9,817.8
BILLED
9,817.8
84.7%60.2%
1.1%
2.9%
3.7%
4.1%
4.4%
5.1%
7.8%
10.5%
0.2%
15.3%
24
Generation and ReliabilityGeneration and Reliability
9M06: generation was 18% over the assured energyFailure Index (FI) and Equivalent Availability Factor (EAF) figures exceed the requirements established by the National Eclectic Energy Agency - ANEEL: 2.9% for (FI) and 92.8% for EAFAverage of 7 years of operations without accidents requiring removal of personnel from the worksite
0.7Bariri3.1Euclides da Cunha3.4Caconde4.5Promissão6.0Barra Bonita6.1Limoeiro8.1Água Vermelha8.7Nova Avanhandava11.6Mogi-Guaçu18.2Ibitinga
Period Without Accidents –Years
Plant
1,617 1,619 1,581 1,5021,040
1,258 1,392 1,363 1,467 1,498
118%115%123% 120% 123% 117%
81%98%
109% 107%
1997 1998 1999 2000 2001 2002 2003 2004 2005 9M06
Generation - MW Average Generation / Assured Energy
2.8%
2.2% 2.3% 2.5%
1.6% 1.7%
3.0%
94.9%
97.2% 96.8% 94.2% 96.1%90.9% 92.6%
2000 2001 2002 2003 2004 2005 9M06*
Failure Index Equivalent Availability Factor
*Annualized
25
Bilateral ContractBilateral Contract
Starting in Jan, 06: 1,268 MW (100% assured energy) is sold through the bilateral contract with Eletropaulo
Price adjusted by IGP-M variation in JulyMaturity: December, 2015 Collateral: receivables
Oct, 03: amendment extending its term of effectiveness until Jun,28In Aug, 05 ANEEL published the vetoing to the amendmentEletropaulo has brought a lawsuit against ANEEL’s decision, which is now awaiting judgment on merits by a trial court
Average Revenue Average Revenue –– R$/ R$/ MWhMWh133.9
45.9 48.854.0
73.6
94.4
119.6
2000 2001 2002 2003 2004 2005 BilateralContract
26
899 1,041
362 343
9M05 9M06 3Q05 3Q06
54
3730
56 7120 22
1716
42
35
11 12
18
522 26
80
62
213
71 82
272
9M05 9M06 3Q05 3Q06
ResultsResultsR$ millionR$ million
Greater volume of energy sold through bilateral contract – from 948 MW to 1,248 MW
3Q05: Non-recurring revenue (R$ 50.5 million)reversion of allowance related to PIS/Cofinsof the bilateralRecognition of regulatory asset on PIS/Cofinsof initial contracts
Jul,06: Price readjustment of bilateral contract (0.9%)
Power purchase:Transmission fees – increase of R$ 20.5 million: greater volume of sales through bilateral contractCCEE’s fine – re version of allowance of R$ 3.9 million booked in 4Q05
9M06: allowance of R$ 30.2 million: RTE’s monetary adjustment (R$ 14.8 million) and allowance on PIS / Cofins on the initial contracts (R$ 15.3 million)
Net RevenueNet Revenue Costs and Operational ExpensesCosts and Operational Expenses
Power Purchase
Others*Operational Expenses
Royalties Provisions
*Others: R&D, fiscalization fees, insurance, hydro way and others
16%16% 28%28%
5%5%16%16%
27
ResultsResultsR$ R$ millionmillion
EBITDAEBITDA
734819
307 276
84.7%78.7%81.6% 80.7%
9M05 9M06 3Q05 3Q06
12%12%
1010%%
Greater volume of energy sold through bilateral contract - from 948 MW to 1,268 MW
Jul,06: price readjustment of bilateral contract (0.9%)
3Q05: non-recurring revenue (R$ 50.5 million)Reversion of allowance related to PIS/Cofins on bilateral agreementRecognition of regulatory asset related to PIS/Cofins on initial contracts
28
ResultsResultsR$ R$ millionmillion
(69) (76)
6
(29)
9M05 9M06 3Q05 3Q06
Increase in financial expenses due to IGP-M variation:
3Q05 = –1.6%3Q06 = 1.0%
9M05 = 0.6% 9M06 = 2.3%
Financial ResultsFinancial Results
10%10%
--583%583%
143201
449411 41.9%
45.7%43.1% 55.5%
9M05 9M06 3Q05 3Q06
Net IncomeNet Income
9%9%
29%29%
9M06: net income 9% greater than 9M05
3Q06: lower net income due to impact of non-recurring revenue in 3Q05
29
DebtDebt
Net Debt Net Debt –– R$ billionR$ billion Financial InvestmentsFinancial Investments
Cash availability = R$ 672.3 million (Sep,06)
0.9
1.3
0.7
1.1 1.11.11.4
0.7
0.7x0.9x1.4x
2.0x3.2x3.3x3.0x
0.7x
2000 2001 2002 2003 2004 2005 9M05 9M06Net Debt Net Debt / EBITDA
Federal T Bonds (Ba3)
86%
Prived Bonds (A3)- 1%
Foreign Bonds - US$ - (Aa1)-
6%
Foreign Bonds - US$ - (Aa3) -
7%
R$ million
Creditor Amount Maturity Terms Collateral
Eletrobras 1,381.4 May/13 IGP-M + 10% p.y. ReceivablesFunCesp III 20.5 nov/27 IGP-DI + 6% p.y. Receivables
30
CAPEXCAPEX
Capex – 9M06: R$ 18.8 millionBariri: revamp and modernization of Generating Unit #2 and #3Reforestation
2006 Revised Capex: R$ 30 milliondelay in revamping of Generating Units #2 and #3 of Bariri plant: R$ 5 millionsavings on the acquisition of a transformer to Nova Avanhandava plant: R$ 1.5 millionpostponement of investment on hydroway: R$ 1.5 millionchange on project of splinklers implementation in Ibitinga, Euclides da Cunha and Caconde plants: R$ 1 millionpostponement of investments on reforestation: R$ 2 millionpostponement of investment in IT: R$ 1.1 million
CapexCapex –– 9M069M06CapexCapex –– R$ millionR$ million
18.8
30.027.5
21.9
12.4
30.537.5
17.7
2000 2001 2002 2003 2004 2005 9M06 2006Revised
69.0%
20.7%0.4%
9.8%
Equipment Enviroment Hydroway Others
31
ExpansionExpansion RequirementRequirement
Requirement: increase installed capacity by at least 15% (approximately 400 MW), within a period of eight years, starting from the date of execution of its Concession Contract in December, 1999
Requirement was established by the Privatization Documents and reflected in the “Share Purchase Agreement”
It can be accomplish through:increasing the installed capacity in the State of São Paulo; or energy purchasing from new plants, located in São Paulo, through long term agreements (at least 5 years)
Restriction to increase the capacity:no hydro resource available in the Sate of São Pauloenvironmental restrictions to thermal plants in São Paulogas supply“New Model Law for the Electric Sector” (Law # 10,848/04)
Proposal from AES Tietê to the State Government:Suspension of the obligation to increase the capacity for 5 years. During this period AES Tietê can analyze freely any project for investment, regardless the locationAfter the suspension period, in the case that restriction continue, a AES Tietê will be released of this obligationNo amount of resources and/or obligation will be paid in compensation
The State Government has not yet responded to this proposal.
32
Subsequent EventSubsequent Event
On October 23, AES Tietê entered into an agreement to purchase licenses for the exploitation of hydro potential
This agreement is still subject to the satisfaction of certain precedent conditions and to Aneel’sapproval
After the obtaining the necessary regulatory and corporate approvals, AES Tietê will be entitled to build 3 PCH (small hydroelectric facilities) in the State of Rio de Janeiro
Installed capacity: 52 MW
Assured energy: 28.97 MW Average
Total estimated Capex: R$ 225 million
Estimated term for construction: 2 years
33
ConclusionConclusion
Generation was 18% higher than assured energy
Operational excellence: FR and EAF above ANEEL requirements
EBITDA of R$ 819 million in 9M06 – increase of 11.5% compared with the same period of 2005
Net Income of R$ 449 million in the 9M06 – net margin of 43.1%
Dividends and interest on capital of R$ 143.5 million to be paid in Nov 30th
Payout of 100% of 9M06 net income
November 10, 2006November 10, 2006
The statements contained in this document with regard to the business prospects, projected operating and financial results, and growth potential of AES Eletropaulo are merely forecasts based on the expectations of Company Management in relation to its future performance. Such estimates are highly dependent on market behavior and on the conditions affecting Brazil‘s macroeconomic performance as well as the electricity sector and international market, and they are therefore subject to change.
The statements contained in this document with regard to the business prospects, projected operating and financial results, and growth potential of AES Eletropaulo are merely forecasts based on the expectations of Company Management in relation to its future performance. Such estimates are highly dependent on market behavior and on the conditions affecting Brazil‘s macroeconomic performance as well as the electricity sector and international market, and they are therefore subject to change.
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