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CEAL’S ACQUISITIONJANUARY , 2019
2
Disclaimer
This presentation may contain forward-looking statements, which are subject to risks and uncertainties, as they were based on the expectations of Company’s management and on available information. These prospects include statements concerning the Company’s current intensions or expectations for our clients.
Forward-looking statements refer to future events which may or may not occur. Our future financial situation,operating results, market share and competitive positioning may differ substantially from those expressed orsuggested by said forward-looking statements. Many factors and values that can establish these results areOctside Company’s control or expectation. The reader/investor is prevented not to completely rely on theinformation above.
The words “believe", “can", “predict", “estimate", “continue", “anticipate", “intend", “forecast" and similar words,are intended to identify estimates. Such estimates refer only to the date in which they were expressed, thereforethe Company has no obligation to update said statements.
This presentation does not consist of offering, invitation or request of subscription offer or purchase of anymarketable securities. And, this statement or any other information herein, does not consist of a contract base orcommitment of any kind.
3
AL
PIMA
PA
Overview CEAL
Equatorial’s growth in distribution segment
1Total of the Concession Financial Asset and Intangible Asset in Sept/18 for Celpa, Cemar and Cepisa (Current) and Ceal.
AL
1.157 m Consumers
47,788 Km Grid Extension
3,546 GWh Volume
25% Total Losses
R$ 340 m Regulatory Opex
SUDENE’sarea
Proxy RAB (R$ ‘000)1 Consumers (‘000) Volume (GWh)
6.207 7.364
1.157
Current Ceal Including Ceal
18.18321.729
3.546
Current Ceal Including Ceal
9.051
977
10.028
Current CEAL Including Ceal
4
Acquisition Conditions
Auction Bid Parameters Flexibilization1
Regulatory Opex (Ref. Auction, 2017) R$ 352 m R$ 322 m2
Non-Techinical Losses (over LV market) 27.18% 21.95%
RGR “Designada” (may/18) R$ 599 m 0%
Equity Eletrobras R$ 45,000
Minimum Equity Increase R$ 546 million
Bidding Documents Conditions:
Aquisition of 89.94% in CEAL’s share capital.
Eletrobras has the right to convert debt into equity up to 30% stake in CEAL, within 6 months.
Equatorial should acquire the unsubscribed capital from the 10% stake the employees and
pensioners from CEAL are entitled to.
Equatorial should pay to Eletrobrás 50% of the fixed assets that were in progress by the time of
the privatization appraisal and that are approved by ANEEL as RAB in the Tariff Review.
1 Minimum discount required
2 After the Tariff Adjustment of 2018, around R$ 340 m
AL
PIMA
PA
5
Debt Sept/18 – Before the capital increase
Other Liabilities Sept/18 (R$ ‘000)
Future Capital Increase 188,825
Total 188,825
Net Debt Sept/18 (R$ ‘000)
Gross Debt + Future Capital Increase 2,370,929
(-) Regulatory Assets and Liabilities 729,029
(-) Cash Position 51,158
(-) Other Investments 5,889
Net Debt 1,584,853
(-) RGR ¹ (up to R$400 m) 400,000
Adjusted Net Debt - Proforma 1,184,853
Loans and Financings Sept/18 (R$ ‘000)
RGR 638,197
RGR “designada” 618,349
RGR 19,848
Others 1,543,907
Gross Debt 2,182,104
¹ According to Ordinance 510/2018 from MME
6
2,771
152 66 53
340 322
318 312
26
593
383
5% 2% 2%14%
13%
13% 15%
35%
Total Debt Short Term 2019 2020 2021 2022 2023 2024 After 2024
Debt RGR "designada" RGR (up to R$ 400m) Future Capital Increase
Debt profile after renegociations
Equatorial estimation of Debt maturity profile after renegociations, Future Capital Increase Converted in Debt and RGR R$ 400 m
Debt profile – R$ ‘000
¹ Renegociated Contracts as for approved by Eletrobras’ Board 249/2018 with extension ofmaturity to 2024, and 2 years of grace period
Debt after renegotiations Cost Adm fee Debt Maturity Position in Sept/2018
RGR 5% 1.0% 2023 19,848
RGR "designada" 5% N/A 2048 618,348
FINEL 6.5% 2.0% 2018 79
RO- SELIC SELIC 0.5% 2024 278,020
RO - CDI¹ 124.75% CDI 0.5% 2024 1,260,855
STN Libor + 1.0125% N/A 2024 1,904
IBM CDI + 0.18% N/A 2020 3,049
Total 2,182,103
Future Capital Increase 124.75% CDI 0.5% 2024 188,825
RGR (up to R$ 400m) 5% N/A 2048 400,000
Total including Future Capital Increase and RGR R$ 400m 2,770,928
Should be paid by Tariff Increase
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Contingencies and delayed payments
1 Energy debts estimated by Equatorial with Eletrobras Group, Usage and Connection CCEE and taxes2 Registered in Contingencies in Sept/18, however negociated since mar/18
Contingency and Delayed Payments Position in Sept/18 (R$ m)
Parcel A1 200.000
Taxes financed 38.891
PRT 5.654
SEFAZ- ICMS 33.237
Plano Bresser2 208.000
Total 446.891
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Municipalities (2015) 102 224 144 217
Population (2017) 3,358,963 3,218,485 8,366,628 7,000,229
% pop. around the capital city 34% 31% 26% 20%
State Area (km²) 27,800 251,500 1,248,000 331,983
Population by km² 120 12.7 6.6 20.8
% da pop. In rural areas (2015) 28.30% 32.90% 31.60% 40.40%
GDP per Capita (R$ / hab) 13,803 12,187 15,821 11,285
Income per household (R$ / mês) 658 750 708 575
IDH 0.631 0.646 0.646 0.639
Grid Extension (2016) 47,788 91,765 153,284 123,650
Consumers ('000, 2017) 1,157 1,227 2,442 2,358
Volume Sold (GWh) 3,546 3,281 8,736 6,166
Position in Complexity Ranking - ANEEL 7th 9th 1st 4th
Level of Complexity - ANEEL 0.266 0.257 0.503 0.315
Concession Figures
CEAL
9
412.116
186.084
Bolsa.Família UC´s Bx.Renda
Residential39%
Free + Usage11%
Other19%
Rural5%
Commercial18%
Industrial8%
CEAL
Market Breakdown and Low Income
Potential consumers entitled to Low Income Subsidy is material.
Social effect potentially relevant, reducing theaverage expenditure for the Low Income consumer.
Low Income (‘000)
Consumption Breakdown
CEMAR CELPA CEPISA CEAL
Volume (GWh, 2017) 6,197 8,767 3,601 3,546
Total Consumers ('000) 2.434 2.596 1.263 1.157
Resid. Consumers ('000) 2.178 2.227 1.111 1.065
Total Market (monthly) 516 731 300 295
Residential (monthly) 265 318 140 116
Total Average Cons 212.2 281.41 237.61 255.3
Resid. Average Cons. 121.65 142.58 126.08 108.6
Low Income Consumers
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Ceal: A New Growth Story
Consolidated Management Model
• Meritocracy;
• Adoption of the best practices from Equatorial;
• Focus on People – training and development of the teams and suppliers.
Dedication to the Client
• Improvement in the quality indicators;
• Investments to foster economic and social development of the State;
• Improvement and modernization of the service channels;
• Energy efficiency measures to promote the rationalization of the consumption.
Main Value Drivers
• Energy Losses and Deliquency Reduction;
• Improvement in the productivity (opex and capex optimization);
• Growth in number of consumers and per capita consumption.
Capital Structure Optimization
• Equatorial’s financial soundness;
• Debt structure management and own capital at the DisCo;
• Capex funding at the same cost than Equatorial.
11
Workforce
CEMAR reached the 22nd position
in the national Great Place to Work
2017 ranking
CELPA reached the 38th position in
the national Great Place to Work
2017 ranking.
Total Workforce (People)
+109%
4,146
8,689
1,183
Celpa 2011 Celpa 2017 Ceal 2017
12
3,5463,845
489
470
692 232
Atual Estimado
Cativo+Livre Técnicas Não-Técnicas
Volumes and Energy Losses
Average
25.0% 15.4%Reaching Cemar’s levels
65% of losses reduction is added to the market
2017, captive+free
Reaching Cemar’s level of losses, could add up to 298 GWhto the Market.
Potential tariff reduction due to the expectation of the reduction in energy losses.
Market, Losses and Potential Growth
Market Growth (% p.a.)
CEAL Equivalent Cemar
4.50%
5.63%
0.77%
6.91%
5.15%
12.69%
8.81%
4.59%
-0.34% -1.37%
3.73%
6.13%
4.64%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Avg. 07-14 Avg. 07-17
Current Estimated
Captive+Free Technical Non-Technical
13
371
44
26
62
19
Rec. Irrec.
Rem.Cap
CAIMI
Depreciação
PMSO Reg
OPEX and Parcel B
Opex / Consumers (R$, 2017)Parcel B (R$m, Tariff Review 2018, includinngflexibilization)1
170
300
147
CEMAR CEAL (2018) COELCE
51%43%
4th 9th 10th
ANEEL Complexity Ranking
521.93
CEMAR CELPA CEAL
Volume (GWh, 2017) 6,197 8,767 3,546
Consumers ('000) 2,434 2,596 1,157
Residential Consumers ('000)
2,178 2,227 1,065
¹ Aproximated amount without the T Component of the X Factor.
² According to the Ceal’s Concession Contract, the PDA are calculated in Parcel A.
Considering theminimum discount, the value drops to
R$ 340 m, as ofMay/2019
Reg. Bad Debt
Depreciation
Reg. OPEX
Reg. EBIT
Annuities
14
Regulatory Asset Base
*Ceal 2017: average of the valaution published by Eletrobras
Ratio Total Assets/Consumers and Depreciation / Total Assets suggest underinvestment in the recent years.
Underinvested assets suggest that there are growth opportunities within the Company and restrained volumes.Possibility of Extraordinary Tariff Review as of 2020 and opportunity of review, including, the 2013 RAB.
Total Assets / Consumers (R$) Depreciation / Total Assets (%)
R$ m Ceal.2013 Cemar.2013 Ceal.2017* Cemar.2017
Total Assets 1,698 5,442 2,211 7,808
Gross RAB 1,086 3,309 1,326 4,922
Net RAB 444 2,069 712 3,310
Consumers 952,855 2,066.455 1,157,413 2,374,387
1,782 1,910
2,633
3,288
2013 2017
Ceal Cemar
52.49%49.69%
39.20% 37.13%
2013 2017
Ceal Cemar
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Quality Fostering Economic Growth
The regulatoryparameter for CEAL is
similar to currentlevels presented by
CEMAR, a concessionmore complex in
terms of operation.
FEC - Frequency
DEC - Duration
16.04
22.82
20.7
16.8215.7
10.88 11.01
8.957.51 7.14
2013 2014 2015 2016 2017
FEC Real - CEAL FEC Real - CEMAR FER Reg - CEAL
30.73
36.32
29.56
21.45 20.7518.85
1715.28 14.22 13.28
2013 2014 2015 2016 2017
DEC Real - CEAL DEC Real - CEMAR DER Reg - CEAL
Quality ExcellenceANEEL’s Quality Ranking
2o 9o
Cemar Celpa
Actual FEC - CEAL Actual FEC - CEMAR Reg. FEC - CEAL
Actual DEC - CEAL Actual DEC - CEMAR Reg. DEC - CEAL
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A Look back at 2018
ConstructionLicenses
TransmissionLines
Start ofConstruction Works
SPVs 1, 2, 7 e 8
Long Term FundingSigned
R$ 2.3 bn TransmissionR$ 2.6 bn Distribution
Tax BenefitsSUDAM – Celpa, SPVs 7 e 8
SUDENE- Cemar, Cepisa, Intesa e others SPVs
AcquisitionsCepisa
CealIntesa (49%)
Achievements in 2018
Distribution
↑ 50%consumers
= 10% share in
distribution
= R$ 10 bn of Net
RAB
Transmission
63% Long Term
Funding Signed
Start ofConstruction Works
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