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MarketScreener Homepage  >  Equities  >  Bolsa de valores de Sao Paulo  >  CPFL Energia S.A.    CPFE3   BRCPFEACNOR0

CPFL ENERGIA S.A.

(CPFE3)
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CPFL Energia S A : 2Q19 Conference Call Presentation

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08/14/2019 | 10:37am EDT

2Q19 Results

Disclaimer

This presentation may contain statements that represent expectations about future events or results according to Brazilian and international securities regulators. These statements are based on certain assumptions and analyses made by the Company pursuant to its experience and the economic environment, market conditions and expected future events, many of which are beyond the Company's control. Important factors that could lead to significant differences between actual results and expectations about future events or results include the Company's business strategy, Brazilian and international economic conditions, technology, financial strategy, developments in the utilities industry, hydrological conditions, financial market conditions, uncertainty regarding the results of future operations, plans, objectives, expectations and intentions, among others. Considering these factors, the Company's actual results may differ materially from those indicated or implied in forward-looking statements about future events or results.

The information and opinions contained herein should not be construed as a recommendation to potential investors and no investment decision should be based on the truthfulness, timeliness or completeness of such information or opinions. None of the advisors to the company or parties related to them or their representatives shall be liable for any 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 may include projections of economic growth, demand, energy supply, as well as information about its competitive position, the regulatory environment, potential growth opportunities and other matters. Many factors could adversely affect the estimates and assumptions on which these statements are based.

2

2Q19 Highlights

Increase of0.9% in load in the concession area

EBITDA ofR$ 1,505 million, growth of9.9%

Net Income ofR$ 574 million, growth of27.4%

Net Debt ofR$ 11.0 billion and leverage of1.93x Net Debt/EBITDA1

Investments of R$ 521 million, growth of 23.5%

  • RGE-RGESul's tariff adjustments, inJun-19:(i) increase of7.14% of RGE's parcel B, and (ii) increase of9.10% of RGE Sul's parcel B
  • CPFL Energia'sRe-IPO,inJun-19:R$ 3.7 billion @R$ 27.50/share;
    total offering: 134.3 MM shares; since the offering - price: +22.3%2
    and ADTV: R$ 109.5 MM(from Jun 13 to Aug 13)
    1. Financial covenants criteria; 2) From R$ 27.50/share to R$ 33.62/share on Aug 13.

3

2Q19 Energy Sales

Load1in the concession area | GWh

Sales(2)in the concession area | GWh

Sales by consumption segment | GWh

-0.8%

+0.9%

-0.8%

16,754

16,626

16,754

(49)

16,398

16,539

(56)

13

(37)

16,626

5,469

+2.5%

5,604

Free Client

5,467

5,637

Free Client

+3.1%

-2.3%

Captive

-1.0%

-0.9%

+0.5%

-1.3%

10,930

-0.3%

10,902

Captive

11,285

11,021

2Q18

2Q19

2Q18

2Q19

2Q18

Resid.

Indust2

Commerc.

Others 2Q19

Losses|2Q19

Breakdown in the concession area|2Q19

Main impacts by segment | %

9,02%

9,01%

17%

29%

Resid

Ind

Com

Total

8,27%

17%

8,24%

Billing calendar

-1.6

-0.5

-1.4

-1.1

38%

Temperature

-1.3

-

-0.4

-0.5

2Q18

2Q19

Migr. National Grid

-

-1.8

-

-0.7

CPFL Energia

Limit ANEEL

Residential Industrial Commercial Others

4

1) Load net of losses; 2) If excluding the consumption of two large consumers that migrate to the National Grid, the sales within the concession area in 2Q19 would have the following variation: -0.1%.

Macroeconomic scenario still not favorable and weather also affecting negatively the market performance

Rainfall in RGE1(mm)

Temperature1(°C)

2Q18

2Q19

No need

2Q18 2Q19

No need

of heaters

22.1 22.3

of irrigation

21.2

21.9

464

20.3

20.8

333

239

282

19.2

18.1

131

41

April

May

June

Paulista

Piratininga

Santa Cruz

RGE

Unemployment rate2(%)

12.4

12.0

Jun-19

May-19

Apr-19

Mar-19

Feb-19

Jan-19

Dec-18

Nov-18

Oct-18

Sep-18

Aug-18

Jul-18

Jun-18

May-18

Apr-18

Mar-18

Feb-18

Jan-18

1) Source: Somar; 2) Source: IBGE.

Industrial production - Brazil2(% YoY)

2.8

Weak

1.7

1.2

performance

-1.2

-2.3

-1.0

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

Retail sales2(% YoY)

4.3

2.2

1.7

1.10.8

0.3

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

5

Delinquency

ADA | R$ MM

Collection actions | Power Cuts

(thousands)

+31.4%

+53.7%

15.3%

536

-5.6%

465

68,0

64,3

408

41,8

2Q18

1Q19

2Q19

2Q18

1Q19

2Q19

Benchmarking - 2Q18 X 2Q19 (% ADA/Billed Revenue)1

Actions in progress - 2019

  • Increase of power cuts in the 2Q19 and expectation of keeping the same level until the end of the year (meter and circuit braker)
  • Intensification of other collection actions: 2.9 million negativity in 2Q19 (641k higher than 1Q19)
  • New payment options (debit and credit) for the negotiation of overdue accounts

1,53

0,92

0,90

0,98

1,00

1,55

1,06

1,73

0,64

2Q18 x 2Q19

2Q18

2Q19

2Q18

2Q19

2Q18

2Q19

Disco1Disco2

1) Source: Earnings Release.

0,62

2Q18 2Q19 2Q18 2Q19

Disco3Disco4

6

Hydrological Scenario

Reservoir Evolution

  • Maximum Storable Energy| National Interconnected System (SIN)

80

70

60

50

40

30

20

10

0

Dec

Jan

Febr

Mar

Apr

May

June

July

Aug

Sept

Oct

Nov

Dec

2001

2002

2015

2016

2017

2018

2019

Hist. Average

ONS Proj.

  • 2019:due to rainfall in the last October and November, the SIN storage began 10% higher than 2018
  • Jan-Feb2019:typical storage recovery of this period was not observed
  • As of March:near-normal rainfall in the SE/CW and above in the South allowed a significant storage recovery
  • Solving transmission lines problems(Madeira)and the commissioning of new lines (Belo Monte)also contributed to the storage recovery

Expectations for PLD

450

1,80

400

1,60

350

1,40

300

1,20

250

1,00

200

0,80

150

0,60

100

0,40

50

0,20

0

0,00

Jan

Febr

Mar

Apr

May June July

Aug Sept

Oct

Nov

Dec

2019

PLD

GSF "seasonal"

GSF "flat"

  • 2019 PLDexpected avg:R$ 185/MWh
  • GSF:-15.7%(Jul-Sep are the more critical months, when GSF reaches -45% considering the seasonal MRE assured energy)
  • In the coming years, the expansion of renewable sources and hydroelectricity is much lower than the demand growth:expect a smaller impact of GSF

7

Renewable Generation - Performance

Generation by source (GWh)

+5.8%

1,558

1,4720.4

+21

GWh

More favorable climate conditions enabled higher crushing

volume in 2Q19, resulting in higher generation.

0.3

330

351

314447

827760

2Q182Q19

Wind SHPP BIO SOL

+132

GWh

-67

GWh

Boa Vista 2 SHPP start-up in November 2018;

Better inflow in the southern region and in the states of

Mato Grosso and São Paulo, which offset the lower inflow

in the state of Minas Gerais.

Lower winds in Ceará and Rio Grande do Norte, despite

the improved availability in 2Q19 of the farms operated

by Suzlon. In the Rio Grande do Sul wind farms, the

performance was similar in both periods.

8

2Q19 Results

Distribution

Conventional

Renewable

Commercialization,

Generation

Generation

Services & Others

EBITDA

Net Income

R$ 1,505 MM

R$ 135 MM

R$ 873 MM

R$ 106 MM

R$ 334 MM

R$ 35 MM

R$ 251 MM

R$ 5 MM

R$ 46 MM

R$ 1 MM

R$ 574 MM

R$ 123 MM

9.9%

13.8%

11.8%

1.9%

2.3%

27.4%

Highlights

EBITDA by Segment

Renewable

Commercialization,

Generation

Services & Others

17%

3%

Conventional Distribution

Generation58%

22%

  • Market / tariff
    (+R$ 235 MM)
  • Concession financial asset (+R$ 63 MM)
  • RAB appraisal report in 2Q18(-R$93 MM)
  • PMSO1(-R$ 86 MM):
    • Assetswrite-off/opex rel. to capex (-R$25 MM)
    • ADA(-R$ 22 MM)
    • Inflation(-R$17 MM)
    • Legal and judicial expenses(-R$8 MM)
    • Private Pension Fund(-R$6 MM)
  • Inflation effect over the contracts (+R$ 22 MM)
  • Higher hydro and thermal generation (+R$ 13 MM)
  • PIS/Cofins credits recovery in 2Q18(-R$17 MM)
  • Lower wind farms generation(-R$16 MM)
  • O&M - ACL payments(-R$6 MM)
  • PPA seasonalization (+R$ 28 MM)
  • GSF (+R$ 13 MM)
  • Commercialization: margin loss - volume(-R$12 MM)
  • Services: margin gain - new contracts - CPFL Serviços (+R$ 11 MM)
  • EBITDA (+R$ 135 MM)
  • Financial Result (+R$ 34 MM):
    • Debt charges2- mainly due to the reduction in the indebtedness (+R$ 22 MM)
    • Additions and late payment fines (+R$ 25 MM)
  • Deprec. & Amortiz.(-R$6 MM)
  • Income Tax & Social Contrib.(-R$51 MM)

1) Includes Private Pension Fund; 2) Net of income from financial investments, including sectoral financial assets and liabilities.

9

Indebtedness

Leveragel Financial covenants criteria | R$ billion

14,5

16,3

14,9

13,0

12,2

13,2

11.0

Adjusted Net Debt1

/Adjusted EBITDA2

2014

2015

2016

2017

2018

1Q19

2Q19

Adjusted EBITDA1,2

3,736

3,584

4,117

4,531

5,342

5,481

5,683

R$ Million

Gross debt breakdown by indexer3

IFRS | 2Q19

15%64%

17%

4%

CDI Pre-fixed TJLP Inflation

Gross debt cost3| IFRS | End of period

Real Nominal

13,5%

8,0%7,5% 7,6% 7,4%

6,8%

4,9%

3,6%

2,9%

3,9%

2016

2017

2018

1Q19

2Q19

CPFL Energia x CPFL Renováveis Gross debt cost3l IFRS | End of period

CPFL Energia (w/o CPFL-R) CPFL - R

14,3%

11,6%

8,6%

8,7%

8,8%

8,1%

7,7%7,0% 7,2% 7,1%

2016

2017

2018

1Q19

2Q19

Liabilities Management

  • 1Q19:CPFL Renováveis debt profile was intense in BNDES indexes (TJLP, Pre-fixed).
  • On May 19, CPFL Renováveis issued debentures in a total amount of R$ 838 MM in order to achieve CPFL Energia average debt cost and ensure more adequate costs for the company.

1) LTM EBITDA; 2) Adjusted by the proportional consolidation; 3) Financial debt (-) hedge.

10

Re-IPO

CPFL Energia's Re-IPO,inJun-19:R$ 3.7 billion

  • R$ 27.50/share
  • Total offering:134.3 MM shares

Roadshow:

  • 61meetings
  • 14videoconferences
    (Asia, Australia, Netherlands, Middle East and Brazil)
  • 4group events
  • Total visited investors:+115

Offering:

  • Total orders:135
  • 58%Brazilian investors; 42%foreign investors

Shares Performance:

Offering

33.62

Jun 12

+22.3%

27.50

ADTV1: R$ 109.5 MM

Aug 13

1) Average Daily Trading Volume (ADTV):

from Jun 13 (day after the day of the offer) to Aug 13.

Post-offering

Free Float

83.71% 16.29%

Allocation vs. Demand

R$ billion

3.93x 14.5

3.7

Allocation

Total Demand

11

Corporate Governance

Advisory Committees to CPFL Energia's Board of Directors -

Related Parties Committee

Related Parties

Committee

Members nominated by State Grid

Independent members

  • The Related Parties Committee shall have in its composition at least 1 independent member, as defined by Novo Mercado Regulation;it has now 2 independent members
  • The Committees meeting can only be validly held with the presence of all 3 members (siting or alternate)

Creation of the Corporate Governance Directorship

  • Demonstrates to the market the concern regarding Corporate Governance issues, such asaccountabilityand transparency
  • Director reports administratively to the Chief Legal and Institutional Relations Officer and functionally to the Board of Directors

ADR

Nível

III

High corporate governance standards

in Brazil and in the U.S.

12

Dividends Policy

Dividend Payout Ratio (%)

95%

95%

95%

95%

95%

82%

98%

89%

99%

Average2005-2013: 94%

Average2005-2018: 71%

Current

Minimum

44%

Payout Ratio:

50%

25%

25%

25%

25%

Considerations

  • On May 21, 2019,CPFL
    Energia announced it set a minimum payout ratio of 50%.
  • The definition of payout ratio will depend on abalancebetween growthand yield.

13

14

© CPFL Energia 2019. All rights reserved.

Disclaimer

CPFL Energia SA published this content on 14 August 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 August 2019 14:36:02 UTC

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Financials (BRL)
Sales 2019 27 251 M
EBIT 2019 4 377 M
Net income 2019 2 497 M
Debt 2019 15 342 M
Yield 2019 3,20%
P/E ratio 2019 15,2x
P/E ratio 2020 13,1x
EV / Sales2019 1,96x
EV / Sales2020 1,85x
Capitalization 38 013 M
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Mean consensus BUY
Number of Analysts 6
Average target price 38,56  BRL
Last Close Price 32,99  BRL
Spread / Highest target 22,4%
Spread / Average Target 16,9%
Spread / Lowest Target 10,6%
EPS Revisions
Managers
NameTitle
Gustavo Estrella Chief Executive Officer
Yu Hai Hu Chairman
Luís Henrique Ferreira Pinto Vice President-Regulated Operations
Yuehui Pan Chief Financial Officer
André Dorf Director
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