CPFL Energia S.A. (CPL)

CPL 
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CPFL Energia S.A. (CPL)

Q4 2012 Earnings Call

March 14, 2013 10:00 am ET

Executives

Wilson Pinto Ferreira - Chief Executive Officer

Analysts

Márcio Prado - Santander, Equity Research

Henrique Peretti - UBS Investment Bank, Research Division

Presentation

Operator

Good morning, ladies and gentlemen. We would like to welcome everyone to CPFL Energia Fourth Quarter Earnings Results. We have with us Mr. Wilson Ferreira Jr., CEO; and other officers of the company.

This call is being broadcast simultaneously via the Internet, on the website, www.cpfl.com.br/ir. Up on that address, you can also find a banner through which the presentation will be available for download. [Operator Instructions].

It is important to mention that this teleconference is being recorded.

Before proceeding, let me mention that forward-looking statements that can be made during this conference regarding CPFE Energia Management are based on the beliefs and assumptions of the company and information currently available to the company.

Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to further events, and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of CPFL Energia and cause results to differ materially from those expressed in such forward-looking statements.

Now I would like to ask Mr. Wilson Ferreira Jr. to take the floor. Mr. Ferreira, you may take the floor.

Wilson Pinto Ferreira

Good morning. We have here our presentation of the fourth quarter and the close of 2012. I think this presentation is important to refer starting on Page 3. I assume that before we start the results, give you a quick review of the environment. I'll give you an overview because I feel that sometimes, investors and analysts might have some questions about the last events of the sector and as we are the largest agent in this sector, I feel that we should clarify it from doubts, so that we can make more firm projections and positions and have a better idea of prospects.

So we will start by Page 3, and in a very transparent world, give you some of the news that somehow or other have been prevented regarding this moment and recent events of the sector. Obviously, you know about the drop of the shares, generally speaking, of these companies which were affected by Provisionary [indiscernible] 679 [ph] and companies like ours which were not but the behavior of the stock market is the same.

The circumstances, the context, and less generation after the temporary measure, has influenced the drop of the shares of both companies that have already expired concessions already amortized and depreciated. And like the exchange, sometimes we say, well, there's a floating of the exchange. The spot market also floats and you have the repercussion and the state of the reservoir from the consumption also has its impacts. So the values of the stock market or stock price affects the investors and analysts. The rationing risk is something which has come up recently, the use of thermal plants and the dispatch and the impairment of this, the dispatch of energy, and the impairment with dispatch method brings about.

So in a very summarized way, I think it's very important to give you an overview of these 3 issues that are the essence of this. First of all, the removal of the concessions, the impacts on the companies and our company in particular, and unveiling, let's say, the losses with this temporary provision, the risks of rationing, which sometimes is not being made very clear, and also about regarding the liquidity and the distributor's working capital which certainly when there are greater dispatches of energy, this has a growth impact and the company has had to take steps and also other associations like Abradee.

On Page 4, we have more specifically, in this case with CPFL, the results of this measure and the rules. In the 24th of January past, we had the application of this simple measure. You know that 100% of the company's held transmission concessions for renewal against this, the 11,000 megawatts have been generated, we have 9 companies, 2,000 megawatts a month did not adhere to the proposal of this measure presented by the government. And specifically, for the distributors, more impact on tariff would be. And the simple applications on the reduction proposals, including a reduction of generation tariffs, the amount which will be renewed, a drop of about BRL 95 to about BRL 32, bringing in a change of the tariffs with adherence of 100% of the transition system, that is to say, from that reduction of transmission costs of all the Brazilian companies of about 60%, and a more specific case, for the distributors also, the important reduction of charges which was showed here throughout the consumption chain of industrial and residential segments. For the demo on the average rate reduction which is showed here on the first chart, 18% for poly cell, 18.4% Piratininga, and 22% RGE, 19.7% for Santa Cruz, 23% for Leste Paulista, 18% for Sui Paulista and [indiscernible] start and approximately 21% for Macaca.

So with this simple measure eliminated, that was transferred all the affects to the consumer and so what impacts we have now for the sector and the country. Here, we have an impact nonetheless or a view of what the prospects of this reduction will have permanently in real terms for the future. According to a consultancy firm that lend their services to us, we can see very clearly that there is a real prospect of increasing competitiveness, I'll go into this further later, for the industry, and this has a positive repercussion regarding the competitiveness and also for the export agenda.

So because of the tariff reduction, companies in Brazil have become more competitive, and not only because of this measure but others where I'll talk about later. More competitors in the international market increasing export. At the same time, as the imports, for the same reason, will be reduced so there will be less need for imports. And we can also see in the 0.2, 0.1, for example, in 2013, an increase of the industrial activity, so there will be an impact on industrial production and also the income of the women's [indiscernible] women's now will have relevance, less expense with energy. Bottom line, tariff reduction for all consumers, an average of 20%, will impact on distribution companies or [indiscernible] on distribution companies, a reduction, of course, of expenses with generation transmission and greater competitiveness on the Brazilian industry.

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