Rio de Janeiro, May 8, 2015.
Non-Technical Losses fall by 1.0 p.p., reaching 39.88%
Consolidated EBITDA grows 9.2%
Consolidated
Consolidated net revenue, excluding construction revenue, totaled R$2,972.7 million in 1Q15, 40.3% up on1Q14, primarily due to the tariff recognition of costs with energy purchases, which were deducted from non-manageable expenses through transfersfromRegulated Contracting Environment Account (ACR Account) in 1Q14.
ConsolidatedEBITDA[1]came to R$494.4 million in 1Q15, 9.2% and 13.7% more than reported EBITDA and adjusted EBITDA in 1Q14, respectively, primarily due to the 17.8% and 129.7% increases in the distribution segment and the in the commercialization and service segment, respectively.
Net income came to R$128.5 million in 1Q15, 28.8% down on 1Q14, chiefly due to the worsening of 125.9% in the financial result, due to the increase in the basic interest rate.
The Company closed March 2015with net debt of R$6,298.8 million, 3.7% up onDecember 2014. Leverage, measured by the net debt/EBITDA ratio stood at 3.74x, for the purpose of the covenants.
Distribution
Total energy consumption grew by 0.6%over 1Q14to 7,422 GWh, due to the increasesof 2.0% and 3.7% in the residential and commercial segments, respectively, partially offset by the 5.3% reduction in the industrial segment.
Non-technical energy losses in the last 12 months, calculated as a percentage of billed energy in the low-voltage market (ANEEL criterion),posted a reduction of 1.0p.p.over 4Q14, closing March 2015 at 39.88%.
The operational quality indicators DEC (equivalent length of interruption indicator) and FEC (equivalent frequency of interruption indicator) came to 13.20 hours and 6.70 times, respectively, respective improvements of 15.1% and 11.8% over the same period last year.
Collections totaled 90.0% of total billed consumption in 1Q15, 4.6 p.p. down on 1Q14, explained by the mathematical effect due to the tariff increase. Provisions for past due accounts (PCLD) represented 1.2% of the distributor’s gross billed energy in 1Q15.
Net revenue, excluding construction revenue, came to R$2,698.8 million in 1Q15, 54.5% up on 1Q14, primarily due to the tariff recognition of costs with energy purchases, which were deducted from non-manageable expenses through transfers from the ACR Account in 1Q14.
EBITDA1amounted to R$300.2 million in 1Q15, 17.8% and 26.9% more than reported EBITDA and adjusted EBITDA in 1Q14, respectively, chiefly due to reversals of civil and tax lawsuits totaling R$40 million.
Net income totaled R$38.1 million, 48.4% down on 1Q14, essentially due to the worsening of 150.9% in the financial result.
The distribution company closed March with net debt of R$5,383.1 million, 4.3% up on December 2014.
Generation
Total sales, net of energy purchases, came to 1,302.6 GWh in 1Q15, 2.9% up from 1Q14.
Net revenuetotaled R$187.2 million, 11.4% down on 1Q14, chiefly due to the reduction in spot market energy prices as a result of the revision of its maximum limit.
EBITDA1amounted to R$162.2 million in 1Q15, 11.3% down on the same period last year.
Net income stood atR$71.1 million in 1Q15, 26.0% less than in 1Q14, chiefly due to the worsening of 59.2% in the financial result.
The generation company closed March 2015with net debt of R$920.9 million, 1.8% more than in December 2014.
Commercialization and Services
Light Com and Light Esco’s direct energy commercialization related to conventional and subsidized sources totaled 1,341.9 GWh, very close to the 1,338.0 GWh sold in the same period last year.
Net revenue came to R$229.4 million in 1Q15, 22.0% lower than in 1Q14.
EBITDA1stood at R$40.2 million in 1Q15, 129.7% up year-on-year.
Net incometotaled R$27.3 million in 1Q15, 117.9% more than in 1Q14.
Table of Contents
1. Light S.A.
2.1 Distribution
Energy Losses
Collection
Operating Quality
2.2 Generation
2.3 Commercialization and Services
3. Financial Performance
3.1 Net Revenue
Consolidated
Distribution
Generation
Commercialization and Services
3.2 Costs and Expenses
Consolidated
Distribution
Generation
Commercialization and Services
3.3 EBITDA
Consolidated
Distribution
Generation
Commercialization and Services
3.4 Consolidated Financial Result
3.5 Debt
3.6 Net Income
3.7 Investments
Generation Capacity Expansion Projects
4. Cash Flow
6. Capital Markets
7. Recent Events
8. Disclosure Program
EXHIBIT I
EXHIBIT II
EXHIBIT III
EXHIBIT IV
EXHIBIT V
1. Light S.A.
Light S.A. is a holding company that controls subsidiaries and affiliated companies in three main business segments: energy distribution, generation and commercialization/services. In order to increase the transparency of its results and provide investors with a better basis for evaluation, Light also presents its results by business segment. The Company’s corporate structure on March 31, 2015 is shown below:
2.Operating Performance
2.1 Distribution
Total energy consumption in Light SESA’s concession area (captive clients + transport of free clients) came to 7,422 GWh in 1Q15, 0.6% up on the same period in 2014, due to the 2.0% and 3.7% increases in the residential and commercial segments, while industrial consumption continues to fall. It isworth noting that this0.6% increaseisdue to the particularly high basis of comparisonfrom 1Q14, when consumption recorded growth of 7.8%.
In the residential segment, consumption reached 2,806 GWh in the quarter, 2.0% up from 1Q14 and accounting for 37.8% of the total market.In January 2015, daily temperatures were higher than in the same month last year, pushing up residential consumption due to the intense use of air conditioning. In February and March, however, there were no positive temperature impacts on residential consumption and the average temperature for the quarter was0.4ºC below 1Q14.Residential consumption averaged240.8 kWh/month in 1Q15.
Commercial clients consumed 2,351 GWh in the quarter, representing 31.7% of the total, 3.7% up on 1Q14 and recording a year-on-year increase in each of the three months. The migration of clients from the captive to the free market accounted for 14 GWhin 1Q15.
Industrial consumption totaled1,259 GWh in the quarter, equivalent to 17.0% of the total market and 5.3% down from the same period last year, due to the retraction of certain industries, includingmetallurgy, chemicals, rubber, plastics and non-metallic minerals.
The other consumption segments, which accounted for 13.6% of the total market, recorded a decrease of 1.8% in relation to the first quarter of 2014. The rural and public utility categories reported respective increases of 3.9% and 1.8%, while the government category posted a reduction of 6.1%.
Energy Balance
Energy Losses
In the last 12 months, non-technical energy losses totaled5,818 GWh, accounting for 39.88% of billed energy in the low-voltage market (ANEEL criterion), 1.0p.p. less than in the 12 months ended December 2014. In comparison with the 12 months ended March 2014, when non-technical energy losses totaled 42.37% of the low-voltage market, there was a reduction of 2.5p.p.
In the last 12 months, technical energy losses totaled 2,883 GWh, accounting for 7.6% of grid load, 0.1 p.p. less than in the 12 months ended December 2014. In comparison with the 12 months ended March 2014, there was a increase of 0.2 p.p., when technical losses totaled 7,4% of grid load.
Light SESA’s total energy losses amounted to 8,701GWh, or23.0% of the grid load in the 12 months through March 2015.
In order to continue reducing non-technical energy losses, Light is investing in initiatives that include conventional fraud inspection procedures, the upgrading of network and measurement systems, and the Zero Loss Area program (APZ). These initiatives include:
- Consumer unit regularizations: The Company conducted 14,824regularization procedures in the low, medium and high-voltage segments in the first quarter of 2015, 2.3% up on the 14,495reported in the same period in 2014. Energy incorporation totaled 46.5 GWh in 1Q15, 37% up from the 33.9 GWh recorded in1Q14. Recovered energy totaled 39.2 GWh in the period,4.0% more than the 37.7 GWh posted in 1Q14.
- Installation of remote electronic metering devices: SMC (centralized metering system) devices are installed in areas with high loss rates, with or without the support of Pacifying Police Units (UPPs). The UPPs give Light more room for maneuver in regard to combating default or energy theft. In UPP areas, 5.4 GWh were incorporated, whereas in areas outside the sphere of the UPP, 12.7 GHw were incorporated.As a result, the Company closed March 2015 with 655thousand installed electronic meters.
- In 2014, the Company signed a contract with Landy+Gyr Equipamentos de Medição Ltda. for the supply of approximately 1 million meters for the upcoming 5 years, for the total amount of R$ 750 million, to be used in the Smart Grid Project.
- Currently, the Project is in the implementation phase of the communication network, providing the installation of equipment in substations, and of radios in poles in various sites within the concession area. In addition, the implantation of the new information technology environment (development and adaptation of systems and hardware installation) is also taking place, which will be integrated to technical and commercial systems.
- Zero Loss Areas: In August 2012, the Company created the APZ Project, based on a combination of electronic metering and a shielded network, supported by dedicated teams of technicians and commercial relations personnel with clearly defined targets, whose compensation is tied to improving loss and default indicators in their respective areas. A typical APZ has around 17,000 clients. The project, known commercially as "Light Legal", which receives support from SEBRAE in regard to the training of partnering micro-entrepreneurs, currently has37operational APZs and 661thousand clients in the Baixada Fluminense region and the city’s south, west and north sides.
In 1Q15,2,713 electronic metering devices were installed in communities and APZs in place for more than 12 months, reaching an average 32.0 p.p. reduction in non-technical energy losses over the grid load and an average collection rate increase of 7.0 p.p. since the beginning of the project.The table below shows the accumulated results untilMarchof the 26 APZs where the results have already been determined:
The results of APZ “Nova Iguaçu 3” have already been determined, however it has been in operation for less than 12 months. This APZ has been showing an average reduction of 19.0 p.p in non-technical energy losses over the grid load, and an averageincrease of 3.0 p.p. in its collection rate, as shown in the table below:
Complementing the 27areas where the results have already been determined, the table below shows the10APZs in the implementation phase, without recorded results, totaling37operating areas. The number of clients still with no results is approximately155thousand.
Collection
The 1Q15 collection rate stood at 90.0% of billed consumption, 4.6 p.p. lower than in the same period last year, primarily due to distortion of the indicator, due to division of collection in the quarter by the period billing revenue (mathematical effect), the latter being influenced by: (i) the beginning of tariff flags in January 2015; (ii) the adjustment in the tariff flags values in March 2015; and (iii) the extraordinary tariff revision, with an average increase of 22.48% in March 2015.
In 1Q15, provisions for past due accounts (PCLD) totaled R$24.2 million, representing0.7% of gross billed energy[2], R$1.2 million less than the R$25.3 million provisioned in 1Q14.In the 12 months ended March 2015, PCLD accounted for 1.2% of gross billed energy, a decrease of 0.5 p.p. compared to 1.7% in the 12 months ended March 2014.
Operating Quality
In 1Q15, in the overhead distribution network, 109 medium-voltage distribution circuits went throughinspection/maintenance, 980 transformers were replaced and 29,210 trees were pruned. In the underground distribution network, 4,805 transformer vaults and 10,843 manholes were inspected, in addition to the maintenance of 51 transformers, 18 switches and 290 protectors.
In the last 12 months, the moving average of the equivalent length of interruption indicator (DEC), expressed in time, registered 13.20 hours, 15.11% down on the same period last year, while that of the equivalent frequency of interruption indicator (FEC), expressed in occurrences, stood at 6.70 times, a drop of 11.84% over 1Q15.
2.2 Generation
Light Energia sold 1,302.6 GWh in 1Q15, net of energy purchases, 2.9% up year-on-year.
After the termination of contracts in the regulated market in December 2013, the trading company became responsible for sales to end clients, concentrating Light Energia’s current agreements in the free market (ACL).
In the first quarter of 2015, energy traded in the free market was 1.0% more than in the same period in 2014.
Net spot sales came to 160.0 GWh in 1Q15,19.0% up on the total sales net of purchases of 134.5 GWh recorded in 1Q14. This result was due tothe seasonality of the agreements in this period compared to 1Q14, increasing the difference between verified energyvolumes and contracted energy volumes.
The GSF (Generation Scaling Factor) in January, February and March 2015 came to 80.64%, 78.60% and 78.26%, respectively, versus 96.32%, 98.29% and 93.79% in the same months in 2014. The average GSF in 1Q15 was 79.17%, 16.97 p.p. lower than the 96.14% registered in 1Q14.
2.3 Commercialization and Services
In the first quarter of 2015, direct energy sales by Light Com and Light Esco from conventional and subsidized sources totaled 1,341.9 GWh,almost in line with the 1,338.0 GWh recorded in the same period last year.
In 1Q15, Light Com sold 19.5 GWh on the captive market (ACR), as a result of the 18th Adjustment Auction held on January 15, 2015, with contracts lasting from January 1, 2015 to March 31, 2015.
Two water-cooling center retrofit projects in Rio de Janeiro were initiated in 1Q15, one in an important hospitalbelonging to one of Brazil’s largest hospital networks, and the other in a major shopping mall, whose energy will be sold by Light ESCO in the free market, both located in Rio de Janeiro. Four projects were also concluded in the quarter: two related to increasing air conditioning energy efficiency in shopping malls in São Paulo and Rio de Janeiro; one comprising the upgrading of the air conditioning system ina commercial building and the conclusion of the construction of a 138 kV transmission line for a large Brazilian mining company.
3. Financial Performance
3.1 Net Revenue
Consolidated
Consolidated net operating revenue totaled 3,161.7 million in 1Q15, 38.5% more than in 1Q14. Excluding revenue from construction, which has a neutral effect on net income, consolidated net revenue increased 40.3%, amounting to R$2,972.7 millionin 1Q15.
The distribution segment recorded an upturn of51.2%, while the generation and commercialization/services segments recorded respective decreases of 11.4%and 22.0%.
Distribution
Net revenue from distribution totaled R$2,887.8 million in 1Q15, 51.2% up on 1Q14. Excluding revenue from construction, net revenue came to R$2,698.8 million in 1Q15, 54.5% more than in the same period last year.
As it is envisaged in the distributors` concession agreements, in the case of an economical/financial imbalance in these contracts resulted from changes in the non-manageable costs, distribution companies may request an Extraordinary Tariff Revision. Therefore, on February 27, Aneel approved an average tariff increase of 22.48% for Light SESA, in force since March 2, 2015. It is worth mentioning that residential consumers perceived an increase of 21.06, lower than the average. The items that triggered this readjustment were (i) new CDE quotas (18.19%), and (ii) Itaipu tariff and other energy contracts (4.29%).
Due to adverse hydrological conditions, the tariff flagssystem was introduced in January 2015 to cover expensesincurred by energy distribution companies, arising from: involuntary exposure to the spot market, thermal power acquisition linked to the Availabilities Contract for Sale of Electricity in the Regulated Environment (CCEAR-D), hydrological risks (quotas and Itaipu) and expenses related to thermal generation with fuel costs higher than the difference settlement price (PLD).The proceeds from these flagswill go to the Tariff Flag Proceeds Centralization Account (CCRBT), created by ANEEL Resolution 649/2015. Distributors’ transfers to this account, and vice-versa, will be carried out based on the net result between billed revenue and coverable costs, such as expenses with thermal plants, service system charges (ESS) and involuntary exposure, among others.
The 51.2% upturn in the distribution company’s revenue was chiefly due to the tariff recognition of costs with energy purchases, which were deducted from non-manageable expenses through transfers from the ACR Account in 1Q14. Tariff recognition in 1Q15 included: (i)transfer of the ACR Account in the amount of R$545.0 million, referring to liquidations in the spot market from November and December 2014 (Order 773, March 27, 2015)[3]; (ii) R$168,7 million from the tariff flags billed in Light SESA’s concession area; (iii) the receipt of R$88.4 million from the CCRBT (related to the months of January and February); and(iv) average tariff increases of 19.23% as of November 7, 2014 (annual increase), and 22.48% as of March 2, 2015 (Extraordinary Tariff Revision).
Revenue from surplus demand and exceeding reactive power totaled R$17.6 million this quarter and revenue from the tariff difference related to the special treatment of non-technical losses in the concession area amounted to R$64.6 million, both of which treated as special obligations. Although they are billed, they have not been included in net revenue since the last tariff revision in November 2013. The distribution market consists mostly of the residential and captive commercial segments, which together accounted for 66.2% of energy consumption and 77.5% of sales revenue.
Generation
Net revenue from generation totaled R$187.2 million in 1Q15, 11.4% lower than the R$211.2 million recorded in the same period in 2014. Despite the increase in the volume of energy sold, the reduction in net revenue from generation is explained by the decreasein the average sale price, from R$658.3/MWh in 1Q14 to R$388.5/MWh in 1Q15, due to the new maximum PLD limit established by ANEEL, in accordance with Resolution 1832/2014. The average sale price in the free market, net of taxes, was R$117.9/MWh in 1Q15, 2.3% higher than the R$115.2/MWh recorded in 1Q14. After the termination of contracts in the regulated market in December 2013, the trading company became responsible for the sale to end clients.
Commercialization and Services
Net revenue from commercialization and services stood at R$229.4 million in 1Q15, 22.0% down from 1T14.
In 1Q15, net revenue from energy resale decreased 22.4% over 1Q14, due to the reduction in the average sale price, net of taxes, from R$213.5/MWh in 1Q14 to R$165.2/MWh in 1Q15, as a result of the new maximum PLD limit established by ANEEL.
3.2 Costs and Expenses
Consolidated
In the first quarter of 2015, operating costs and expenses totaled R$2,766.6 million, 43.7% up year-on-year. Excluding construction costs, consolidated costs and expenses climbed by 46.3% over 1Q14, mainly due to higher expenses with energy purchased by the distributor, in addition to a significant increase in costs with charges and transmission.
Distribution
In 1Q15, distribution costs and expenses moved up by54.2% over the same period in 2014. Excluding construction costs, total costs and expenses grew by 58.2%.