3Q05. Celesc reports net income of R$ 76 million for the 3 rd Quarter of 2005 and an 88% increase in EBITDA. 3 rd Quarter 2005 Results

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1 Celesc reports net income of R$ 76 million for the 3 rd Quarter of 2005 and an 88% increase in EBITDA For immediate release B Pref PNB (CLSC6) Share Price as of 09/30/05: R$ M05 Performance: 46% Market Capitalization R$: 1,038 million US$: 465 million Capital Structure ( 000) Common: 310,543 A Preferred: 26,605 B Preferred: 434,284 Total Shares: 771,432 As of 09/30/05 For further information please access the Company s website at: or contact our Investor Relations Department Aldo Roberto Schuhmacher Tel: (55 48) aldors@celesc.com.br Florianópolis Santa Catarina, November 14, 2005 Centrais Elétricas de Santa Catarina SA (Celesc) (OTC: CEDWY, Brazil: CLSC6, Portal: CEDXY), the electricity distributor to the state of Santa Catarina, responsible for supplying 98% of demand within the state, announces its results for the 3 rd quarter of Financial information on the Company is presented in Brazilian Reais (R$) as of September 30, 2005, unless otherwise stated, and was prepared in accordance with Brazilian accounting principles (Brazilian GAAP). All comparisons made in this release consider the 3 rd quarter of 2004 (3Q04), unless otherwise stated. Principal Highlights For 3Q05, Celesc achieved growth of 21% in net operating revenues relative to 3Q04, which amounted to R$ 830 million, and cumulative revenues of R$ 2,224 million for the 1 st 9 months, a figure 15% higher than the one for the same period of This strong performance reflects, above all, the increase in the consumer base in the residential and commercial segments, for which tariffs are higher. For the 9 month period, Celesc s average tariff was R$ /MWh, a figure 18% higher than the tariff in effect during the same period of Energy sales during 3Q05 amounted to 3,420 GWh, with a reduction of 1% relative to 3Q04, with sales for the first 9 months virtually stable. It is important to highlight the growth in consumption in the residential and commercial classes, at a time when economic activity in Brazil experienced a slowdown. Another notable point was the continuous expansion of the consumer base, which reached 2 milion clients at the end of October of this year. EBIT increased from R$ 83 million in 3Q04 to R$ 159 million in 3Q05 with EBITDA for 3Q05 showing growth of 88% in relation to the same period of 2004, amounting to R$ 205 million. Cumulative EBITDA for the January-September period grew by 6% to R$ 362 million 3Q05 net income amounted to R$ 76 million, a figure 24% higher than that of 3Q04 with 1 st 9 months net income of R$ 146 million. This performance reflects the Company s tight control over operating expenses, and the positive impact of the currency devaluation on its financing. 3Q05 net financial income amounted to R$ 16 million. It is important to mention that Celesc has maintained its level of investment and capacity growth for energy supply without a significant change in its debt profile. In September, the Company had net debt of R$ 173 million. Main Highlights Mário R. Mariante Tel: (55 11) mario.mariante@firb.com 3Q05 R$ million 3 rd Quarter Accum. 9 Months % Chg % Chg. Net Revenues ,224 1, Operating Expenses (672) (601) 12 (1,975) (1,734) 14 Operating Income (EBIT) EBITDA Net Income Investments Energy Sales (GWh) 3,420 3,456 (1) 10,601 10,594 - MWh/Employee ,915 2,887 1 Consumers/Employee

2 Highlights of the Concession and Structure 3 rd Quarter 2005 Results The State of Santa Catarina consists of 293 municipalities, of which 257 of these are covered by Celesc s concession area (88% of the total), as is the municipality of Rio Negro in the State of Paraná. Celesc is also a partial supplier of energy to a further 25 municipalities and sells energy to rural electrification cooperatives in 11 municipalities. Celesc owns generating assets consisting of 12 Small Hydroelectric Plants (PCHs) within its concession area, which generate approximately 3% of the energy requirements for its market. Deverticalization of Celesc On the basis of technical studies, Celesc s corporate restructuring project, considered the most suitable for complying with the provisions of Federal Law N O. 10,848 of March 15, 2004, revealed significant tax costs that could affect Celesc s economic and financial equilibrium. The model which converts the current company into a Holding and creates two full generation and distribution subsidiaries could be extremely expensive and reduce the Company s investment capacity. The figures are potentially so significant that upon examining the Draft Law currently under discussion in the State Legislative Assembly, board members at a meeting of the Board of Directors on July 29, 2005, hesitated to proceed with the proposed model and decided that the Controlling Shareholder and concession owner should use all means to delay the deadline for the deverticalization. The Draft Law dealing with the corporate restructuring of Celesc that is under discussion in the committees of the Legislative Assembly of the State of Santa Catarina, encountered difficulties in securing approval from that Chamber, due to the noting of the potential costs in implementing the deverticalization with the creation of fully-owned subsidiaries. For this reason, the Controlling Shareholder ordered discussions between deputies representing its government in the Legislative Assembly, opposition deputies and the unions representing Celesc s employees. From this debate emerged the possibility of a simple disposal of its energy generation assets, as well as other investments in order to comply with the legal requirement to deverticalize. On 10 August, 2005, the State Government of Santa Catarina, Controlling Shareholder of Centrais Elétricas de Santa Catarina S.A., requested pursuant to Article 20, 1, of Law N o 10,848, that ANEEL extend the deadline for the segregation of electricity generation and distribution activities by 18 (eighteen) months, or by the period that the Regulatory Agency considered adequate. On September 14, through Authorization Resolution N o 317, ANEEL confirmed the extension of the deadline for Celesc to implement the segregation of activities pursuant to Law N o until June 30, On 11/10/2005, the Legislative Assembly approved the sale of CELESC s holdings and PCHs. The disposal of the assets comprising its generation activities and its other investments thus became the choice of this Concessionary for avoiding a significant economic and financial loss. The Controlling Shareholder is seeking the approval of this alternative in the same Legislative Chamber, including the amendments dealing with the disposal of the generating assets and the equity stakes detailed as follows: Generating Assets: a) Bracinho plant in the municipality of Schroeder b) Caveiras plant in the municipality of Lages c) Rio dos Cedros plant in the municipality of Rio dos Cedros d) Celso Ramos plant in the municipality of Faxinal dos Guedes e) Garcia plant in the municipality of Angelina f) Ivo Silveira plant in the municipality of Campos Novos g) Palmeiras plant in the municipality of Rio dos Cedros h) Pery plant in the municipality of Curitibanos i) Piraí plant in the municipality of Joinville j) Salto Weissbach plant in the municipality of Blumenau 2

3 k) Rio do Peixe plant in the municipality of Videira l) São Lourenço plant in the municipality of Mafra Equity stakes in other companies: a) Companhia Catarinense de Águas e Saneamento Casan (19.3%) b) Usina Hidrelétrica de Cubatão S.A (40.0%) c) Machadinho Energética S.A. Maesa (14.63%) d) Dona Francisca Energética S.A. DFESA (23.03%) e) Campos Novos Energia S.A. Enercan (2.03%) f) Empresa Catarinense de Transmissão de Energia ECTE (20.0%) g) Other small equity holdings The compliance of the Company with regulatory requirements within the deadline set by ANEEL will allow Celesc to maintain its concession as a public service provider for electricity distribution. Operating Performance Energy Balance Sheet During the period January-September 2005, the total energy required by the Celesc system amounted to 11,477 GWh, representing growth of 0.3% relative to the same period of the previous year (11,473 GWh). Internal generation in its 12 plants amounted to 355 GWh (3% of the total) with the major supplier remaining Tractebel which accounted for 47% do total, followed by Copel (22%), with 21% relating to compulsory energy from Itaipu and 6% acquired from market agents. This distribution of electricity purchased by Celesc has remained virtually stable in recent quarters. Celesc Energy Balance in GWh - (9 Months 2005) Own Generation 355 3% Energy Sales 10,611 24% Residential 2,505 Tractebel 5,537 Itaipu 2,401 Copel 2,517 Others % 21% 22% 6% Required Energy 11, % 7,5% Losses % 15% 11% 8% Industrial 4,532 Commercial 1,558 Rural 1,138 Others 878 NB: Others includes: public sector, public lighting, public service, internal consumption and energy supplied. Technical and commercial losses amounted to 878 GWh for the 9 months period, representing 7.5% of the Company s total energy demand, which nevertheless remains one of the lowest loss ratios in the country. 3

4 Energy Sales 3Q05 energy sales amounted to 3,420 GWh, 1% lower than the same period of 2004, while cumulative sales for the first nine months amounted to 10,611 GWh, with the residential and commercial classes reporting a notably strong performance with growth of 6% and 9% respectively in relation to the same period of The two classes represented 39% of total energy sold. Consumption in the industrial segment fell by 6% during the 1 st 9 months of 2005, principally reflecting the departure of free consumers and the deceleration of economic activity in Brazil. Consumption per Class In MWh Consumer Class 3 rd Quarter Accum. 9 Months % Chg % Chg. Residential 813, , ,504,774 2,368, Industrial 1,485,094 1,625,707 (8.6) 4,531,802 4,829,350 (6.2) Commercial 477, , ,558,256 1,432, Rural 361, , ,138,491 1,067, Public Entities 68,481 65, , , Public Lighting 107, ,649 (0.3) 320, ,923 (0.6) Public Service Co. 54,667 55,411 (1.3) 170, ,761 (2.7) Sub-Total 3,367,387 3,397,670 (0.9) 10,437,496 10,402, Own Consumption 2,898 3,187 (9.1) 10,200 9, To Other Utilities 52,395 58,189 (10.0) 163, ,101 (14.7) Total 3,422,680 3,459,046 (1.1) 10,610,780 10,603, Number of Consumers Celesc ended the third quarter of 2005 with a total of 1,997,928 consumers, and an increase of approximately 65,000 new connections to the grid in relation to the total registered for the same period of the previous year, maintaining the average growth rate of the last three years. 1,903 1,917 # of Consumers (Thousand) 1,967 1,951 1,933 1,981 1,998 Residential 77% Consumers by Segment - Sep/05 Industrial 3% Commercial 8% Rural 11% 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 Others 1% Others (*): Public sector, public lighting and public service. Staff/Productivity Celesc ended the third quarter of 2005 with a staff of 3,640 employees, representing a reduction of 0.9% relative to the same period of the previous year (3,673 employees), due to the departure of employees who adhered to the Incentivized Voluntary Redundancy Program (PDVI). The Company has maintained its policy of investing in technology and staff training, allowing it to sustain satisfactory levels of energy sales per employee. For the 1 st 9 months, this index was 2,915 MWh per employee, 1% above the level registered in the same period of 2004, (2,887 MWh/employee). 4

5 Average Tariff Celesc s energy tariffs, which underwent an average increase of 14.75% in August 2005, valid until August 6, 2006, averaged R$ /MWh during the first nine months of 2005, compared to R$ /MWh, representing an increase of 18%. Financial Performance Net Operating Revenue In 3Q05, Celesc s net operating revenue amounted to R$ 831 million, a 21% increase relative to 3Q04. The cumulative net revenue figure for the first 9 months, increased by 15% from R$ 1,928 million in 2004 to R$ 2,224 million in As was already noted in the release for the second quarter, this growth reflects the increase in the consumer base, most notably in the residential and commercial segments, for which tariffs are higher. Even the industrial segment, which registered a fall in energy consumption, recorded growth in operating revenues, partially influenced by the increase in consumers as well as by the increase in average tariff. Operating Expenses It is worth noting the good performance for operating expenses, which grew by 12%, below the rate of revenue growth. For the cumulative 9-month figure, expenses more or less accompanied the rate of growth of net operating revenues. Operating Result At operating level, Celesc registered an excellent performance during 3Q05, with income of R$ 159 million representing a 91% increase over the same period of the previous year. This allowed growth in EBIT margin from 12% in 3Q04 to 19% in 3Q05. EBITDA The EBITDA for 3Q05 was R$ 205 million, 88% higher than the figure for 3Q04, with 6% growth in the cumulative figure for the 1 st 9 months, which rose from R$ 341 million in 2004 to R$ 362 million in Financial Result and Debt In 3Q05, Celesc achieved a significant increase in net financial income, which amounted to R$ 16 million, with a cumulative figure of R$ 224 million for the 1 st 9 months. This increase relates principally to the positive effect of currency devaluation during the period on the company s debt. CELOS Contracts 09 and 10 The company signed loan contracts with CELOS with the aim of consolidating debts relating to delays in payment of pension contributions to the sponsor, outstanding late payment charges on the pass-through of pension contributions, debts relating to late payment of rents, maintenance of the administrative building and financial charges, as well as other debts with the sponsor that arose prior to February The contract was split into 120 monthly installments with annual interest of 12% and correction by the change in the IGP-M price index. Of total long-term debt of R$ 145 million, 55% matures during the next two fiscal years, while 50% of total debt is indexed to the UFIR/IGP-M index, 49% is corrected by the Selic interbank interest rate and only 1% is denominated in U.S. Dollars. Bank Debt as of 09/30/2005 (R$ '000) 06/30/055 Short Term Long Term Interests Total Total Local Currency Eletrobrás BNDES CELOS Total Foreign Currency Eletrobrás Total

6 Investments In 3Q05, Celesc invested a total of R$ 79 million, an amount 95% higher than the figure for the same period of Over the 1 st 9 months, R$ 181 million was invested, a figure 26% higher than the cumulative figure for the same 9-month period of Historically, Celesc s investments have been concentrated in the distribution segment, which accounted for 95% of total in 9-month period of In Thousand Reais 3 rd Quarter % Accum. 9 Months % Chg Chg. Generation (49) (23) Distribution General Installation Total Subsequent Events BNDES Loan The contracted loan is intended to cover part of Celesc s shortfall in resources arising from the compulsory payment of free energy during the Emergency Program for Reducing Electricity Consumption (PERCEE). The contracted amount of R$ million shall be amortized over 60 months. In the event of default, the guarantee is tied to the receivables of the contracting party. In July 2005, Celesc received resources of R$ million from the Brazilian Development Bank s (BNDES) Emergency and Exceptional Support Program for Public Service and Electricity Distribution Concessionaires (CVA), established pursuant to Law N o. 10,438 of April 26, The resources were used to settle R$ million of debts with the Câmara de Comercialização de Energia Elétrica (CCEE) [Electricity Commercialization Chamber] and R$ million of debts with Centrais Elétricas Brasileiras S.A. (Eletrobrás). Distribution of Dividends and Interest on Stockholders Equity At a meeting held on October 31, 2005, the Board of Director and Collegiate Directorate approved the payment of dividends to shareholders in the form of interest on stockholders equity, relating to the result recorded until October The company made a provision of R$ million relating to interest on stockholders equity on the basis of Art. 9 of Law 9,249 of December 26, 1995, which shall be recorded as a financial expense in October The company also recorded an item of R$ million relating to income tax withheld at source (IRRF) on this interest on stockholders equity. 6

7 Capital Markets Celesc s preferred shares (CLSC6) rose by a significant 59% in 3Q05, well above the change in the Bovespa index and the Electrical Sector Index (IEE) over the same period. Celesc Share Performance (CLSC6) versus Bovespa Index and IEE (from Dec/03 to Sep/05) CLSC6 Bovespa Index IEE Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Sep/05 Dec/04 Mar/05 Jun/05 Sep/05 Closing Price (CLSC6) R$/Share Average Volume Traded Thous. Shares 8,581 6,092 6,569 8,286 9,299 Average Volume Traded R$ '000 8,172 6,343 6,305 7,570 10,231 CLSC6 - Quarterly Profitability % (15.6) 1 59 CLSC6 - Accumulated Profitability % (9.1) (8.1) 46 Ibovespa - Quarterly Profitability % (5.9) 26 Ibovespa - Accumulated Profitability % Energy Index - Quarterly Profitability % Energy Index - Accumulated Profitability % Source: Economática 7

8 Annexes Balance Sheet CELESC - Balance Sheet (Expressed in thousands of Reais) For the nine months ended September 30 ASSETS 9/30/2005 9/30/2004 % Chg. CURRENT ASSETS 1,266,051 1,152, Cash 102,609 79, Financial applications 47,008 58,668 (20) Accounts receivable - consumers and resellers 921, , Allowance for doubtful accounts (179,615) (141,730) 27 Accounts receivable in Installments 111, ,310 0 Recoverable income and social contribuition taxes 57,484 42, Inventories 15,361 14,916 3 Prepaid expenses CVA - Cost of Parcel "A" 118, ,034 (43) Regulatory Assets - PASEP/COFINS 8, Other accounts receivable 63,064 77,773 (19) LONG-TERM RECEIVABLES 720, ,822 6 Receivable from the state government 33,192 37,917 (12) Escrow deposits 51,119 31, Deferred income tax and Social Contribution 353, ,126 4 Recoverable FINSOCIAL and ICMS tax 22,060 20, Temporary Investments - CASAN and Others 28,248 84,228 (66) CVA - Cost of parcel "A" 27,051 87,618 (69) Installments receivables 156,256 79, Regulatory Assets - PASEP/COFINS 45, Other assets 2, PERMANENT ASSETS 1,327,585 1,212, Investments 88,318 91,710 (4) Property, plants and equipment 1,239,267 1,120, TOTAL ASSETS 3,314,174 3,047,

9 CELESC - Balance Sheet (Expressed in thousands of Reais) For the nine months ended September 30 LIABILITIES 9/30/2005 9/30/2004 Var. % CURRENT LIABILITIES 768, ,244 2 Accounts payable - suppliers 248, ,905 (26) Accrued payroll 8,826 5, Interest payable 929 1,023 (9) Taxes and social charges payable 167, , Bank loans and financing 72,795 23, Regulatory Charges 82,994 82,072 1 Private Pension Plan 27,831 18, Post-employment Benefit 46,099 22, Accrued liabilities 76,458 67, Refis program and Paes ,545 (95) Interest on own capital and dividends CVA - Cost of Parcel "A" 17,635 11, Other payables and accruals 16,895 21,650 (22) LONG-TERM LIABILITIES 1,479,187 1,387,420 7 Bank loans and financing 145, ,938 (3) Private Pension Plan 437, ,631 7 Post-employment Benefit 545, ,856 (2) Provision for contingencies 181, , Taxes and social charges payable 118, ,560 (8) Refis program and Paes 31, CVA - Cost of Parcel "A" 15, ,637 Other long-term liabilities 2,661 2,639 1 STOCKHOLDERS' EQUITY 1,066, , Paid-in capital 696, ,200 - Capital reserves - (14) - Income Reserve 224,816 71, Accumulated profit (loss) 145, ,768 3 Funds for capital increase TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 3,314,174 3,047,

10 Income Statement STATEMENT OF INCOME Exchange rate as of September 30, 2005 : R$ xxx = US$ 1.00 Exchange rate as of September 30, 2004 : R$ 2.89 = US$ 1.00 CENTRAIS ELÉTRICAS DE SANTA CATARINA S.A. - CELESC Expressed in Thousand of Reais 3rd Quarter Accum. 9 Months % Chg % Chg. OPERATING REVENUE Sales to final consumers 1,138, , ,053,415 2,639, Sales to other utilities 3,540 3, ,928 10,149 8 Emergency Capacity Charges 20,443 38,941 (48) 83, ,787 (44) Use of electricity network 20,061 40,906 (51) 47,906 54,981 (13) Other Revenue 12,448 18,468 (33) 48,306 50,308 (4) 1,195,160 1,013, ,243,910 2,903, Value-added Tax (ICMS) (222,676) (207,131) 8 (663,039) (611,605) 8 PASEP and COFINS (123,555) (93,473) 32 (290,193) (252,002) 15 Regulatory charges (RGR) (4,663) (2,723) 71 (9,472) (5,152) 84 Others Deduction of Revenue (14,099) (26,326) (46) (56,939) (106,772) (47) (364,993) (329,653) 11 (1,019,643) (975,531) 5 Net Operating Revenue 830, , ,224,267 1,928, Operating Expenses Purchases of electricity (425,111) (391,740) 9 (1,257,832) (1,072,580) 17 Personnel (73,886) (69,831) 6 (219,501) (207,840) 6 Materials (9,607) (9,170) 5 (26,478) (28,416) (7) Third-party Services (27,409) (26,583) 3 (83,650) (81,432) 3 Depreciation (24,309) (21,777) 12 (71,382) (64,328) 11 Fuel consumption cost quotas (CCC) (42,737) (51,193) (17) (156,407) (120,168) 30 Provision for contingencies (22,445) (4,593) 389 (41,298) (82,765) (50) Energy Development Account - CDE (26,951) (17,237) 56 (78,995) (42,695) 85 Other Expenses (19,047) (8,813) 116 (39,084) (33,780) 16 (671,502) (600,937) 12 (1,974,627) (1,734,004) 14 Resultado Operacional (EBIT) 158,665 83, , , Margem EBIT 19% 12% 11% 10% Financial income (expense) Interest income 42,144 42,177 (0) 126, ,691 (2) Interest expense (25,953) (40,918) (37) (100,339) (126,225) (21) 16,191 1,259 1,186 26,184 3, Non-operating income (expense) (59,075) 3,086 (51,811) 12,263 - Income Before Taxes and Profit Sharing 115,781 87, , ,079 7 Provision for Income Tax (14,880) (9,099) 64 (34,887) (21,726) 61 Provision for Social Contribution (5,564) (3,661) 52 (13,267) (8,832) 50 Constitution and realization of deferred tax credits (19,564) (13,638) 43 (30,260) (38,753) (22) Net Income 75,773 61, , ,768 3 Net margim 9% 9% 7% 7% Earning Per Share EBITDA 205, , , ,443 6 Margem EBITDA 25% 16% 16% 18% 10