Energias do Brasil records EBITDA of R$ 339 million in 1Q07, 20.2% higher than 1Q06

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1 Immediate Release Divulgação imediata For further information: Flavia Heller IR Officer Cleverson Murakawa IR Analyst Conference calls with webcast on May 02, 2007: - at 10:00 am in Portuguese - at 12:00 pm in English (Brasília time) More information on page ri@enbr.com.br Visit our website Energias do Brasil records EBITDA of R$ 339 million in 1Q07, 20.2% higher than 1Q06 Net income reached R$ million in 1Q07, a year on year growth of 28.9% São Paulo, April 27, 2007 EDP - ENERGIAS DO BRASIL S.A. ( Energias do Brasil ) (Bovespa: ENBR3), a holding company in the utilities sector, trading on Bovespa s Novo Mercado, today announces its results for the first quarter 2007 (1Q07). The information is presented on a consolidated basis in accordance to the Brazilian Corporate Law and is based on reviewed financial information. The independent auditors did not review the operating information. Amounts are expressed in thousands of Reais, except where otherwise stated. Energy volume distributed in 1Q07 was 6,143 GWh, a year on year increase of 3.0%, the Mato Grosso do Sul market showing a particularly strong recovery. Enertrade reported a growth in commercialized energy of 2.4% compared to 1Q06 with volumes attributed to free consumers registering a growth of 11.6%, more than offsetting the end of the sales contract with Enerpeixe and the reduction in self-dealing contracts. Generated energy volumes amounted to 1,469 GWh, 103.9% more than 1Q06, reflecting the full operation of the three generator units of the Peixe Angical Hydroelectric Power Plant ( Peixe Angical ). The plant has a total installed capacity of 452 MW. Figures also reflect the startup of operations of the 4 th turbine at the UHE Mascarenhas, which increased the plant s installed capacity by a further 50 MW as from October Net operating revenue for 1Q07 reached R$ 1,114.1 million, 13.0% more than 1Q06. This performance was largely a result of the duplication of the installed capacity in the generation business, as well as the growth in the volume of energy distributed and the readjustment in tariffs in The Redundancy Plan (PDV), implemented in June 2006, also produced savings of R$ 11.7 million in 1Q07 (see page 08). In 1Q07, EBITDA reached R$ million, a growth of 20.2% over the same period in This growth is mainly the result of the commissioning of Peixe Angical and a more buoyant electricity power market as a whole. The EBITDA margin grew 1.8 p.p. to 30.4% in 1Q07 compared to 28.6% in 1Q06. Energias do Brasil reported a net income of R$ million in 1Q07 compared to the R$ 99.3 million posted in 1Q06, a 28.9% increase. Capital expenditures amounted to R$ 91.8 million in 1Q07, 34.7% down in relation to the comparative period last year due mainly to the completion of work at Peixe Angical. On April , the industry regulator, Aneel authorized an average tariff readjustment for Enersul of 8.05% for the period between April 2007 and March Factoring in financial adjustments already included in the tariffs, the averaged effective tariff increase was 3.20%. It should be pointed out that Aneel again deferred the application of the final installment of the 2003 tariff realignment now to be included in the periodic tariff reset in April On April , Energias do Brasil announced the acquisition of the rights to the UTE Maranhão. Enrolled in the next new energy auction set for June 2007, the project involves a coal-fired thermal plant with an installed capacity of 350 MW. Energias do Brasil - Consolidated 1Q07 1Q06 Chg. Economic data Gross operating revenue - R$ th 1,727,397 1,525, % Net operating revenue (ROL) - R$ th 1,114, , % EBIT - R$ th 263, , % EBITDA - R$ th (1) 338, , % EBITDA / ROL - % p.p. Income before minority interest - R$ th 137, , % Net Income - R$ th 127,950 99, % Capex - R$ th 91, , % Net debt - R$ th 1,850,080 1,731, % Operating data Total energy distributed - MWh 6,142,924 5,966, % Energy sold to end customers - MWh 3,798,436 3,792, % Energy produced - MWh 1,468, , % Energy traded - MWh 1,697,048 1,657, % Number of customers 3,110,999 3,048, % Number of employees 3,071 3, % Note: Summary of economic and operational indicators (1) EBITDA = Earnings before interest, tax, depreciation and amortization 1Q07 EARNINGS RELEASE Page 1

2 The Company Energias do Brasil is a holding company operating through its subsidiaries in the segments of electric energy Distribution, Generation and Commercialization. In 2005, the Company implemented a comprehensive corporate reorganization of its assets, the purpose of which was to enhance group visibility, concentrate and increase liquidity in the capital markets as well as simplify the Group s shareholding structure with resulting cost savings and capture of synergies. In June 2005, the Group s distributors transformed their integrated structure by separating out their assets in order to meet the requirements of the new Brazilian electricity sector model. With the conclusion of this process, the generation assets were allocated to the subsidiaries operating exclusively in this segment while the distributors have become wholly owned subsidiaries of Energias do Brasil. The latter now has a structure divided into three specific business units: Distribution, Generation and Commercialization. Subsequent to the corporate restructuring, on July 13, 2005, Energias do Brasil s shares began trading on Bovespa s (the São Paulo Stock Exchange) Novo Mercado under the ENBR3 code, opening a new chapter in the development of the EDP Group in Brazil. As a result of the listing, the shares issued by the subsidiary companies, Bandeirante, Enersul and Escelsa ceased to be publicly traded as from the date that ENBR3 began transactions on the Novo Mercado. The following chart summarizes the present group structure. 1Q07 EARNINGS RELEASE Page 2

3 Operating Performance Distribution accounted for 70.9% of the Group s consolidated EBITDA in 1Q07, not considering intercompany transactions. The generation segment made a particularly important contribution accounting for 27.2% of EBITDA (16.4% in 1Q06) mainly reflecting the startup of operations at full capacity at UHE Peixe Angical. Items in R$ th or % Distribution Bandeirante Escelsa Enersul Total Distribution 1Q07 1Q06 1Q07 1Q06 1Q07 1Q06 1Q07 1Q06 Net Revenue 473, , , , , ,438 1,000, ,103 Operating Expenses - Depreciation 371, , , , , , , ,011 EBITDA 101,502 98,136 91,901 71,772 52,678 53, , ,092 EBITDA margin 21.4% 23.3% 28.0% 25.9% 26.5% 28.1% 24.6% 25.1% Items in R$ th or % Generation Energest EDP Lajeado * Peixe Angical** Total Generation 1Q07 1Q06 1Q07 1Q06 1Q07 1Q06 1Q07 1Q06 Net Revenue 41,581 30,610 22,690 23,075 72,069 23, ,340 77,414 Operating Expenses - Depreciation 16,844 7,426 9,440 3,031 15,534 19,582 41,818 30,039 EBITDA 24,737 23,184 13,250 20,044 56,535 4,147 94,522 47,375 EBITDA margin 59.5% 75.7% 58.4% 86.9% 78.4% 17.5% 69.3% 61.2% * Since October 2006, EDP Lajeado consolidates 23.05% of Investco, compared to 26.70% prior to the mentioned month. ** Peixe Angical Hydro Power Plant started commercial operations in Items in R$ th or % Commercialization Enertrade Consolidated *** 1Q07 1Q06 1Q07 1Q06 Net Revenue 132, ,742 1,114, ,253 Operating Expenses - Depreciation 126, , , ,391 EBITDA 6,558 17, , ,862 EBITDA margin 4.9% 14.8% 30.4% 28.6% *** Consolidated: includes the companies of Energias do Brasil group and intercompany business. Distribution (79% of unconsolidated net revenue) - Consolidated Energy Balance The energy volume demanded by the distribution system made up of Energias do Brasil s concessionaires amounted to 7,174 GWh in 1Q07. Of this total, 50.8% was allocated to Bandeirante Energia (Bandeirante), 34.3% to Espírito Santo Centrais Elétricas - Escelsa (Escelsa) and 14.9% to Empresa Energética de Mato Grosso do Sul (Enersul). Retail supply, consumption for own use and wholesale delivery accounted for 3,887 GWh, while energy in transit, and delivered to free consumers accounted for 2,255 GWh. The change in the energy balance compared with previous years reflects the migration of end customers to the free market. 1Q07 EARNINGS RELEASE Page 3

4 Energy balance for the first quarter 2007 (MWh) Itaipu Transmission Losses Wholesale Delivery 1,638,045 98,591 Required 83,447 Auction Losses from Itaipu Retail Supply 2,080,927 36,216 3,804,002 ( - ) Others Short Term Sales = Energy Losses and differences 1,370,797 36,624 1,031,119 Energy in Transit Short Term Adjustments 7,174,043 Energy in Transit 2,255, ,255,474 - Losses In March 2007, losses and differences in electricity distribution as an average percentage of total energy required in the last 12 months, was 13.0%, reflecting a slight increase in commercial losses at Bandeirante compared to December At Escelsa and Enersul, these losses remained stable in relation to the preceding quarter. Electricity Losses based on the average of the last 12 months 12.6% 13.1% 12.8% 12.9% 13.0% 4.1% 3.8% 3.8% 4.0% 4.1% 8.5% 9.3% 9.0% 8.9% 8.9% Jun 2005 Dec 2005 Jun 2006 Dec 2006 Mar 2007 Technical Commercial In 1Q07, Energias do Brasil s distributors invested a total of R$ 10.0 million in programs for combating losses, the focus being on improvements in energy metering procedures, inspections of consuming units, substitution of damaged or obsolete meters, investment in fraud detection operations and regularization of illegal connections. The company also conducted awareness campaigns in the media on the dangers of illegal hook-ups. In 2007, our concessionaires carried out approximately 167,000 inspections resulting in the identification of nearly 72,000 frauds. Of the total amount dedicated to these programs, R$ 3.7 million was disbursed for operational investments and R$ 6.3 million for manageable expenditures. In 2007, the Company is planning to conduct more than 800,000 inspections. - Energy Market The following table shows operating revenue, the number of customers, volume and energy volume broken down by consumer class and concessionaire. 1Q07 EARNINGS RELEASE Page 4

5 Trends in Operating Revenue 1Q07 Units MWh R$ th Units MWh R$ th Bandeirante Residential 1,232, , ,177 1,232, , ,889 Industrial 8, , ,495 8, , ,433 Commercial 86, , ,097 88, ,638 86,766 Rural 8,010 24,497 4,499 8,322 23,909 3,871 Other 9, ,464 40,846 9, ,255 35,059 Energy Supplied to End Customers 1,344,856 1,951, ,114 1,347,657 1,962, ,018 Conventional Supply Energy in Transit 74 1,261,972 78, ,171,717 65,767 Own Consumption 110 1, ,449 - Total Energy Distributed 1,345,040 3,214, ,774 1,347,828 3,135, ,785 Escelsa Residential 836, , , , , ,388 Industrial 10, ,048 59,850 10, ,568 49,197 Commercial 91, ,998 78,990 89, ,225 66,175 Rural 123,292 92,809 18, , ,713 18,719 Other 9, ,401 31,326 9, ,165 27,307 Energy Supplied to End Customers 1,070,903 1,133, ,736 1,038,508 1,136, ,786 Conventional Supply 1 83,447 11, ,216 6,971 Energy in Transit ,805 63, ,943 59,720 Own Consumption 130 2, ,712 - Total Energy Distributed 1,071,060 2,105, ,173 1,038,677 2,037, ,477 Enersul Residential 561, , , , ,146 89,974 Industrial 4, ,240 29,105 4, ,669 24,262 Commercial 55, ,414 61,410 54, ,653 55,765 Rural 65,648 81,686 20,549 56,529 82,544 18,889 Other 8, ,833 32,085 7, ,339 27,192 Energy Supplied to End Customers 694, , , , , ,082 Conventional Supply Energy in Transit ,697 13, ,147 10,379 Own Consumption 145 2, ,841 - Total Energy Distributed 694, , , , , ,490 Consolidated Residential 2,630,105 1,293, ,488 2,589,441 1,243, ,251 Industrial 23,109 1,047, ,450 23,574 1,121, ,892 Commercial 233, , , , , ,706 Rural 196, ,992 43, , ,166 41,479 Other 26, , ,257 26, ,760 89,558 Energy Supplied to End Customers 3,110,492 3,798,436 1,071,413 3,048,266 3,792, ,886 Conventional Supply 2 83,447 11, ,224 7,000 Energy in Transit 120 2,255, , ,078, ,866 Own Consumption 385 5, ,002 - Total Energy Distributed 3,110,999 6,142,924 1,237,829 3,048,790 5,966,340 1,075,752 Notes: Other = Public authorities + Public lighting + Public services Data in R$ refers to Revenues net of ICMS tax, RTE, own consumption and ECE/EAE, but including low income. Only the distribution business is considered. 1Q06 Customers Volume Revenue Customers Volume Revenue In 1Q07, Energias do Brasil s total volume of distributed energy was 3.0% higher in relation to the same period in 2006, principally a reflection of expansion of sales volumes to the residential and commercial classes. 1Q07 EARNINGS RELEASE Page 5

6 Energy sales volume to the end market was largely unchanged with the migration of industrial class customers to the free market counterbalanced by the growth in sales volume to the other customer classes. It should be pointed out that while the drop in consumption due to migration to the free customer group reduces revenue from the sale of electricity, on the other hand, it also reduces energy purchases. Instead, the migrating customer is billed for use of the distribution network, thus contributing to operating margins through the collection of the Tariff for the Use of the Distribution System (TUSD). The migration of industrial customers from the end market to the free market was responsible for a decrease in the share of end consumers in total energy distributed from 63.6% in 1Q06 to 61.8% in 1Q07. Conversely, the share of free market customers registered an increase from 34.8% in 1Q06 to 36.7% of total energy distributed through the Energias do Brasil system in 1Q07. We highlight below some of the factors impacting energy volume sold to end customers in 1Q07, compared to the same period in 2006: Bandeirante The residential class reported a consumption of GWh in 1Q07, representing a growth of 2.4% compared with the same period in 2006 when consumption was GWh. The industrial class posted a consumption of GWh in 1Q07, a decline of 7.9% relative to the same period in 2006, when the consumption was GWh. This decrease is due to the migration of industrial consumers to the free market. Discounting these consumers in the period under review, the industrial market would have posted a 3.5% growth on the back of good performances from the basic metallurgical sector, metal products, rubber and plastic goods and beverages. The commercial class posted a consumption of GWh in 1Q07, a growth of 7.7% on 1Q06 when consumption was GWh, the commercial wholesale sector in the company s concession area performing particularly strongly. Escelsa The residential class posted a consumption of GWh in 1Q07, compared with GWh in 1Q06, resulting in an increase of 8.2%, driven by the increase of 2.3% in the customer base and by higher consumption per customer. The industrial class registered consumption of GWh in 1Q07, a decrease of 8.3% against the same period in 2006, when demand was GWh. This fall reflects the migration of clients to the free market. Discounting the effect of this migration, the increase for this class would have been 3.4%, driven by strong demand from the beverage, plastic and furniture segments. In 1Q07, the commercial class recorded consumption of GWh, a growth of 2.7% when compared with GWh for the same period in This result was impacted by the growth in economic activities for the commercial and transportation services sectors. Demand from the rural area was 92.8 GWh in 1Q07, a 13.8% decrease compared with 2006, when consumption was GWh. Despite the 9.8% growth in the customer base in the first quarter of 2007, this was not enough to offset strong 1Q06 demand due to high temperatures and low rainfall in contrast to the normal seasonal conditions prevailing this year. 1Q07 EARNINGS RELEASE Page 6

7 Enersul The residential class reported a consumption of GWh in 1Q07, a growth of 2.1% in relation to the same period for 2006 (243.1 GWh). This improvement reflects a recovery in the income of residential consumers following the crisis in the agribusiness sector as well as a 4.2% growth in the customer base. In 1Q07, the industrial class consumed GWh, an increase of 7.4% over 1Q06, when consumption was GWh. This good result can be attributed to a recovery in demand following the agribusiness crisis, which began in 2005 and affected mostly the food product and leather and hides segments. Stronger demand offset the decline in the distributor s customer base. The rural class recorded a consumption of 81.7 GWh, a fall of 1.0% from the 82.5 GWh registered in 1Q06. This small decline was due to reduced agricultural irrigation requirements in the period. - Regulation The tariff realignment of each of our concessionaires should be analyzed for a better understanding of the dynamics behind the trend in Energias do Brasil s operating revenue. Our distributors annual tariff readjustments as well as periodic tariff resets take place on specific dates, as shown below: Distributor Readjustment Date Periodic Tariff Reset Bandeirante October 23 Every 4 years, starting in Next one in 2007 Enersul April 08 Every 5 years, starting in Next one in 2008 Escelsa August 07 Every 3 years, starting in Next one in 2007 The following table summarizes the average percentages ratified for the distributors tariff adjustments over the last four years, already reflecting the conclusion of the tariff resets for Escelsa in 2004 and Bandeirante in Distributor Reset Readjustment Reset Readjustment Readjustment Readjustment Date Reset Readjustment Bandeirante 14.68% (a) Oct. 23, % -8.86% 13.44% October Escelsa % 4.96% (b) Aug. 07, % 16.67% August Enersul 32.59% (c) Apr. 07, % 20.69% 16.75% April/ % (d) 2006 (a) Reflects the preliminary amount of the Tariff Realignment Rate (RT). In October 2006, the 2003 RT was preliminary set at 10.14%. (b) Reflects a preliminary RT rate of 6.33%, plus financial variations. The 2004 RT was established definitively in August 2005 at 8.58%. (c) Reflects the deferral of the 2003 RT tariff (50.81%). (d) The last installment of the deferment of the 2003 tariff reset was once again postponed to the 2008 tariff reset (details on page 18) - Vanguard Project The Vanguard project was conceived in the first quarter of 2005 and is part of the Company s overall restructuring process. The goal is to create and consolidate a new concept of integrated 1Q07 EARNINGS RELEASE Page 7

8 management at the Group's companies based on two main pillars: a new organizational model and the capture of synergies. Structures, operating procedures and IT systems are all being redesigned with two principal objectives in mind: 1) shared functions, as a means of achieving economies of scale and cost savings; and 2) centralization of strategic decisions, complemented by local operating autonomy. In line with the project schedule, a survey of the processes and sub-processes was concluded in December 2005 and in 1Q06, the ERP (Enterprise Resources Planning) platforms were standardized at all the Group companies. In June 2006, the redundancy plan (RP) was finalized with the adhesion of 651 employees (19% of the Group personnel as of 1Q06). Considering necessary replacements, the plan will imply a net number of lay-offs close to 16% of the total workforce before the end of The cost impact on results from the lay-offs under the RP was R$ 51.6 million - entirely recognized in the second quarter of Purely from the human resources development angle, Energias do Brasil estimates that with the full implementation of the RP, annual recurring costs will be cut by about R$ 68.4 million (current money). In 1Q07, the program was responsible for savings of R$ 11.7 million achieved through the reduction in direct and indirect payroll costs. The following graph shows the progressive savings for the period since the implementation of the RP: Trend in the capture of accumulated annualized savings resulting from the RP (R$million/year)* Jul/06 * 2006 Figures Accomplished till Sep/06 Dec/06 Accomplished till Dec/06 Indirect Personnel Cost (Estimated) Indirect Personnel Cost (Accomplished) Mar/07 Accomplished till Mar/07 Jun/07 Direct Personnel Cost (Estimated) Direct Personnel Cost (Accomplished) Dec/07 - Information Technology and Optimization of Manageable Expenditures Projects As part of the ongoing Vanguard Project, which is now entering its second phase with the conclusion of the unification of the SAP R/3 project to support the new management model (Alliance Project), Energias do Brasil is investing in other complementary IT projects at a total investment of R$ 100 million for the period as follows: SitBrasil Project, the object of which is to harmonize the geoprocessing based information system, has already concluded the stage of identifying the differences in processes and procedures in the technical areas of each distributor. Work is now progressing on the implementation of a specific solution covering systems/modules for supporting the engineering processes, including the planning, project and operations of the distributor operations. The SitBrasil Project is scheduled to be completed in the middle of the first half of 2007; 1Q07 EARNINGS RELEASE Page 8

9 Integration Project begun in June 2006, is designed to promote improvements in the Commercial Management processes and involves more than 220 people. The aim of the project is to implement the upgrading of the SAP R/3 version, incorporating new functions for business management and the commercial area, and the system s installation at Escelsa and Enersul. The project will also consolidate the group s management model through actions structured for unification of systems. This project should be concluded by the end of Still part of the second phase of the Vanguard project, the Group launched an initiative for curbing operating expenses as follows: - Efficiency Indicators The Vanguard Opex project, which begun in December of 2006, is being implemented to optimize the Group s manageable expenses. Once the analysis of expenses has been completed, strategies for optimizing expenses as well as optimization targets will be defined, and plans for implementing the proposed measures will be drawn up. Our concessionaires have consistently met Aneel s principal benchmarks for the leading efficiency indicators DEC (Duration of Interruptions) and FEC (Frequency of Interruptions), as the following table illustrates. 1Q07 1Q06 Distributor DEC (hours) FEC (times) Aneel s Ref. (DEC / FEC) DEC (hours) FEC (times) Aneel s Ref. (DEC / FEC) Bandeirante / / 9.7 Escelsa / / 10.7 Enersul / / 14.8 Generation (11% of unconsolidated net revenue) Group generating plants produced 1,469 GWh in 1Q07, a growth of 103.9% over the GWh produced in 1Q06. This sharp increase reflects the startup of operations at UHE Peixe Angical ( Peixe Angical ), located in the state of Tocantins, and the commissioning of the fourth turbine of the UHE Mascarenhas in the state of Espírito Santo. The first and second generator units at Peixe Angical began commercial operations in June and July 2006, respectively. The configuration of the Peixe Angical plant was finalized, at a total installed capacity of 452 MW, last September with the startup of the third and final generator units. In October 2006, the fourth turbine at the UHE Mascarenhas went into commercial operation, adding 50 MW of installed capacity and increasing total installed capacity from to MW. The PCH (Small Hydroelectric Plant) São João was granted the Operation License in February 2007 and is now in the final stages of tests. Authorization is expected shortly for commercial operations to begin in May 2007, adding a further 25 MW to Energias do Brasil generating capacity, which will total 1,043 MW. 1Q07 EARNINGS RELEASE Page 9

10 Energias do Brasil is also awaiting the issuance of the Installation License to begin work on the construction of the PCH Santa Fé in the state of Espírito Santo. This plant will have an installed capacity of 29 MW (assured energy of 16 MW) and is scheduled to come on stream in early The total estimated investment for the construction of the PCH Santa Fé is R$ 105 million. Expansion of Generation Installed Capacity (in MW) , ,043 Expected Start-Up 1,043 Dec/05 Legend: UHE Peixe Angical Concluded Projects Projects in Course 4th Mascarenhas' Engine PCH São João Current Capacity PCH Santa Fé Total Commercialization (10% of unconsolidated net revenue) Enertrade, a wholly owned subsidiary, is responsible for the Group s electricity commercialization activities and focuses on serving the free clients market both within and outside our concession areas. In 1Q07, commercialized energy volumes grew by 2.4% to 1,697 GWh in relation to 1Q06. It is worthy of note that during the same period, the volume attributed to consumers in the free market increased by 11.6% (if one considers the total volume commercialized outside of the Group companies, that is, to customers in the free market and other commercialization companies, the growth in the period was 8%), more than offsetting the lower revenue from the expiration of the supply contract with Enerpeixe and the reduction in self-dealing contracts. Volume of Energy Commercialized (in GWh) 1, % 1,697 1, , % 1,462 1,289 Sales 1Q06 Sales 1Q07 Purchases 1Q07 Others Energias do Brasil s Discos Lajeado In 1Q07, Enertrade s operating result recorded a negative impact of R$ 3.0 million, relating to a conservatively constituted provision to cover the credit risk of a doubtful debt in the name of Ampla S/A. This refers to a dispute over the value of the tariff to be used in a supply contract signed between Enertrade and Ampla. The negative monthly impact of Ampla s contract is R$1.0 million. 1Q07 EARNINGS RELEASE Page 10

11 Economic-Financial Performance Consolidated revenue Net Operational Revenue - R$ th 1Q Chg. Retail Supply Residential 440, , % Industrial 235, , % Commercial 247, , % Rural 43,721 41, % Other 104,257 89, % Unbilled Supplies 18,211 43, % Total supply 1,089, , % Wholesale Delivery Conventional 11,307 7, % Short-term energy 12,646 5, % Total wholesale delivery 23,953 12, % Retail supply and wholesale delivery 1,113, , % Usage of the Distribution System (TUSD) 153, , % Trading (Retail supply and Wholesale delivery) 103,311 86, % Generation 17,321 16, % Other operational revenues 12,654 12, % Gross operating revenue 1,400,194 1,239, % (-) Deductions from operating revenue (286,095) (253,013) 13.1% Net operating revenue 1,114, , % Note: According to Aneel Order 3073 of December 28, 2006, energy distributors now account for CCC, CDE and R&D charges in their books as deductions from revenue. The 2006 financial statements were adjusted to the new reporting structure. In 1Q07, net operating revenues posted a year on year 13.0% increase to R$ 1,114.1 million. This performance stems mainly from the duplication of installed capacity in the generation business, the 3.0% growth in the volume of energy distributed, the tariff adjustments granted to the Group s three distributors during the periods under review (please refer to the table on page 07), as well as the changing profile in the energy market with a greater proportion of free consumers. Revenues from the tariff for use of the distribution system (TUSD) amounted to R$ million, 13.4% more than recorded in 1Q06, a reflection of the migration of end customers to the free market. 1Q07 EARNINGS RELEASE Page 11

12 Operating expenditures Operating Expenditures - R$ th 1Q Chg. Manageable expenditures Personnel 69,831 70, % Material 9,651 8, % Third-party Services 78,576 67, % Provisions 36,465 21, % Other 31,724 19, % 226, , % Depreciation and Amortization 75,642 66, % Total manageable expenditures 301, , % Non-manageable expenditures Energy Purchased to Resell 403, , % Charges for Usage of Basic Network 137, , % ANEEL Inspection Fee 2,860 2, % Financial Offset 5,430 2, % Total of non-manageable expenditures 549, , % Total expenditures 851, , % Energy Purchased to Resell - R$ th 1Q Chg. Initial Contracts - - n.a. Itaipu 151, , % Auction 141, , % PROINFA 10,482 3, % Short-term Energy 4,385 14, % Other suppliers 106, , % CVA (net) (10,940) (37,676) -71.0% Total 403, , % Charges for Usage of Basic Network - R$ th 1Q Var. Usage and Connection Charge 127, , % System Service Charge 2,733 3, % CVA (net) 7,404 26, % Total 137, , % Operating expenses totaled R$ million in the quarter, representing a 10.4% growth over 1Q06, and less than the 13.0% growth reported for net operating revenue. Manageable expenses, excluding depreciation and amortization, posted an increase of 20.5%, mainly reflecting the increase of R$ 12.8 million in third party materials and services, R$ 14.9 million in provisions and R$ 11.8 million in other expenditures. The decrease in personnel expenditures is principally due to R$ 11.7 million in savings accruing from the Redundancy Plan, combined with an average salary increase of 6.4% awarded to the distributors employees on the occasion of the collective agreement in the second half of With respect to this item, it is worth noting that the startup of operations at Peixe Angical plant implied additional payroll expenses of R$ 1.1 million - recognized in the figures of 1Q07. During the plant construction phase, these expenditures were capitalized. 1Q07 EARNINGS RELEASE Page 12

13 The 16.8% variation in the third party services item includes the effects of contractual readjustments, besides expenses with operating improvements (notably R$ 5.5 million in the maintenance and expansion of networks and substations, call center services and outsourced customer service points that the Group implemented during 2006) and operational efficiency programs (R$ 0.9 million distributed between the program for reducing losses and IT services). In addition, the increase in this account also reflects the booking to the accounts of R$ 3.0 million covering the operation and maintenance costs from the Peixe Angical plant, which began operations in 2Q06. The increase of 68.9% in provisions largely reflects R$ 10.5 million of civil and labor contingencies recognized by the distributors as well as the value of 3.0 million of the Ampla S/A receivables. It should also be noted with respect to manageable expenses that the total for the other item sweeps up negative non-recurring events such as R$ 6.0 million relative UHE Lajeado s leasing expenses. The elimination of leasing expenses for the UHE Lajeado for March 2007 was not booked in 1Q07 due to a shortfall in reconciliation of accounts between Energias do Brasil and Investco (controlling shareholder of UHE Lajeado). Moreover, the other item was also negatively affected by a R$ 2.0 million charge relative to the complement of a provision for postemployment benefits at Escelsa for the fiscal year Non-manageable expenditures are related mainly to the purchase of energy and charges for the use of the electricity network, which together, grew 6.3% against the previous year. Purchased electricity energy for resale cost R$ million, an increase of 10.9% over the 1Q06. Operating income EBIT The combination of the above factors produced an operating income of R$ million in 1Q07, up 22.2% from the result posted in the same period in The EBIT margin reached 23.6%, 1.8 percentage points above the equivalent period in the 1Q06. The 13.5% expansion in depreciation and amortization expenses, recognized in the period, largely reflects the startup of operations at the Peixe Angical plant. EBITDA EBITDA reached R$ million in 1Q07, 20.2% more than the EBITDA for 1Q06. The EBITDA margin (EBITDA/Net Revenues) was 30.4%, 1.8 percentage points higher than the same period for the preceding year. This performance reflects the larger contribution of the generation business to the Group results, installed capacity being doubled during the course of 2006, as well as the growth in the electricity market and improved operating efficiency. It should be noted that the generation business EBITDA was negatively impacted by the expense incurred with the acquisition of energy for covering PCH São João s sales contracts, worth R$ 3.7 million. The PCH São João is in the final phase of testing and should receive authorization for commercial operations to begin in May Q07 EARNINGS RELEASE Page 13

14 Financial result Financial Result (R$ thousand) Q 2006 Chg. Income from financial investments 13,812 16, % Monetary variations 22,391 20, % Monteray adjustments of regulatory assets 16,127 24, % Selic over taxes, contributions and COFINS 4,925 1, % Other financial revenues 5,274 7, % Financial Revenue 62,529 69, % Charges on debt (81,695) (69,287) 17.9% Monetary variations (456) (2,465) -81.5% Monteray adjustments of regulatory liabilities (2,991) (6,770) -55.8% CPMF tax (7,952) (6,690) 18.9% Other financial expenses (6,634) (5,804) 14.3% Financial Expense (99,728) (91,016) 9.6% Net result from swap operations (39,669) (54,668) -27.4% Foreign exchange gains (loss) 19,471 37, % Net foreign exchange result (20,198) (17,598) 14.8% Total (57,397) (38,768) 48.1% The net consolidated financial result for 1Q07 was negative at R$ 57.4 million compared with a negative R$ 38.8 million for the same period in The increase in this item reflects mainly the reduction in the remuneration of regulatory assets due to the fall in the Selic basic interest rate, the ending of debt interest capitalization in the case of Enerpeixe and the net foreign exchange result for the period. Net income In the light of the foregoing factors, consolidated net income reached R$ million in 1Q07, 28.9% increase when compared to 1Q06. Net income before minority interests was R$ million as against R$ million in 1Q06. Debt On March 31, 2007, gross consolidated debt including interest, amounted to R$ 3,126.2 million, a decline in relation to the outstanding of R$ 3,158.6 million as of December Net debt adjusted for cash and marketable securities and the net balance of regulatory assets was R$ 1,850.1 million at the close of 1Q07, also less than the R$1,879.4 million outstanding in December of In large part, this performance reflects lower disbursements of sectorial charges on the distribution business as well as the reduction in the average cost of debt relative to The average cost of debt in 1Q07 was 14.4%. Of total gross debt at the end of March 2007, 22.0% was exposed to foreign currency risk, 86.1% of which was hedged against foreign exchange variation, resulting in a total net foreign currency exposure of 3.1%. Gross Debt Index Breakdown Mar/07 US$ 33% 4% 2% 3% 5% Selic % CDI TJLP Fixed Rate 53% INPC and IGP-M 1Q07 EARNINGS RELEASE Page 14

15 Trend in Net Debt (R$ million) 3,126 Short-Term 788 (734) (542) Long-Term 2,338 1,850 1,879 Gross Debt Mar.07 (-) Cash and Marktable Securities * (-) Regulatory Asset and Liabilities Net Debt Mar.07 Net Debt Dec.06 * includes R$10.5 million of deposits related to debt with BNDES Regulatory Assets and Liabilities (R$ thousand) 1Q07 Costumers and concessionaries 99,582 Expenses prepaid (PIS/Cofins/Net CVA) 506,681 Other credits 25,463 Total Assets 631,726 Suppliers (80,523) Tariff refund - Other payable accounts (9,238) Total Liabilities (89,761) Net Total 541,965 Net Debt / EBITDA * 3.0x 1.9x 1.8x 1.6x The net debt/ebitda ratio closed the quarter at 1.6 times, indicating the Group s comfortable leverage. The reduction in such ratio during the course of 2006 principally reflects the growth in EBITDA. Dec/04 Dec/05 Dec/06 Mar/07 * EBITDA of the last 12 months Debt Maturity Schedule (R$ million) Cash and Marktable Securities (Mar/07) After 2011 (*) Values consider principal + interest + results from hedging operations 1Q07 EARNINGS RELEASE Page 15

16 With respect to short-term maturities, R$293.6 million refers to Senior Notes issued by Escelsa and expiring in July 2007, and R$131.1 million to RTE, falling due during the course of the year. The company is currently structuring alternatives for refinancing this maturing debt. Capital Expenditures In the first quarter of 2007, Energias do Brasil s capital expenditures amounted to R$ 91.8 million, 34.7% less than recorded in the same period of last year and largely allocated to generation (23.8%) and distribution (76.0%). Reduced capital expenditures on generation are largely a reflection of the conclusion of works at the Peixe Angical Power Plant. Investments * (R$ million) 1Q07 1Q06 % Distribution Bandeirante Escelsa Enersul Generation Peixe Angical Energest Lajeado Others Total Total without capitalized interest * Includes capitalized interest Capital expenditures amounted to R$ 69.8 million in the distribution segment, directed above all to expansion and improvement of the networks of Bandeirante, Escelsa and Enersul. Corporate Governance and Investor Relations The Company s listing on Bovespa s Novo Mercado should be seen in the strategic context of establishing a long-term relationship with the capital markets. This objective is viewed by the Group as instrumental in achieving balanced growth in its portfolio of Brazilian investments. Immediate priority is being given to the generation segment, underlining the importance of adopting the highest standards of corporate governance. The consolidated rules in the Novo Mercado Listing Regulations increase shareholders rights, improve the quality of corporate disclosure and, by determining that any disputes be resolved through an Arbitration Panel, provide investors with a more responsive and focused forum for the purpose. The Company has also published Disclosure and Securities Trading Policies, as well as a Code of Ethics, establishing the rules of conduct for the relationship among all stakeholders: employees, customers, suppliers, partners, the community and government. 1Q07 EARNINGS RELEASE Page 16

17 At the Ordinary and Extraordinary General Shareholders Meeting held in April 2007, Energias do Brasil underscored its adherence to a policy of good corporate governance practice and transparency, maintaining the composition of the Board of Directors with nine members, four of whom being independent directors of which two elected by minority shareholders. There was only one change among the board members according to a proposal submitted to the shareholders. The Board continues to have the support of four Management Advisory Committees: Audit, Sustainability and Corporate Governance, Supervisory and Remuneration. The Board of Directors is made up of the following members: Chairman: Antonio Luis Guerra Nunes Mexia Vice-chairman: António Fernando Melo Martins da Costa Nuno Maria Pestana de Almeida Alves Ana Maria Machado Fernandes Antonio José Sellare Francisco Roberto André Gros (independent member) Pedro Sampaio Malan (independent member) Francisco Carlos Coutinho Pitella (independent member, elected by the minority shareholders) Modesto Souza Barros Carvalhosa (independent member, elected by the minority shareholders) The Investor Relations (IR) department has an IR webpage with continually updated information. In addition, Energias do Brasil runs road shows and domestic and international conferences. The Company held meetings with capital markets professionals and analysts in the cities of São Paulo, Rio de Janeiro, Belo Horizonte and Brasília as well as conference calls to discuss quarterly earnings. In March 2007, Energias do Brasil was awarded the Association of Capital Markets Analysts and Professionals (Apimec) São Paulo branch s Three Year Seal and the Rio de Janeiro branch s Two Year Seal for assiduousness. On March 28, 2007, Energias do Brasil announced the appointment of Flavia Heller as Investor Relations Officer, replacing Vasco Barcellos, who after two years heading up the IR area has taken over the Finance and Administration Division of the Group s strategic Generation area. Capital Markets Energias do Brasil s (ENBR3) shares began trading on the São Paulo Stock Exchange on July 13, 2005 with a Novo Mercado listing. The shares are also components of the Special Corporate Governance Stock Index (IGC) and the Special Tag Along Stock Index (Itag). In addition, the shares are also part of the IBrX-100 Bovespa s Brazil Index 100, the IEE (Bovespa s Electric Power Stock Index) and IVBX-2 (Bovespa s Valor Stock Index). Since December 2006, Energias do Brasil s shares have been a component of Bovespa s Corporate Sustainability Stock Index (ISE). Since the listing date through to March 31, 2007, ENBR3 was traded on all days the Bovespa was open for business, reporting an appreciation of 67.8% against an increase of 79.4% for the Ibovespa and an increase of 80.5% of the IEE. In 1Q07, Energias do Brasil s share price fell 5.5%. Trading volume for the quarter was 15.6 million shares with a daily average turnover of thousand shares. Over the same period, financial volume amounted to R$ million, representing a daily average of R$ 8.0 million. 1Q07 EARNINGS RELEASE Page 17

18 On March 30, 2007, the shares were priced at R$ 30.20, representing a market capitalization of R$ 5.0 billion. Price % since Average Average daily Market on % in 2007 July 12, 2005 to daily number of volume Capitalization March 30, ,171 shares (thousand) * (in R$ thousand) * (R$ million) Energias do Brasil - ENBR , ,983.5 Ibovespa 45, IEE 14, IBX 14, IGC 5, ITAG 7, IVBX-2 4, ISE 1, * Since July 13, 2005 Source: Bloomberg /12/2005 9/6/ /4/2005 1/3/2006 3/3/2006 5/3/2006 6/29/2006 8/24/ /23/ /21/2006 2/23/ ,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Volume R$ ENBR3 ENBR3 Ibovespa IEE Subsequent Events Aneel approves tariff readjustment for Enersul At a public audience on April 3, 2007, Aneel approved the report authorizing an average tariff readjustment for Empresa Energética do Mato Grosso do Sul ( Enersul ) of 8.05% for the period between April 2007 and March 2008, including all consumer classes (residential, industrial, commercial, rural, etc). Considering previous financial adjustments already included in Enersul s tariffs, associated with the recovery in tariff differences for past periods, the effective average tariff readjustment for electricity billings was 3.20%. The impacts arising from the implementation of the Light for All Program in the state of Mato Grosso do Sul were considered on a partial basis only and using a provisional methodology. The larger part of the impact of the Light for All Program has still not been recognized and will be incorporated in the periodic tariff reset in April Based on Ensersul s first periodic tariff reset in April 2003 and respecting the five-year time intervals, Aneel authorized a tariff realignment to be made in installments. The first installment of the percentage Tariff Realignment Rate (IRT), or 32.59%, was implemented in April 2003 and the remainder, corresponding to the difference between the tariff realignment and the IRT, should have been implemented in installments as part of the tariff readjustments from 2004 to However, in the readjustment for this year, Aneel once again deferred the application of the last original installment of 2003 s tariff realignment, equivalent to about 6.26% of the actual readjustment for incorporation in the periodic tariff reset in April Q07 EARNINGS RELEASE Page 18

19 Energias do Brasil acquires Rights to the UTE Maranhão Project On April 10, 2007, Energias do Brasil announced the acquisition of Diferencial Energia Empreendimentos e Participações Ltda. ( SPE ), the holder of the electricity generation rights of a coal-fired (imported mineral coal) thermoelectric power plant, with an installed capacity of 350 MW, to be built in the São Luís Industrial District, City of São Luís, state of Maranhão ( UTE ). The project has already been granted the Preliminary Environmental License and is enrolled to participate in the next new energy auction scheduled for June The amount paid for the acquisition of the entire SPE was R$ 5 million. This value will be adjusted upwards to R$ 20 million should, at the discretion of Energias do Brasil, the plant s electricity be sold at the next or future auctions. Should the electricity indeed be sold, the estimated total investment for building the UTE is US$ 450 million. Construction time is estimated at 42 months as from the date the Installation License is granted. With this acquisition, Energias do Brasil underscores its operations in the area of electricity generation in line with its growth strategy announced at the time of the company s IPO. The company is also developing a series of feasibility studies to assess to implementation of medium and small capacity hydro-plants, aiming at creating further investment alternatives. Future Events in Investor Relations Conference Call with slide presentation (live audio and slides webcast Date: May 02, 2007 Portuguese Time: 10h (Brasília Time) Access: Participants calling from Brazil: (11) Participants calling from overseas: (55 11) Participants password: Energias do Brasil Replay available for 10 days: (55 11) access code: 267 English Time: 12h (Brasília Time) Access: Participants calling from the USA: (1 800) Participants calling from other countries: (1 412) Participants calling from Brazil: (11) Participants password: Energias do Brasil Replay available for 10 days: (55 11) access code: 373 1Q07 EARNINGS RELEASE Page 19

20 Energias do Brasil operates as a holding company for a group of companies, which have as their activities, the generation, commercialization and distribution of electricity in the Brazilian market. Our distributors provide a service to approximately 3.1 million customers located in 171 municipalities, with a combined population close to 10 million. We have stakes in generating operations with a current installed capacity of 1,043 MW, thank mainly for the end of the construction of Peixe Angical Hydro Power Plant in 2006, the fourth engine of Mascarenhas and the PCH São João. Our commercialization company, Enertrade, traded a total 6,702 GWh in fiscal year 2006, thus ranking as the second largest private trader of electric power in Brazil. This material may include forward-looking estimates and statements. These forward-looking estimates and statements are based largely on current forecasts and projections for future events and financial tendencies which affect or could affect our businesses. Many important factors could adversely affect Energias do Brasil s results, such as the forecasts in our forward looking estimates and statements. Such factors include among others, the following: (i) the economic, political and demographic business environment in Brazil; (ii) interruptions to electricity supplies; (iii) electricity generation faults due to water shortages and interruptions in the transmission system, technical and operational problems or physical damage to our installations; (iv) changes in electric energy tariffs; (v) potential interruption or disturbance in services of Energias do Brasil s controlled companies; (vi) inflation, appreciation and depreciation of the Real; (vii) anticipated extinguishment of Energias do Brasil s controlled companies concessions by the public authority responsible for granting the concession; (vii) increased competition in the Brazilian electricity sector; (viii) the competence of Energias do Brasil in implementing its capital expenditures plan, including its ability to raise financing when necessary and under reasonable conditions; (ix) changes in consumer demand for electricity; (x) current and future governmental regulations with respect to the electricity sector. The purpose of the words believe, can, could, seek, estimate, continues, anticipates, intends, expects and other similar words are to identify estimates and projects. The considerations on forward-looking estimates and statements include information pertaining to results and projections, strategy, financing plans, competitive position, sector economicfinancial environment, potential growth opportunities, the effect of future regulations and the impact of competition. Such estimates and projections relate only to data in which these were expressed, the company accepting no liability for publicly updating or revising any of these estimates in the light of new information, future events or any other factors. In view of the risks and uncertainties herein described, the forward-looking estimates and statements contained in this material may not occur, In view of these limitations, shareholders and investors should not make any decision based on the forward looking estimates, projections and statements contained in this material. 1Q07 EARNINGS RELEASE Page 20