Companies Circle Meeting 1st December, 2008 Bolsa Mexicana de Valores Mexico City, Mexico Gisélia Silva Secretary to the Board of Directors
Agenda 1. From CPFL Paulista to CPFL Energia 2. The Establishment of Corporate Governance Guidelines at CPFL Energia 3. The New Corporate Governance Model 2
The origins of the CPFL Energia Group are in the privatization of CPFL Paulista CPFL Paulista Founded: November 16 1912 Nationalized: October 14 1964 Privatized: November 5 1997 Controlling Shareholders 3
In 2000 CPFL drew up a Strategic Plan emphasizing sustained growth and the creation of consistent and sustainable shareholder value Operating Efficiency Synergetic Growth Financial Discipline Enhanced Corporate Governance Sustainability and Corporate Responsibility Synergies Expansion and Economies and Commitment Diversification of Scale to of Creating the Business Shareholder Transparent Commitment Value and Fair to Relations Business Sustainability with Portfolio Stakeholders Benchmark-based management Standardization and A solid Certification distribution of work franchise procedures in attractive and processes markets Standardization of Rapid systems, expansion projects of and generation materials capacity Proactive management Competitive of energy position losses in and the non-payments unregulated energy market and SVA Service quality Permanent attention to leverage Advanced Permanent world-class attention standards to leverage of Corporate Proactive management of operating Governance Proactive and financial management costs of operating and financial costs Investment analysis using Total Management Shareholder Investment based Return analysis on concepts using of Total business Shareholder excellence Return methodologies Control of methodologies business risks 4
Economies of Scale and Efficiency The growth strategy was based on an expansion and diversification of the business portfolio by means of acquisitions and new projects Creation of a Sound Distribution Platform Synergies between distribution companies Attractive markets Expansion of Generation Capacity Participation in auctions Acquisition of existing assets Synergetic Growth Competitive position in the unregulated market Portfolio diversification Sale of SVA 5
Today CPFL Energia is the holding company of the largest private sector group in the Brazilian electricity sector The CPFL Energia Group in 2007 Area Área covered de Atuação Energy Distribution: 8 companies 1997 2007 Municipalities (Nr.): 234 568 Population (million): 8.5 18.7 Area (Km 2 ): 90,440 208,300 Customers (million): 2.4 6.3 Energy Sales(GWh): 18,024 35,245 Energy Generation: 8 companies 1997 2007 Hydros(Nr. plants): 0 8 In operation : 0 6 Under construction : 0 2 Smal Hydroelectric Plants 19 33 Installed capacity (MW): 143 1,588 Energy Trading & Sales: 6 companies 1997 2007 Free Costumers (Nr.): 91 Energy sales (GWh): 8,951 Base date: December 31 2007 6
Today CPFL Energia is the holding company of the largest private sector group in the Brazilian electricity sector Area covered The CPFL Energia Group in 2007 Performance and Results 6,3 44.196 162% 145% 137% 1.037 2,4 1997 2007 1997 2007 1997 2007 Customers (Million) 18.024 Energy sales (GWh) 924% 1.588 416% 800 437 Productivity (Clients/Employee) 155 155 1997 2007 1997 2007 3.345 1.643 223% 14.207 334% 371% 4.403 770 349 1997 2007 1997 2007 1997 2007 Gross revenue (R$ million) Installed capacity (MW) EBITDA (R$ million) Firm energy (Average MW) Net income (R$ million) Market Share Distribution (%): 14 Generation (%): 2 Commercialization (%): 22 Base : December 31 2007 7
Agenda 1. From CPFL Paulista to CPFL Energia 2. The Establishment of Corporate Governance Guidelines at CPFL Energia 3. The New Corporate Governance Model 8
The Corporate Guidance Guidelines were introduced during a turbulent period for the electricity sector, when the company s liquidity was severely constrained at the same time as a series of decisions regarding generation projects was on the agenda Strategic Planning IPO (scheduled for 2002) Energy Rationing CPFL Energia Holding company founded Capital injection Controlling shareholders BNDES IPO NYSE Level III ADRs Bovespa Novo Mercado 1997 1998 2000 2001 2002 2003 2004 2005 2006 2007 2008 CPFL Jaguariúna 9
Implementation of CPFL Energia s Corporate Governance Guidelines Challenges Market expectations concerning the execution of our equity story and the reinforcement of our business strategies Acknowledgment by shareholders of the need to reinforce governance and management practices: A formal Corporate Governance system Appropriate rules for the Board of Directors and Executive Management Need to adapt the organizational culture and integrate the management processes of the acquired companies Solutions Corporate Governance Guidelines: Alignment with OECD and IBGC guidelines Formalization and Communication of the Guidelines and Internal Regulations Creation of 7 (seven) Advisory Committees to the Board of Directors Share trading and dividend policies Consistency of the bylaws of the holding company with those of its subsidiaries Involvement of the Board of Directors and of Executive Management, with the support of international consultants: Emphasis on aligning the expectations of shareholders with those of executive management 10
Activities of the Board of Directors Initial Ambitions for Governance in 2002 Role of the Controlling Shareholders Implications for... Controlling Shareholders Executive Management Objectives of Governance OPERATOR Strategic planning and control of company s operations Each shareholder presents proposals for strategy and action Focused on operations and shortterm results Frequent interaction with the Board of Directors To communicate and control the implementation of the actions prior defined by Shareholders STRATEGIC CONTROLLER Strategic planning and definition of operational indicators Joint discussion and definition of strategy by shareholders Sets and monitors performance indicators Clarifies uncertainties and builds relations with the Board of Directors To communicate strategic guidelines to Executive Management To monitor and question operational results STRATEGIC ARCHITECHT Strategic planning and operational indicators defined jointly with Executive Management Controlling Shareholder Block takes decisions only on key business issues Helps define and executes strategy Sufficient delegated authority to handle all operational issues and their performance indicators To create a forum for debating strategy To monitor operational results To ensure the measures needed to improve performance 11
Corporate Governance Structure Board of Directors and Advisory Committees Executive Committee Materials Procurement and Sales Committee CPFL Energia Corporate Governance Guidelines Construction and Works Committee Board of Compensation Committee Directors Financial Services Committee Corporate Governance Committee Internal Processes and Controls Evaluation Committee Internal Regulations Board of Directors 7 Advisory Committees 37 positions on the Committees 12
Agenda 1. From CPFL Paulista to CPFL Energia 2. The Establishment of Corporate Governance Guidelines at CPFL Energia 3. The New Corporate Governance Model 13
Drivers of Corporate Governance Drivers Governance system disseminated and consolidated throughout the Group Solid mechanisms for interaction between the Board of Directors and Executive Management A management model based on criteria of excellence and sustainability, recognized as a domestic and international benchmark Superior performance and high standards of operational efficiency Ability to implement a strategic agenda focused on the creation of value Successful reorganization and integration of the companies acquired Opportunities Re-orientation of the Board of Directors activities towards strategic business issues, leaving Executive Management sufficient autonomy to execute the strategies as fast as the market will permit Improvements to the decision-making process as a competitive advantage The growth and complexity of the corporate structure creates the need for development and training for the Board of Directors and Executive Management Elimination of intereference in communications and optimization of the agendas of the Board of Directors and Executive Management 14
New Corporate Governance Model Definition of a new Strategic Agenda for the Board of Directors Focus on strategic issues STRATEGIC PLANNING FINANCIAL PLANNING PERSONNEL MANAGEMENT PERFORMANCE MONITORING HORIZONTAL PROCESSES Focus on management and strategies for generating value Operational Finance and Investor Relations Materials IT Quality and Safety REGULATORY MANAGEMENT MANAGEMENT OF LARGE INVESTMENT PROJECTS MANAGEMENT OF LARGE CONTRACTS Corporate Governance Management Process Management Internal Audit VERTICAL PROCESSES Focus on the discussion and decisions regarding strategic issues 15
C O M MI TTEES C O M MI TTEES New Corporate Governance Model Rationalization of the Governance Forums Previous Governance Model New Governance Model Internal Processes and Controls Shareholders Meetings Shareholders Meetings Compensation Fiscal Council Fiscal Council Governance Financial Services Board of Directors Corporate Secretary Board of Directors Management Processes Construction and Works Executive Committee Working Commissions Personnel Management Materials Procurement and Sales CEO CEO Related Parties VP Finance Management Meeting VP Strategy VP Finance Management Meeting VP Strategy UN Generation UN Distribution UN Energy Management Corporate Center UN Generation UN Distribution UN Energy Management Corporate Center 16
New Corporate Governance Model Results Optimization of the Board of Directors Agenda Before 665 items on Board and Committees agendas After 378 items on Board and Committees agendas 33% 39% - 43% 23% 31% 23% 46% 33% 31% 46% 39% Operational issues and legal liabilities 33% Strategic decisions 28% Performance monitoring 46% Strategic decisions 31% Performance monitoring 23% Operational issues and legal liabilities February 2003 to March 2006 From October 2006 onwards 17
New Corporate Governance Model Optimization of Management Tools Code of Ethics and Corporate Conduct (Up-dated) One set of Regulations for the Committees Manual for Shareholders Meetings Governance Portal Pipeline 18
Shares of companies with Corporate Governance outperform the market Performance Ibovespa vs. IGC Sept/04 to nov/08 IGC: +66,5% Ibov: +49,8% Base 100 Sept 30, 2004 Sept 30, 2005 Sept 30, 2006 Sept 30, 2007 Sept 30, 2008 In the last 4 years 1, the differentiated Corporate Governance shares index Desde o IPO, CPFL (IGC) apresenta outperformad performance Ibovespa superior by ao 11%. Ibovespa e ao IGC ¹ Up to nov 25, 2008 19
CPFL Energia shares have traded at a premium to comparable sector shares ever since the IPO EV/EBITDA MULTIPLE 7,5 8,0 6,7 6,1 7,4 5,3 6,6 6,6 5,3 5,1 Peer Group 1 IPO 2005 2006 2007 9M08 CPFL Energia s EV/EBITDA multiple is at a premium to those of its electricity sector peers, mainly due to High Corporate Governance standards Quality of management Operating efficiency Potential for consolidation Private-sector management Note: Multiple based on historic data. Source: Economática 1) Average of multiples of integrated Brazilian electricity sector companies 20
Dividend pay-out of 95% of the net income on a semi-anuual basis CPFL distributes 100% of the Net Income in dividends: R$ 602 million in 1H08 R$ 1,25 per share Declared dividends vs. Annualized Dividend Yield 2 Declared dividends (R$ million) Since the IPO, CPFL Energia s dividend yield has reached 57.0% 3 Dividend Yield (last 2 years) 9,1% 6,5% 3,7% 401 498 8,7% 612 9,6% 722 10,9% 842 9,7% 719 7,6% 602 140 2H04 1H05 2H05 1H06 2H06 1H07 2H07 1H08 CPFL price (R$)Average 16.58 18.85 23.33 30.05 28.25 31.74 35.99 36.11 (1) Refer to declared dividend: payment in the next half year (2) Considering last two half-year s dividend yield (3) IPO price per share: R$ 17.22 21
CPFL present in IBrX-50, Ibovespa and MSCI since 2007 and, for the 4 th consecutive year, integrates ISE indexes + + MSCI Index IPO 2005/2006 2007/2008 22
Capital Markets Performance Bovespa 1 From IPO to 25/nov/08 168,8% 136,1% 49,9% CPFE3 IEE IBOVESPA Market Cap R$ billion 2 109% 16.3 Nyse 1 Since IPO until 25/nov/08 225,4% 7.8 63,2% IPO 2005 2006 2007 1S08 25/nov/08-16,3% CPL DJ Br20 DJ 1) Closing price adjusted per dividends. Set 30th,2008: CPFE3: R$ 33.98 e CPL: US$ 43.43 2) Not adjusted per dividends. Closing price of the last trading day of each period 23
CPFL Energia liquidity growth in Bovespa Bovespa s daily average volume x daily average number of trades R$ million 25.000 CPFE3 daily average Number of trades 23.065 Units 1.200 20.000 19.444 19.057 19.220 974 1.000 15.000 17.274 752 842 14.960 17.222 793 800 9.816 12.413 520 679 679 706 600 10.000 5.000 0 6.753 7.697 377 4.759 4.174 280 3.542 3.191 3.208 208 170 112 78 72 79 IPO 1 1T05 2T05 3T05 4T05 1T06 2T06 3T06 4T06 1T07 2T07 3T07 4T07 1T08 2T08 3T08 400 200 0 1) Ref. 4Q04 Note: Simple average of daily values 24
Companies Circle Meeting 1st December, 2008 Bolsa Mexicana de Valores Mexico City, Mexico Gisélia Silva Secretary to the Board of Directors