Corporate Presentation 2016 11/03
AES Corporation Global Company Natural gas and coal fired thermal plants 25.9 GW of installed capacity 36 GW installed capacity Providing services to over 10+ million customers 21 thousand employees Over 8.1 GW of Renewable sources¹ AES Corp is present in 17 countries and 4 continents Distributed energy +60MW of solar PV² projects in operation World leader in Energy Storage Total of 384 MW³ 1 Includes hydro, wind, solar, energy storage, and biomass 2 - PV Photovoltaic; 3 - Operating and under construction 1
Leading position in the energy sector in Brazil Generation 1 Market Share Distribution 2 Market Share AES Tietê 2,658 MW Concession ends in 2029 AES Serviços AES Eletropaulo 20m people served 6.9m customers Concession ends in 2028 2% 13% AES Uruguaiana 640 MW AES Sul 3.7m people served 1.3m customers Concession ends in 2027 98% 87% AES Brasil Other 1 installed capacity as of 2015; 2 Consumption (GWh) in 2014 (Source: ABRADEE) 2
History in Brazil Solid participation in distribution and generation businesses 1995 1998 2000 2003 AES Brasil +20 years presence in Brazil Beginning of AES Uruguaiana construction AES Corp acquired AES Sul through privatization process 1997 Privatization of AES Eletropaulo by a consortium comprised by AES Corp and other local and international companies Privatization of AES Tietê 1999 AES Uruguaiana beginning of operation AES Corp increases its interest in AES Eletropaulo and AES Tietê 2001 2002 Incorporation of Companhia Brasiliana de Energia and execution of shareholders agreement with BNDES AES Tietê merged into Cia Brasiliana and was renamed AES Tietê Energia SA 2016 3
AES Brasil Mission, Vision and Values Mission To promote well being and development with the safe, sustainable and reliable provision of energy solutions Vision To be the leading power company in Brazil that safely provides sustainable, reliable and affordable energy Values Put safety first Act with integrity Honor commitments Strive for excellence Have fun through work 4 4
AES Brasil environmental responsibility Reservoirs repopulation Reforesting, border and archeological management programs Water quality monitoring Recycling and waste disposal programs Programs aiming to reduce CO2 emissions Risk Management and identification of opportunities related to climate change 5 5
AES Brasil social responsibility Access to reliable energy through social development Education for efficient and safe use of electricity Program which offer cultural and sports activities simulating citizenship practices Sustainable partnership commitment with sustainable development at AES Brasil s value chain 6 6
INVESTMENT PLAN 2015-2019 2015 0.4% 9.4% 90.3% R$ 5.2 billion R$ 3.5 billion R$ 487 million Generation 2019 Distribution Services R$ 1.2 billion R$ 19 million 7
AES Brasil widely recognized AES Eletropaulo AES Tietê AES Brasil AES Sul 8
National Interconnected System GENERATION Distribution Substation Thermal Plant Hydroelectric and Solar Plant Renewable Energy Substation Transformer DISTRIBUTION Substation Transformer TRANSMISSION COMERCIAL AND INDUSTRIAL CUSTOMERS RESIDENTIAL CUSTOMERS 9
Energy sector in Brazil: businesses segments Generation¹ Transmission² Distribution² 4,437 power plants 150 GW of installed capacity System based on hydro plants (61%) Contracting environment: free and regulated markets 104 agents High voltage transmission (>230 kv) 116,767 km lines (National Integrated System) Regulated tariff (annually adjusted by inflation) 63 distribution companies 342 TWh energy distributed 190 million consumers Annual tariff adjustment Tariff reset every four or five years Regulated contracting environment Sources: EPE, ANEEL, ONS, ABRADEE and Instituto Acende Brasil 1 Refers to 2015 data; 2 Refers to 2014 data 10
Ownership Structure AES Corp BNDES C = Common Share P = Preferred Share T = Total T 100.00% C 99.99% T 99.99% C 50.00% + 1 share P 0.00% + 7 shares T 46.15% C 50.00% - 1 share P 100.00% - 7 shares T 53.85% Brasiliana Participações C 99.99% T 99.70% T 98.26% C 0.00% P 7.38% T 4.44% AES Corp C 61.55% P 0.00 % T 24.25% BNDES C 14.36% P 37.35% T 28.29% AES Tietê Energia AES Sul AES Serviços AES Uruguaiana AES Elpa C 77.81% P 0.00% T 30.97% AES Eletropaulo 16.1% ¹ ¹ 19.2% Free Float Others² Market Cap³ 56.3% 8.5% US$ 0.4 bi 24.2% 28.3% 39.5% 8.0% US$ 1.4 bi 1 Parent, AES Corp and BNDES, have similar voting capital on each of the companies: approx 35,9% on AES Eletropaulo and 32,9% on AES Tietê; 2 Includes Federal Government and Eletrobrás shares in AES Eletropaulo and AES Tietê, respectively; 3 Base: 02/23/2016. FX rate 3.97 BRL/1 USD 11
3 rd largest among private generation companies Concession expires in 2029 Market Cap: US$ 1.4 billion 1 Brazil 9 hydroelectric plants and 3 SHP³ in São Paulo Installed capacity of 2,658 MW, physical guarantee 2 of 1,278 MWavg Consistent evolution of client portfolio Água Vermelha (1.396 MW) Nova Avanhandava (347 MW) Promissão (264 MW) Ibitinga(132 MW) Bariri (143 MW) Barra Bonita (141 MW) Euclides de Cunha (109 MW) Caconde (80MW) Limoeiro (32 MW) Mogi-Guaçu (7 MW) São Joaquim (3 MW) São José (4 MW) Investment grade (Moody s): - National: Aa2 - International: Ba2 1 Base: 02/23/2016. FX rate 3.97 BRL/1 USD; 2 - Amount of energy allowed to be contracted in the long term; 3 SHP Small hydroelectric plant (installed capacity<30mw) 12
Largest distribution company in Latin America 24 cities attended in São Paulo metropolitan area Concession contract expires in 2028 Market Cap: US$ 409 million¹ Brazil Brazil São Paulo 16% of Brazil s GDP² in its concession area 4,526 km 2 concession area 46 thousand km of distribution and transmission lines 6.9 million customers 20 million people served 44 TWh distributed in 2015 7,165 employees as of December 2015 West, South, & ABC North & East Investment Grade: Fitch S&P Moody s National A+ A+ A2 International BB BB Ba3 1 Base: 02/23/2016 FX rate 3.97 BRL/1 USD; 2 - Source: IBGE, 2010. 13
SAIDI of 19.11% (hours) and SAIFI of 8.42% (times) Operating costs 2% below the regulatory levels¹ 118 cities attended in Rio Grande do Sul state Concession contract expires in 2027 Brazil Rio Grande Do Sul 1.3 million customers 8,870 GWh sold in 2015 99,512 km² concession area 3.7 million people served 2,355 direct employees¹ Regional GDP growth of 3.2%² Metropolitan Valley Region Northern Border Southern Border Central R$ 258 million Ebitda in 2015 R$ 214 million invested in 2015 National investment grade (S&P): BBB- 1 as of February/2015. 2 2010-2015 14
Beginning of commercial operations in 2000 Located in the State of Rio Grande do Sul city of Uruguaiana Operations were suspended in 2008 due to lack of gas supply Initiated arbitration against YPF in Argentina ICC¹ awarded the merits in favor of AES Uruguaiana in 2013 Next and final phase refers to the damages calculation Emergency operations in 2013, 2014 and 2015 to support reservoirs recovery in Brazil Looking for long-term solution Fast Facts Combined cycle gas turbine (CCGT) Capacity (MW) 640 MW Authorization expiration 2027 1 International Chamber of Commerce 15
Customer-focused Company, that provides electrical energy services Focus on offering integrated and high-added-value solutions to the electrical energy agents, industrial and commercial segments, based on AES Brasil strong capabilities and know-how Main Products - Commercial technical services - Consulting in energy efficiency - Construction and maintenance of substations and transmission lines - Commercial service: face-to-face service and debt collection - Affinities: insurance Over 5 years of operation 3 operational bases cities of Barueri, São Paulo and Itapecerica da Serra 92 vehicles 505 employees 16
Corporate governance Key for the investment decision Operational and Investment Management Committee: robust capital allocation process Corporate policy of Integrated Risk Management¹ monthly assessed by Companies Executive Officers and quarterly by Fiscal committee and Board of Directors Corporate governance manual; audit committee installed High level of commitment, with monthly Board of Directors meetings Listed at BM&FBovespa: ELPL3 and ELPL4: level II TIET11 (units): level II ISE Corporate Sustainability Index portfolio Tag along rights 1 Based on COSO_ERM and Brazilian Corporate Governance Institute models 17
Investment focused on power plants modernization Investment program totaled R$ 168 million in 2015 206 186 139 168 155 77 93 65 62 2012 2013 2014 2015 2015(e) 2016(e) 2017(e) 2018(e) 2019(e) Expected Actual Power plants modernization process, aiming for continuous improvement in operational conditions and ensuring availability in its generation plants 19
Investments and Best Practices in Asset Management, translates into outages reduction Unscheduled outages (%) 2.03 Best practices in asset management¹: 1.59 1.60 PAS 55 Certification 1.68 1.04 ISO 55001 Certification 1.31 1.35 0.79 0.35 0.28 0.25 0.25 2012 2013 2014 2015 Unscheduled Outage Rate EFOF² 1 - AES Tietê was the first Latin American company to receive the certification from the British Standards Institute 2 Equivalent Forced outage Factor - EFOF 20
Energy generation decrease reflects hydrology behavior in the country 127% Generated energy (MW average 1 ) 109% 104% Hydropower plants are dispatched by ONS² Dispatch are also related to hydrological conditions: Low hydrology translates into low generation levels 1,629 1,392 67% 848 71% 905 75% 848 1,169 2012 2013 2014 2015 4Q14 4Q15 Generation/Physical guarantee Generation - MWavg 1 Generated energy divided by the amount of hours; 2 National System Operator 21
Critical hydrological scenario over the last 2 years Historical Level of Brazilian Reservoirs (%) Max (%) 62 61 63 61 60 55 55 49 43 46 43 42 43 40 40 42 36 32 41 38 39 35 37 38 34 30 29 21 23 Historical data since 2001 90% 80% 70% 60% 50% 40% 30% 20% 10% Average Annual Inflow: 2001 2012 2013 2014 2015 2016 1 82% 87% 97% 81% 89% 100% 0% 2001 2012 2013 2014 2015 2016 44 23 40 43 29 28 29 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 20 22 Reservoirs (%) vs. Thermal Dispatch (GW avg²) 90% 18 80% 16 70% 14 60% 12 50% 10 40% 8 30% 6 20% 4 10% 2 0% 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Thermal dispatch Reservoirs Thermal dispatch Reservoirs 1 Data base: Mar/16; 2 Generated energy divided by the amount of hours. 22
Energy Reallocation Mechanism (ERM) for hydrological risk sharing 1) Equilibrium (GE 1 = PG 2 ) Buy at MRE 3 2A) Deficit (GE 1 < PG 2 ) Buy at MRE 3 Buy at Spot 2B) Surplus (GE 1 > PG 2 ) Sell at MRE 3 Buy at Spot A physical guarantee (assured energy) is assigned to support contracts Energy dispatch optimized by centralized system operator (ONS) on a tight pool PG 2 PG 2 PG 2 Key drivers for hydrological risk Generated Energy MRE Genco A Assured Energy Generated Energy MRE Genco A Assured Energy Generated Energy MRE Genco B Assured Energy Generated Energy (hydro) in the entire system (MRE) - influenced by hydrology Spot Price - marginal cost influenced by hydrology and thermal dispatch - System GSF = 1.0 - PPA = PG - System GSF < 1.0 - PPA = PG - System GSF < 1.0 - PPA = PG 1 GE: Generated Energy; 2 PG: Physical Guarantee; 3 Enough to cover variable O&M costs 23
Tight hydrology and lower system storage capacity requires more flexible generation Thermo São Paulo (503MW) and Thermo Araraquara (579MW) Storage capacity (months) 6.1 6.1 5.9 5.6 5.1 3.4 2001 2005 2009 2015 2019 2021 Actual Projection Current contracted energy is based on renewable (mainly Wind) and run-of-river hydro projects, which has reduced the energy storage capacity over the recent years. Source: ONS and AES 24
AES Brasil growth perspectives Natural Gas Power Plants ~1.5GW of dispatchable source 2 natural gas combined cycle power plants ready to go to energy auctions Renewable Energy Solar and Wind Peak generation: short-term dispatch solution Assessing M&A opportunities 180 MW solar project: ~150MW solar project: São Paulo and Minas Under development Gerais state (close to HPP AGV 1 ). To participate in 2016 energy auctions Assessing M&A opportunities 1 Existing AES Tietê hydroelectric power plant on the border of the states of Minas Gerais and São Paulo 25
In 2015, AES Eletropaulo was our main client Billed energy (GWh) +2% 2015 (%) Clients per net revenue +2% 15.123 15,797 1,932 545 11.1082,212 11,108 1.942 1.519 554 2013 2011 16.728 15,075 2,069 11.138 1,671 227 3.834 11,108 1.141 2014 2012 615 15.797 14,485 1,854 11.108 583 940 11,108 2.212 545 1.932 2015 2013 4,076 515 3,218 4Q14 3,814 305 471 37 544 0 2,799 4Q15 554 15.123 11.108 1.942 1.519 554 2011 16.728 11.138 1% 6% 3.834 1.141 2012 7% 615 15.797 11.108 2.212 545 1.932 2013 86% Eletropaulo MRE 1 Spot Other Bilateral Contracts Eletropaulo MRE 1 Spot Other Bilateral Contracts 1 Energy Reallocation Mechanism 26
Contracting environment and opportunities 2016 and beyond Regulated Market Free Market Spot Market Existing Energy Auctions Bilateral contracts Non contracted energy Via auctions organized by federal government Distribution companies Via bilateral agreements Free Consumers¹ Exposed to Spot Market price CCEE Settlement 1 Free Consumers (Conventional free consumer - demand above 3MW and connected to a line of 69kV and incentivized/ special free consumer - demand above 0.5MW) 27
Commercialization strategy post-2015 leveraging cash flow Our goal is to sell the major part of Company physical guarantee in the free market Customized energy with global experience Focus on long term contracts and off takers with a strong financial background aiming to ensure Company s cash flow Practices and policies to ensure an adequate risk-profile assessment Client relationship actions to promote AES Tietê and identify clients needs (i.e.: workshops, site visits, satisfaction surveys) 28
Free Market Dynamic and competitive market Avg energy price for 2016 (R$/MWh) Price formation methodology Price Expectation Year 2012 90 110 Short term Spot price (hidrology and reservoirs) 2013 100 120 Medium Term Supply and demand 2014 230 250 2015 170 Sep/15 200 250 1H15 290 Long Term Marginal Expansion Cost Regulated Market price 29
Commercialization strategy Consistent evolution of client portfolio Client portfolio 1 (MWavg) Contracting level Average price R$/MWh 3 100% 100% 100% 95% 88% 60% 26% 12% 194 206 218 151 152 157 151 149 63 151 498 1,268 1,268 1,268 1,181 1,093 918 1,092 746 326 152 2013 2014 2015 2016 2017 2018 2019 2020 Energy available for sale 2 Own energy already sold AES Eletropaulo PPA 1 Includes energy contracts firmed until February 23, 2016 ; 2 Excludes losses and internal consumption; 3 Average price (based on January/16) 30
Consistent annual results Net revenue (R$ million) Ebitda (R$ million) 3,205-18% 65% 29% 53% 2,626 2,337 1,525 +53% 1,402 887-28% 637 918 404 2013 2014 2015 4Q14 4Q15-37 2013 2014 2015 4Q14 4Q15 Ebitda Margin 31
And returns Net income (R$ millions) Minimum of 25% dividend payout of annual net income according to bylaws 881 +62% 726 Distribution practice: quarterly basis Average payout from 2008 to 2015: 99% Average dividends since 2008: R$ 822 million 449 per year¹ 233 AES Tietê's management proposed the payment of R$ 464 million in dividends for the 4Q15-76 R$ 726 million distributed in divididends in 2015 2013 2014 2015 4Q14 4Q15 1 from 2008 until 2015. 32
Low leverage level Net debt (R$ billion) Debt amortization schedule³ 1.2 335 399 1.1 0.5 161 235 261 0.6 4Q14 4Q15 2016 2017 2018 2019 2020 Net Debt/Adjusted Ebitda Net Debt Amortization (R$ million) Covenants Net debt/adjusted Ebitda 2 < 3.5x Adjusted Ebitda²/Financial Expenses > 1.75x Debt Cost 4Q14 4Q15 Average cost (% CDI) 1 106% 101% Average term (years) 2.18 2.96 Effective rate 13.6% 16.3% 1 Brazilian Interbank Interest Rate 2 Adjusted Ebitda (i) by the financial expenses/revenues and (ii) by the depreciation and amortization values to improve the reflection of the Company s operational cash generation 3 Principal and interest 33
and consistent cash flow R$ Million 4Q14 4Q15 2014 2015 Initial Cash 223 423 457 501 Operating Cash Flow (109) 409 1,187 1,248 Investments (41) (42) (173) (137) Net Financial Expenses (38) (93) (94) (162) Net Amortization 500 67 499 (233) Income Tax (33) (24) (483) (220) Free Cash Flow 279 317 936 496 Dividends and IoE - - (892) (257) FINAL CASH CONSOLIDATED 501 740 501 740 34
Capital markets A B Mar/2012: 4Q11 results above market expectations Sept/2012: announcement of the Energy Reduction Program, through the PM 579 4 AES Tietê x IEE x Ibovespa¹ C Feb/2013: High thermoelectric dispatch to conserve water in the reservoirs increase spot prices 130 A B C D E F G H I J D Aug/2013: 2Q13 results above consensus due to higher-than-expected spot prices 120 110 100 90 80 70 60 50 40 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 GETI4 GETI3 IEE IBOV TSR Market cap³: US$ 1.4 billion / R$ 5.5 billion BM&FBOVESPA: TIET3 (common shares); TIET4 (preferred shares) and TIET11 (units) Restricted ADR program (Reg S and 144A) E F G H I J Nov/2013: weak 3Q13 results affected by seasonality strategy Feb/2014: 4Q13 results slightly below consensus but market show high expectations on 2014 commercialization strategy May/2014: 1Q14 EBITDA above expectation benefited from seasonality strategy Jan/2015: Hydrology for rainy season worse than expected Jun/2015: Corporate Restructuring announced Dez/2015: Corporate Restructuring concluded 1 Base 100: from 01/01/2012 to 31/12/2015; 2 Total Shareholders Return; 3 Index: 23/02/2016; 4 Government program to reduce energy tariffs. 35
We have strong capabilities and business governance Asset Management - ISO 55001 certification, 1 st Generation company in America AES Tietê has been included in the ISE since 2007 Attractive returns to investors. Strong cash generation; Maximization of payout Cost efficiency and optimized capital allocation Established risk management capability 36
2015 investments focused on system expansion and customer service 831 35 796 2012 809 165 644 2013 Recursos de Terceiros Investments (R$ million) 583 604 73 82 510 522 2014 2015 Recursos Próprios¹ 3.533 392 3.141 2015-2019 (e) 130 19 111 4T14 68% 219 15 204 4T15 2015 Investments focused on: R$ 262.3 million in system expansion for the addition of new clients and focus on customer satisfaction R$ 136.3 million in operational reliability through the maintenance of 7,800 km distribution and transmission lines R$ 303 million additional investment between 2015 and 2017 towards Quality Indexes Recovery Plan¹ 1 - System Average Interruption Frequency Index (SAIFI) and System Average Interruption Duration Index (SAIDI) 38
Plan to recover the quality indexes already in place Quality Indexes Recovery Plan: R$ 303 Million of additional investments by the end of 2017 Hiring of 554 new people, being 273 electricians, 51 dispatch technicians and 230 technicians and supervisors SAIFI¹ (times) -2% SAIDI² (hours) -9% 5.28 6.41 6.29-17% 13.3 23.4 21.4-56% 0.70 0.58 3.7 1.6 2014 2015 Jan/16³ Jan/15 Jan/16 2014 2015 Jan/16³ Jan/15 Jan/16 Aneel s Reference - 2014: 6.36 times / 2015: 5.95 Aneel s Reference - 2014: 8.29 hours / 2015: 8.06 1 - System Average Interruption Frequency Index; 2 - System Average Interruption Duration Index 3 - Last twelve months (jan/16 to fev/15) 39
Efficiency in losses reduction over the last four years 11.5 10.5 10.1 9.7 9.5 10.5 6.5 4.0 10.2 6.1 4.1 10.0 6.1 3.9 9.7 6.1 3.6 9.4 5.7 3.7 6.4% reduction in technical losses between the 2014 and 2015 and total losses within regulatory limits 2011 2012 2013 2014 2015 Aneel Reference¹ Technical losses² Non-technical losses 1 Aneel benchmark with standardized values for the calendar year; 2 - Values estimated by the Company to Aneel reference for non-technical losses of the low voltage market 40
Large concession area 45,557 7,987 Total Market 1 (GWh) -4.7% 46,216 46,416 8,742 8,589 44,237 8,058 AES Eletropaulo concession area consists of a mature market, representing approx. 16% of national GDP 2 State of São Paulo total market reduced 4.2% in 2015³ 37,570 37,474 37,827 36,179 2012 2013 2014 2015 Free Clients Captive Market 1 Own consumption not included; 2 Source: IBGE, 2012; 3 nov/15 and dec/15 are preliminary 41
Consumption expansion is mostly in residential and commercial classes Consumption by class ¹ 28% 36% 19% 33% 37% 21% 16% 9% Brazil AES Eletropaulo Residential Commercial Industrial Other 1 2015 (Own consumption not included) Source: EPE. 42
Residential Class consumption in line with São Paulo state real income GWh R$ 4,500 2,400 2,300 4,000 3,500 3,000 2,500 2007 2008 2009 2010 2011 2012 2013 2014 Real Income (SP) Residential Consumption 2,200 2,100 2,000 1,900 1,800 1,700 1,600 1,500 9M15 Residential consumption per client grew an average of 0.9% in the last 8 years¹ 1 base date: 2007-2014 43
Industrial class consumption tied to the industrial production growth in the state of São Paulo 0,2 0,1 0 Industrial class X Industrial production in SP¹ Economic crisis Economic recovery Economic crisis Economic crisis Industrial consumption impacted by lower industrial production in Brazil Consumption focused on more resilient segment (residential and commercial classes) -0,1-0,2 Industrial Production in SP (% 12 months) Industrial consumption AES Eletropaulo (% 12 months) 1- São Paulo metropolitan area. Information until August 2015. 44
Gross revenue 62% greater in 2015 mainly due to tariff readjustment and extraordinary tariff resets Gross revenue (R$ million) +62% Costs and Costs Expenses (R$ million) (R$ million) +27% 15,314 15,158 831 12,611 583 864 5,355 809 3,968 3,599 9,128 8,203 9,743 24,565 2,109 10,898 10,948 611 8,553 1,670 6,883 7,474 1,640 5,834 9,501 1,621 7,880 12,093 2,209 9,884 2012 2013 Regulatory Assets and Liabilities Construction Revenue 2014¹ 2015¹ Deductions to Gross Revenue Net Revenue (ex-construction revenue) 2012 2013 Opex (ex-construction costs) 2014 2015 Energy costs and sector charges 1- Adjusted by regulatory assets and liabilities 45
23% reduction of the Adjusted Ebitda mainly due to non manageable and non recurrent expenses Adjusted Ebitda 1 (R$ million) Adjusted Net Income (Loss) 2 (R$ million) 575 780 513 964 55 198 (132) 101 758 1,138 1,556 1,200 248 402 49 2012 2013 2014 2015-96 2012 2013 2014 2015 Adjusted Ebitda Reported Ebitda Adjusted Net Income (Loss) Reported Net Income (Loss) 1 - EBITDA adjusted by expenses related to Pension Plan, regulatory assets and liabilities and possibly inexistent asset. 2 Net income (loss) adjusted by regulatory assets and liabilities 46
Cost management projects generated R$ 1 billion¹ in savings until 2014 1 st wave - 2007-2010 2 nd wave 2010-2012 3 rd wave 2013-2015 Headcount reduction Support functions centralization - shared services Overhead reduction - management and contracts renegotiation Leadership headcount reduced by 44% from 2008 to 2013 Currently operating at the same PMSO level as in 2007 while every quality indicators have improved Benchmark approach Process review and IT tools to increase performance Development of strategic sourcing capability Continuous overhead reduction Administrative and operational activities centralized in a new site Real Estate Plan: sale of assets and maximization of occupancy rate Efficiency gains through process transformation and IT tools integration Cost management and innovation as part of the Company s culture Consider the total cost of ownership for CAPEX/OPEX allocation decisions Sustainability driving value (e.g., ABS initiative with suppliers) 1 Nominal total from 2007 until 2014 FY. Includes recurring and non-recurring reductions and the avoidance of cost increases 47
Operational cash flow generation Cash Flow - R$ Million 2014 2015 Var. Initial Balance of Cash 974 909 (65) Operating Cash Flow 752 571 (181) Investments (501) (634) (133) Net Financial Expenses / Net Amortization (53) (36) 17 Pension Fund Expenses (210) (195) 15 Income Tax (49) (106) (57) Restricted Cash 65 21 (44) Free Cash 4 (378) (382) Dividend and Interest on Own Capital (69) - 69 Final Balance of Cash 909 531 (378) 48
Leverage level within financial covenants Net debt (R$ billion) Amortization Schedule (R$ million) 3.00 3.7 2.50 3.4 2.70 3.5 3.00 3.8 3.40 4.3 3.47 4.4 Fundação Cesp - FCesp National currency (w/o Fcesp) 3,084 2,294 3Q14 4Q14 Net Debt (R$ billion) 1Q15 2Q15 3Q15 Net Debt/Adjusted Ebitda¹ Covenants within the limits: Net Debt/Adjusted Ebitda < 3.5x Adjusted Ebitda/Financial Expense > 1.75x 4Q15 1,074 357 401 716 683 2016 1,084 2017 1,242 376 865 2018 859 354 505 2019 Debt Cost 2014 2015 Average cost (CDI +) 1.43 % 1.80% Average term (years) 5.36 4.63 Effective rate² 13.25% 15.25% 790 2020-2028 1 EBITDA adjusted by expenses related to pension plan and regulatory assets and liabilities; 2 Average rate during the period 49
Capital markets AES Eletropaulo x IEE x Ibovespa¹ 120 100 80 60 40 20 0 A B C D E F G H I Jan-12Mar-12May-12 Jul-12 Sep-12Nov-12Jan-13Mar-13May-13 Jul-13 Sep-13Nov-13Jan-14Mar-14May-14 Jul-14 Sep-14Nov-14Jan-15Mar-15May-15 Jul-15 Sep-15Nov-15Jan-16 ELPL4 IEE IBOV TSR A B C D E F G H I Apr/2012: Aneel announced 3PTRC proposal (tariff cut of 8.81%) Jul/2012: Aneel announced official 3PTRC (tariff cut of 9.33%) lowering dividend payout expectations Dec/2012: Court deems Eletropaulo liable for Eletrobras lawsuit. Eletropaulo appealed the decision. Feb/2013: 4Q12 EPS affected by energy costs and regulatory charges Jul/2013: Low tariff adjustment due to payment of 2/3 of 3PTRC Bubble Aug/2013: 2Q13 results above expectations. Efficiency in cost reduction. Jul/2014: Tariff readjustment approved by ANEEL including 50% of cable restitution May/15: 4 th Tariff Reset Cycle preliminary numbers released July/15: 4 th Tariff Reset Cycle final numbers released Market cap³: US$ 0.4 billion/r$ 1.6 billion BM&FBOVESPA: ELPL3 (common shares) and ELPL4 (preferred shares) ADRs at US OTC Market: EPUMY (preferred shares) 1 Base 100: from 01/01/2012 to 02/24/2016; 2 Electric Power Index; 3 Index: 02/24/2016 50
We have strong capabilities and corporate governance AES Corporation and BNDES as major shareholders: long-standing reputation in the market Consumption focused on more resilient segment (residential /commercial market) First power distribution company in the Americas to obtain ISO 55001 certification of the Asset Management Program 2015-2019 investment plan of R$ 3.5 billion mainly focused on customer services and better quality indicators Efficiency on recognizing investments on the RAB 51
Brazilian Opportunities and recent events
Brazilian Energy Matrix and perspectives Brazilian Energy Matrix¹ Governmental Expansion Plan 206 14% 21% 133 140 7 165 172 150 158 17 25 33 39 74 65% 133 133 133 133 133 133 2014 2015 2016 2017 2018 2019 2024 Hydro Renewable³ Thermal Additional Capacity by PDE² Current Installed Capacity Energy matrix based on hydropower plants Thermal source is responsible for system reliability Expansion based mainly on renewable and run-of-river hydropower plants 1 ANEEL database (11/16/2015). 2 Energy development plan (PDE 2014-2024) numbers are under public consultation; 3 Includes Biomass, Wind and Solar sources 53
Recents events and in course in the energy sector GSF Generation Scaling Factor Tariff Flags 3.0 18% of red flag reduction Third Tariff Reset Cycle Squeeze Discos EBITDA margin Fourth Tariff Reset Cycle Financial sustainability MP 579 / Law 12,783 18% of tariff reduction encouraged consumption Extraordinary tariff review 23,4% average increase Hydrological challenges Discos cash flow mismatch Tariff Flags 2.0 83% Red Flag increase Tariff Flags Assist with cash flow mismatch Government funding mechanism CDE and CCEE Loan 54
Appendix 55
Tariff methodology for distributors Tariff Reset is applied each 4-5 years AES Eletropaulo next Tariff Reset: Energy Purchase Transmission Sector Charges Parcel A Costs Non-manageable costs passed on through to the tariff Incentives to reduce costs Jul/2019; AES Sul next Tariff Reset: Apr/2018 Parcel A: costs are passed on Regulatory Opex (PMSO) Regulatory Opex Efficient operating cost determined by ANEEL through to the tariff Parcel B: costs are set by ANEEL Annual Tariff Adjustment Remuneration Asset Base X WACC X Depreciation Investment Remuneration Depreciation Remuneration Asset Base Prudent investments used to calculate the investment remuneration (applying WACC) and depreciation Parcel A: costs are passed on through to the tariff Parcel B: costs are adjusted Remuneration on Special Obligations Special Obligations Recognition of the opportunity cost of equity capital over third party investments by IGPM +/- X Factor¹ Regulatory Ebitda Parcel A - Non-Manageable costs Parcel B - Manageable costs 1 X Factor: index that capture productivity gains 56
X Factor methodology X Factor = Pd + Q + T Definition Distribution productivity Quality of service Operational expenses trajectory Objective Capture productivity gains Stimulate improvement of service quality Implement operational expenses trajectory Application Defined at Tariff Reset, considers the average productivity of the sector adjusted by market growth and consumption variation Defined at each Tariff Readjustment, considers variation of SAIDI and SAIFI and comparative performance of discos. Includes commercial indexes Defined at Tariff Reset, makes the transitions to operational costs verified in the last 12 months to the one set in the benchmarking models 57
4 th Tariff Reset Cycle Parcel A + Financial Components 13.96% Annual impact R$ million R$ 1,936m Energy CVA including FX rate variation associated with Itaipu CDE charge increase (loans and CDE share) Reduction of AES Tietê s energy participation due to end of contract in Dec/15 Involuntary exposure in 2015 Parcel B 1.27% R$ 176m WACC of 8.09% Special Obligations remuneration Opex adjusted to match the concession area s reality Tariff Reset Effect 15.23% R$ 2,112m 58
Breaking down the Parcel B Remuneration (RAB) Depreciation R$ 732m R$ 458m Net RAB of R$ 6.0 billion WACC of 8.09% Gross RAB of R$ 12.2 billion Depreciation Rate of 3.75% Special Obligations R$ 39m Remuneration of 3.34% Annuity (Other Assets) R$ 134m Remuneration and depreciation of IT, vehicles and administrative assets Operational Expenses R$ 1,373m Xt Factor of -2.37%; Inclusion of labor liabilities, São Paulo salaries and underground network Bad Debt R$ 198m 0.85% of bad debt, considering Tariff Flag revenues Other Revenues - R$ 88m ~60% of non-distribution revenues Productivity Gains - R$ 33m Xp Factor of 1.13% Parcel B R$ 2,812m 59
Ranking of distribution tariffs in Brazil Tariff excluding tax (R$/KWh) COELBA 0.389 Boa Vista 0.407 COELCE 0.418 CPFL-Paulista 0.419 ELETROACRE 0.425 ELETROPAULO 0.436 CELESC-DIS 0.444 RGE 0.447 AES-SUL 0.480 COPEL-DIS 0.492 BANDEIRANTE 0.500 CEMIG-D 0.509 ELEKTRO 0.510 CPFL- Piratininga 0.511 CELPA 0.525 LIGHT 0.543 Ranking (out of 64) 4 6 11 13 15 16 20 22 36 40 42 45 46 47 51 55 Source: Aneel website. Tariffs as of January/2016. 60
Abradee s ¹ Ranking AES Eletropaulo 2007 2008 2009 2010 2011 2012 2013 2014 14º 8º 6º 9º 8º 5º 9º 8º AES Sul 2007 2008 2009 2010 2011 2012 2013 2014 10º 11º 8º 6º 5º 7º 2º 16º 1 Association of Brazilian electricity distributors 61
Latin America s most modern distribution and subtransmission operations center allows efficiency gains Modern layout maximizes the dispatch efficiency and decision making during the outage power restoration Integration of DOC 1 and SOC 2 technicians into a modern and collaborative workplace: enabling to rearrange positions at any time optimizing the use of resources improving operational efficiency encouraging a multifunctional profile 1 Distribution Operating Center; 2 Subtransmission Operating Center 62
Modern and integrated systems contributes to the best allocation of resources Integrated and automated systems allow the monitoring of sub-transmission and distribution grid and the best allocation of resources for operational efficiency gains State of the art in technologies for management of events and teams, providing a global vision of emergency teams location throughout the concession area Service orders transmission through data devices, dispatching service teams that are closer to the location, minimizing attendance time Innovative technology for forecasting and monitoring of summer rains, strategically located in the Company s substations anticipating the resources allocation 63
AES Brasil Investor Relations Ave. Dr. Marcos Penteado de Ulhôa Rodrigues, 939-7th floor Barueri - SP Brazil ZIP: 06460-040 Websites: http://ri.aeseletropaulo.com.br/ http://ri.aestiete.com.br/ Phone: + 55 11 2195-7048 Fax: + 55 11 2195-1004