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STRONG CASH GENERATION AND PROGRESS IN GROWTH STRATEGY
The third quarter 2018 was highlighted by the Company’s strong cash generation. Regulatory net operating revenue amounted to BRL 606 million, regulatory adjusted EBITDA was BRL 517 million with a margin of 85.3%. ISA CTEEP’s
regulatory net income was BRL 191 million. The Annual Allowed Revenue (“RAP”) for the 2018/2019 Cycle impacted
3Q18 results due to the accounting of the Adjustment Installment (“AI”) in the quarter and the new flow of RBSE receivables. The net income was impacted by the growth of financial expenses due to the variation of the debt level, a
reflection of the issuances emitted during the quarter to take advantage of market opportunities and competitive costs.
ISA CTEEP monitors its business based on the following management pillars: Operations and Maintenance, Projects, Subsidiaries, Regulation, Legal and Growth. These pillars are built on a business strategy with sustainability as the end
goal, the Company reporting levels of excellence for each one.
In Operations and Maintenance, the goal is to develop activities with efficiency, quality and safety. In 3Q18,
efficiency levels, which for many years have made ISA CTEEP a benchmark in the electric energy sector, were maintained.
The Company has presented organic growth with reinforcements and improvements Projects designed to guarantee quality in the transmission service. In 3Q18, investments amounted to BRL 48 million. For sustainable growth, efforts have been directed
to reach, continuously, efficiency with profitability.
At the end of 3Q18, ISA CTEEP concluded the acquisition of one of its Subsidiaries, IE Sul. As a result of this operation, the Company now detains 100% of its capital stock. In the consolidated 3Q18 income statement, the result is accounted for as
equity income. Starting in October of 2018, the subsidiary will be fully consolidated in ISA CTEEP’s results.
The goal of actively participating in Regulation consists in ensuring economic-financial equilibrium of the concession
agreements based on the binomial of encouraging a competitive business environment and providing benefits to society. The Company has been contributing in improving the tariff review process, postponed to 2019, seeking fair
values for RAP of Operation and Maintenance, and WACC (“Cost of Equity”) of projects and BRR (“Regulatory Remuneration Base”), so necessary conditions are available for investments and excellence in operations. In 3Q18, the
Company sent its contributions to Public Consultation no 015/2018 regarding the methodology and update of WACC for the
segments of energy distribution, transmission and generation and, in October, sent contributions for Public Hearing nº 41/2017 - 3rd phase. The mentioned documents regarding the tariff review process are available on the Company’s IR
Website (www.isacteep.com.br/ri).
In the Legal area, the Company obtained favorable decisions in the Administrative Board of Fiscal Resources (“CARF”) for 2 cases that discuss operation of the privatization’s goodwill, with a risk of ~BRL 260 million involved.
As for the Growth pillar, the Company is working on 10 new projects for which it successfully bid at auctions and representing
a commitment to an investment of approximately BRL 2.9 billion in the domestic electricity grid and expansion of 30% in the
existing RAP (“ex-RBSE”). In the period, BRL 29 million were invested in these new subsidiaries. During 3Q18, the Company signed concession agreements relative to the lots for which successful bids were made in June at the ANEEL Transmission
Auction 02/2018. Additionally, in September, construction work begun on the IE Tibagi and IE Itaúnas projects.
Connections that inspire the ISA CTEEP team and generate value over time.
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São Paulo, October 29, 2018 – ISA CTEEP - Companhia de Transmissão de Energia Elétrica Paulista (“ISA CTEEP”, “Company”, B3: TRPL3 and TRPL4), announces its results for the third quarter of 2018 (3Q18) and the first nine months of the year (9M18). The Regulatory Results are shown in accordance with the Manual of the Electric Sector’s Accountability (MCSE) with the purpose of assisting the understanding of the Company’s business. Additionally, the information has been prepared in accordance with Brazilian Securities and Exchange Commission (CVM) standards and the applicable Accounting Statements Committee (CPCS ) announcements and in accordance with international accounting standards (IFRS) issued by the International Accounting Standard Board (IASB) in the “Attachments” section of this document .
Main Regulatory Indicators
(BRL million) 3Q18 3Q17 9M18 9M17
Net Revenue 605.9 551.3 2,077.6 1,082.2
Adjusted EBITDA¹ 517.1 480.5 1,884.0 891.0
Adjusted EBITDA Margin 85.3% 87.2% -1.8 b.p. 90.7% 82.3% 8.3 b.p.
Net Income 191.5 230.9 839.2 399.0
Net Margin 31.6% 41.9% -10.3 b.p. 40.4% 36.9% 3.5 b.p.
ROE² 14.7% 5.9% 8.7 b.p. 14.7% 5.9% 8.7 b.p.
110.3%
92.0%
111.4%
Chg (%)
Consolidated
² Considers the amount value of the last 12 months
-17.0%
Chg (%)
9.9%
7.6%
¹ Excludes equity income and other non recurring effects and includes the EBITDA (proportional to its participation in affiliates) with the
objective of presenting a more adequate vision of the Company's operational cash generation.
10.30.2018
Connection Data:
Other Countries: +1 646 828-8246
Rinaldo Pecchio
Michelle Lourenço Corda
Lúcia de Luiz Cesari
Gabriela Rigo Bussotti
Investor Relations Contacts
Phone number:
+55 11 3138-7557
E-mail:
3Q18 Conference Call
10:00 a.m. (BRT) / 9:00 a.m. (EDT)
Brazil: +55 11 3193-1001 / +55 11 2820-4001
Password: ISA CTEEP
Link for webcast available on Investor Relations website: www.isacteep.com.br/ir
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INDEX
1. ISA CTEEP
1.1 ISA CTEEP 5
1.2 Shareholder Composition 6
1.3 Corporate Structure 7
1.4 Growth & Innovation 7
2. Operational Peformance 10
3. Financial Performance 10
3.1 Annual RAP Readjustment 10
3.2 Operational Revenue 12
3.3 O&M Costs and Expenses 13
3.4 Equity Income 14
3.5 EBITDA and Margin 15
3.6 Financial Results 16
3.7 Net Income 16
3.8 Comparison of Results (Regulatory vs. IFRS) 17
4. Proceeds 18
5. Debt 18
6. Investments 19
7. Capital Market 20
8. Events during the Period 20
9. Subsequent Events 22
10. Other Relevant Information 22
10.1 Concession Renewal - Contract 059/2001 (RBNI/RBSE) 22
10.2 Supplementary Retirement Plan – Law 4.819/58 23
11. Forthcoming Events 25
12. Attachaments 26
* Results in Excel spreadsheet available on the Investor Relations Website
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ISA CTEEP
ISA CTEEP is the largest private sector company in the Brazilian electricity sector and is part of the National
Interconnected System (“SIN”) which incorporates the Brazilian electricity grid as a whole (with the exception of some
isolated systems) and serves approximately 99% of the system’s total load. Through its activities and its wholly- and jointly-owned subsidiaries, ISA CTEEP is present in 17 states in the country, transmitting approximately 25% of all
electricity produced in Brazil, 60% of the energy consumed in the Southeast region and nearly 100% of the energy in the state of São Paulo.
The coordination and control over the operations of the Company’s installations, and all the electricity generation and transmission infrastructure of the SIN, is the responsibility of the National Electric Energy System Operator (“ONS”),
subject to the inspection and regulation of the National Electric Energy Agency (“ANEEL”).
On September 30, 2018, the installed transformation capacity of the Company (controller, controlled and affiliates) was 65.5 thousand MVA, 18.6 thousand kilometers of transmission lines, 25.8 thousand kilometers of circuits and 126
substations of up to 550 kV.
In the light of an increasingly demanding market and its position in a major consuming center of the country as a whole,
over the past 10 years, the Company has invested about BRL 10 billion in the expansion of the system and in the
application of technologies which are capable of adding value to the operating and maintenance activities, guaranteeing efficiency and quality in the rendering of its transmission services.
Under construction
Substation under construction
Line Entrance
TransmissionLines (TL)
In operation
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Shareholder Composition
Controlled by ISA, a multi-latin, linear infrastructure systems company, ISA CTEEP has among its investors, Eletrobras,
the largest Brazilian electric energy group.
Shareholders TRPL3 % TRPL4 % Total %
ISA Capital do Brasil 57,714,208 89.5% 1,286,132 1.3% 59,000,340 35.8%
Free Float 6,770,225 10.5% 98,950,261 98.7% 105,720,486 64.2%
Eletrobras 6,289,661 9.8% 52,005,758 51.9% 58,295,419 35.4%
Others 480,564 0.7% 46,944,503 46.8% 47,425,067 28.80%
Total 64,484,433 100% 100,236,393 100% 164,720,826 100%
Of the Company’s shares, approximately 51% are held by domestic shareholders and 49% belong to foreign investors.
United States of America7%
Brazil51%
Europe5%
Luxembourg: 2% of the Float Norway: 1% of the Float Great Britain: 1% of the Float France: 1% of the Float
Singapore1%
Colombia*36%
* Considers the stake of Isa Capital do Brasil, an investment vehicle of ISA Colombia for the acquisition of ISA CTEEP.
Distribution of Total Capital on 09/30/2018
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Corporate Structure
ISA CTEEP’s corporate structure includes its wholly- and jointly-owned subsidiaries as shown below:
RAP ISA CTEEP
Cycle 2018/2019
(BRL million)
ISA CTEEP Operational São Paulo 2,421 2,421 ISA CTEEP 100% Fully consolidated
IE Madeira Operational Rondônia / SP 497 253 ISA CTEEP 51% / Furnas 24,5% / Chesf 24,5% Equity method
ERB1 Under construction Paraná 267 134 ISA CTEEP 50% / TAESA 50% Equity method
IE Paraguaçu Under construction Bahia / MG 107 53 ISA CTEEP 50% / TAESA 50% Equity method
IE Garanhuns Operational Pernambuco 87 44 ISA CTEEP 51% / Chesf 49% Equity method
IE Aimorés Under construction Minas Gerais 71 36 ISA CTEEP 50% / TAESA 50% Equity method
IE Pinheiros Operational São Paulo 54 54 ISA CTEEP 100% Fully consolidated
IE Serra do Japi Operational São Paulo 60 60 ISA CTEEP 100% Fully consolidated
IE Aguapeí Under construction São Paulo 54 54 ISA CTEEP 100% Fully consolidated
IE Itaúnas Under construction Espírito Santo 47 47 ISA CTEEP 100% Fully consolidated
IE Itaquerê Under construction São Paulo 46 46 ISA CTEEP 100% Fully consolidated
IENNE Operational Tocantins 44 44 ISA CTEEP 100% Fully consolidated²
IE Biguaçu¹ Under construction Santa Catarina 38 38 ISA CTEEP 100% Fully consolidated
IE Tibagi Under construction SP / Paraná 18 18 ISA CTEEP 100% Fully consolidated
IE Sul Operational Rio Grande do Sul 18 9 ISA CTEEP 100% Fully consolidated³
IEMG Operational Minas Gerais 18 18 ISA CTEEP 100% Fully consolidated
Evrecy Operational Espírito Santo 7 7 ISA CTEEP 100% Fully consolidated
IE Itapura - Bauru Under construction São Paulo 11 11 ISA CTEEP 100% Fully consolidated
IE Itapura - Lorena¹ Under construction São Paulo 10 10 ISA CTEEP 100% Fully consolidated
Total 3,876 3,358
ConsolidationLocation
RAP Cycle
2018/2019
(BRL million)
Share (%)
¹ Lots acquired at the ANEEL Transmission Auction 02/2018; ² Fully Consolidated from September 2017; ³ Fully Consolidated from September 2018
Growth & Innovation
In an environment of rapid transformation of the electric sector, innovation is key to success. Consequently, the Company continues to seek improvements in processes and absorb new technological resources as well as identify
opportunities in new businesses with long term perspectives. Our innovation projects are focused in raising operational efficiency and higher profitability with business with the incorporation of intelligent digital processes based on
technological platforms. In this line, in partnership with universities and startups, projects were developed to use drones in the inspection of assets, projects for the incorporation of algorithms of artificial intelligence to give higher efficiency
and safety to operation centers, and intelligent systems are being developed for the sustainable management of
thousands of kilometers of ISA CTEEP’s transmission lines. Other innovation projects seek growth incorporating new products and business models, and are creating abilities to explore opportunities in businesses open to innovations in the
sector, like energy storage projects, that were developed to incorporate technology to the Interconnected National System (“SIN”) and will supply important transmission service, making ISA CTEEP a protagonist in the radical
transformation that the sector will go through.
Additionally, ISA CTEEP is constantly evaluating opportunities in the market for its growth and has progressed. The Company’s strategy consists of expanding its presence in national territory through auctions and/or acquisitions with
synergies in existing operations.
In line with its growth strategy and in accordance with the Material Fact published on April 6, 2018, ISA CTEEP signed a
Share Purchase Agreement with Cymi Construções e Participações S.A. (“CYMI”) to acquire 50% of the capital stock in Interligação Elétrica Sul A.A. (“IE SUL”). In September of 2018, the operation was concluded for a total of BRL 20
million, the Company now owns 100% of the subsidiary.
In the last two years, the Company has bid successfully for ten lots in ANEEL’s transmission auctions which will add a further 1.3 thousand kilometer extension to its transmission lines and an equivalent in capacity of 7.5 thousand MVA to
its portfolio. The new projects amount to an estimated CapEx of BRL 2.9 billion, representing an increase in RAP of approximately BRL 447 million, once all assets are operational.
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The evolution of the projects is in line with the challenging estimated budget and schedule, which considers a reduction in CapEx and the anticipation of the entry into operations ahead of the ANEEL’s estimated schedule.
The IE Itapura and IE Itaquerê subsidiaries began their construction work in the months of May and July 2018, according to schedule. IE Tibagi and IE Itaúnas subsidiaries began their construction work in September of 2018.
IE Paraguaçú
(Lot 3) 50%
Bahia
Minas Gerais255 0.0% 53 Real Profit Feb/17 Feb/22 Jan/192 3Q19 -
IE Aimorés
(Lot 4)50% Minas Gerais 171 0.0% 36 Real Profit Feb/17 Feb/22 Jan/192 3Q19 -
IE Itaúnas
(Lot 21)100% Espírito Santo 298 25.1% 47 Presumed Profit Feb/17 Feb/22 Jul/18 Sep/186
ERB1
(Lot 1)50% Paraná 968 33.2% 134 Real Profit Aug/17 Aug/22 Feb/213 1Q20 -
IE Tibagi
(Lot 5)100%
São Paulo
Paraná135 32.2% 18 Presumed Profit Aug/17 Aug/21 Jan/17 Sep/18
IE Itaquerê
(Lot 6)100% São Paulo 398 44.5% 46 Presumed Profit Aug/17 Aug/21 Jun/18 Jul/18
IE Aguapeí
(Lot 29)100% São Paulo 602 52.7% 54 Presumed Profit Aug/17 Aug/21 Dec/21 1Q19 -
IE Itapura
(Lot 25)100%
São Paulo
(Bauru)126 57.6% 11 Presumed Profit Aug/17 Feb/21 Jan/20 May/18
IE Itapura
(Lot 10)100%
São Paulo
(Lorena)238 73.9% 10 Presumed Profit Sep/18 Sep/22 Sep/214 N/A5 -
IE Biguaçu
(Lot 1)100% Santa Catarina 641 66.7% 38 Presumed Profit Sep/18 Sep/23 Sep/214 N/A5 -
3,831 447
¹ According to concession contract
² Conditioned to Lot 2 (Alupar)
³ To receive the totality of RAP4 According to draft of concession contract5 Does not require Environmental License
Initation of
Construction
Auction
05/2016
04/24/2017
6 IE Itaúnas is formed of the implantation of tarnsmission line 345 kV Viana 2 (ES) - João Neiva 2 (ES), the construction of new substation 345/138 kV João Neiva 2, and the expansion of substation 345 kV Viana. The Company
begain its construction work of substation Viana. The installment license for the Transmission Line and the João Neiva 2 Substation still has not been issued
Total
Profit RegimeContract
signature
Implementation
Deadline ANEEL
Environmental
License (LI)Auctions Subsidiaries
% ISA
CTEEPLocation
ANEEL CAPEX
ISA CTEEP
Participation
(BRL MM)
RAP ISA
CTEEP
(BRL MM)
Auction
02/2018
06/29/2018
Discount Necessity Date¹
Auction
03/2015¹
10/28/2016
IE Paraguaçu The project is located in the states of Bahia and Minas Gerais and is formed by the implementation of the 500 kV (338 km) transmission line, which will link the Poções III substation with the Padre Paraíso 2 substation, constituting a second
circuit between these substations. In October 2018, the transmission company obtained a Preliminary Environmental License (LP) for the operation, issued by Brazilian Institute of the Environment and Natural Resources (“IBAMA”).
IE Aimorés The project is located in the state of Minas Gerais and formed by the implementation of the 500 kV transmission line (208
km), which will link the Padre Paraíso 2 substation with the Governador Valadares 6 substation, constituting the second circuit between these substations. In October 2018, the transmission company obtained a Preliminary Environmental
License (LP) for the operation, issued by IBAMA.
IE Itaúnas The project is located in the state of Espírito Santo and formed by the installation of the 345 kV transmission line (79 km) which will link the 345 kV Viana 2 substation to the João Neiva 2 substation, the construction of the new 345/138 kV João
Neiva 2 substation, and the expansion of the 345 kV Viana 2 substation. The subsidiary began construction work on the
Viana 2 substation in September 2018, although the installation licenses for the Transmission Line and the João Neiva 2 substation have still not been issued.
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ERB1 The project is located in the state of Paraná and formed by the installation of approximately 600 km of double circuit
transmission lines, of which 515 km of the 525 kV Foz do Iguaçu - Guaíra, Guaíra – Sarandi, Londrina – Sarandi and Sarandi – Londrina TLs, and 85 km of the 230 kV Sarandi – Paranavaí Norte TL; as well as 3 substations (Guaíra 525/230
kV – 1,344 MVA of installed capacity, Sarandi 525/230 kV – 1,344 MVA of installed capacity and Paranavaí Norte 230/138
kV – 300 MVA of installed capacity).
In September 2018, the subsidiary received a Preliminary License issued by the Paraná Environmental Protection Agency (“IAP”) with respect to the 230 kV installation, incorporating the 230 kV Sarandi - Paranavaí Norte TL, the Paranavaí Norte
230/138 kV substation and the Sarandi 525/230 kV substation.
IE Tibagi The project is located in the states of São Paulo and Paraná and was formed for the installation of a transmission line (18 km) of 230 kV Nova Porto Primavera (SP) – Rosana (PR) and the 230/138 kV Rosana substation, which will link up to the
Nova Porto Primavera substation. The subsidiary received an Installation License from the IBAMA in July 2018 and began
work in September 2018.
IE Itaquerê The project is located in the state of São Paulo and was formed by the installation of three 500 kV (-180/+300) MVAr
synchronous compensators in the Araraquara 2 substation (already in existence and operated by State Grid). The
installation of this equipment in the substation ensures benefits to the SIN as a whole and more especially, voltage control for the 440 and 500 kV systems in the state of São Paulo. The subsidiary began work in July of 2018.
IE Aguapeí The project is located in the state of São Paulo and was formed for the installation of the Baguaçu and Alta Paulista 1,400
MVA capacity substations, 107 km of 440 kV transmission line from the Alta Paulista substation to the section circuit breaker of the Marechal Rondon – Taquaruçu transmission line and the stretch of 440 kV transmission line from the
Baguaçu substation to the section circuit breaker of the Ilha Solteira – Bauru transmission line.
IE Itapura The project is located in the state of São Paulo and was formed by the installation of a 440 kV (-125/+250) MVAr static compensator in the Bauru substation (already existing). The installation of this equipment in the substation guarantees
benefits for the SIN as a whole and especially voltage control in the 440 kV network of the state of São Paulo. Work began
in May 2018.
Lot 10 of the 02/2018 transmission auction was incorporated in this SPE. The project consists of the installation of a 440kV substation with a maximum capacity of 1,200 MVA in the city of Lorena, state of São Paulo.
IE Biguaçu
The project is located in the state of Santa Catarina and is formed by the implementation of the 230/138 kV Ratones substation with a capacity of 300 MVA, expansion of the Biguaçu substation (already existing), as well as the construction
of the 57 km transmission line between the Biguaçu substation (existing and operated by Eletrosul) and the 230
kV Ratones substation, the line including overhead, seabed and underground stretches.
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OPERATIONAL PERFORMANCE
ISA CTEEP is a benchmark in the sector in terms of performance and constantly pursues improved levels of efficiency,
closely tracking operating indicators. Among these, of particular importance is the Index of Not Supplied Energy (“IENS”),
representing the percentage between total amount of energy not supplied during all events in the year and total energy demanded that was supplied by the Company. In 9M18, IENS totaled 2.26 x10-6.
ISA CTEEP is remunerated according to the uptime of its assets through the RAP. This means that any downtime may incur a loss of RAP through a discount to verified revenue (Variable Parcel – PV).
FINANCIAL PERFORMANCE (Regulatory Results)
Annual RAP Readjustment
Ratification Resolution (REH) 2,408 was published on June 28, 2018 establishing new RAPs for ISA CTEEP and its subsidiaries based on the uptime of the transmission installations to members of the Basic Network and of the Other
Transmission Installations for the 12 month cycle comprising the period from July 1, 2018 and June 30, 2019 (2018/2019 cycle).
Pursuant to REH 2,408, the RAP and the amounts corresponding to the adjustment installment of ISA CTEEP’s Agreement 059/2001, net of PIS and COFINS, was set at BRL 2,421.1 million for the 2018/2019 cycle compared with
BRL 2,428.0 million for the preceding cycle. The breakdown of the RAP for this cycle may be explained by:
i. monetary restatement1 of the 2018/2019 cycle (IPCA) totaling BRL 70.0 million which includes the restated amount of BRL 44.2 million on an installment of the RBSE receivables;
ii. operational startup of new reinforcement and improvement projects during the 2017/2018 cycle adding a further BRL 60.5 million to RAP, approximately 73% from energized projects in the Basic Network and
27% from Other Transmission Installations;
iii. reduction of BRL 135.4 million with respect to the RBSE payment. This reduction is mainly due to the new definition for linearizing receivables of the economic component for the next five years in the amount of
BRL 150.0 million, partially compensated by the adjustment of items considered by ANEEL as totally depreciated and which were adjusted for this cycle and where the corresponding renumeration (WACC)
was received (+ BRL 15 million);
iv. negative adjustment installment of BRL 31.5 million largely explained by: (a) reimbursement due to the
anticipation of the RAP (- BRL 95.0 million ); partially compensated by (b) the retroactive receipt of
reinforcements and improvements; (c) the reimbursement for the cost of implementation of the property control manual; and (d) the adjustment in the value of the RBSE report as explained in the preceding item.
The amounts highlighted in items (c) and (d) only have cash effect since it is a reimbursement, in a way that impact the negative adjustment installment of the period’s results totaling R$ 74 million.
Total RAP of the IEMG, IE Pinheiros, Serra do Japi, Evrecy and IENNE, wholly-owned subsidiaries, net of PIS and COFINS, previously BRL 184.8 million for the 2017/2018 cycle, is now set at BRL 183.2 million for the 2018/2019 cycle.
The reduction of BRL 1.6 million is mainly due to the periodic tariff revision (RTP) for IENNE and Evrecy.
Evrecy’s RTP considered the revision of the asset base with the writing off of total depreciated items, which had a 17%
(- BRL 2.4 million) impact on the cycle. In addition, the adjustment installment (PA) had a negative impact of BRL 4.6
million due to the recalculation of the RAP in the light of a reinforcement and the retroactive effects of the periodic tariff revision, which should have been contemplated in 2017, only, however, being incorporated in the 2018/2019 cycle.
Consequently, the RAP has decreased from BRL 14.1 million to BRL 7.1 million for the 2018/2019 cycle.
1 The accumulated IPCA and IGPM for the period from June 2017 and May 2018 were 2.86% and 4.26%,
respectively.
11
At the IENNE subsidiary, the periodic tariff revision restates the cost of third party capital while the WACC was altered from 6.83% to 6.41%, with a negative impact on revenue of BRL 1 million. The adjustment installment had a negative
impact of BRL 1.6 million. As a result, the RAP was reduced from BRL 45.5 million to BRL 44.2 million for the 2018/2019 cycle.
The RAP and the values which correspond to the adjustment installment for the jointly-owned subsidiaries of IE Madeira, IE Garanhus and IE Sul, net of PIS and COFINS, which totaled BRL 615.3 million for the 2017/2018 cycle, were reduced
by BRL 13.6 million to BRL 601.7 million in the 2018/2019 cycle.
This reduction is largely explained by the negative adjustment installment of BRL 66.5 million due to the reimbursement of the RAP relative to IE Madeira’s 015/2009 agreement, of which BRL 59.6 million relates to the cancellation of the
Provisional Release Instrument in the period from March 13, 2015 to June 20, 2015. This amount is partially compensated by the positive adjustment installment of BRL 3.3 million for IE Madeira’s 013/2009 agreement due to the
reimbursement of 17 days discounted in error for the 2016/2017 cycle in the amount of BRL 14.3 million .
RAP Cycle
2017/2018
RAP Cycle
2018/2019
REH 2,258 REH 2,408
ISA CTEEP 905.1 25.8 60.5 0.0 991.4 959.9
ISA CTEEP - RBSE 1,552.4 44.2 0.0 (135.4) 1,461.2 1,461.2
Total 2,457.5 70.0 60.5 (135.4) 2,452.6 (31.5) 2,421.1
RAP Cycle
2017/2018
RAP Cycle
2018/2019
REH 2.258 REH 2.408
IEMG 004/2007 IPCA 18.3 0.5 0.0 0.0 18.8 (0.7) 18.1
EVRECY 020/2008 IGP-M 14.1 0.6 0.0 (3.0) 11.7 (4.6) 7.1
012/2008 11.1 0.4 0.0 0.0 11.5 (0.7) 10.8
015/2008 35.7 1.0 0.0 0.0 36.7 (1.9) 34.8
018/2008 6.0 0.2 0.0 0.0 6.2 (0.2) 6.0
021/2011 5.5 0.2 0.0 0.0 5.7 (3.3) 2.4
026/2009 IPCA 39.5 1.2 0.0 0.0 40.7 (3.4) 37.3
143/2001 IGP-M 22.3 1.0 0.0 0.0 23.3 (0.9) 22.4
IENNE 001/2008 IPCA 45.5 1.3 0.0 (1.0) 45.8 (1.6) 44.2
Total 198.1 6.4 0.0 (4.0) 200.5 (17.3) 183.2
Total Consolidated ISA CTEEP 2,655.6 76.4 60.5 2,653.1 (48.8) 2,604.2
RAP Cycle
2017/2018
RAP Cycle
2018/2019
REH 2.258 REH 2.408
013/2008 6.1 0.2 0.0 0.0 6.4 (0.2) 6.2
016/2008 12.9 0.4 0.0 0.0 13.3 (1.6) 11.7
013/2009 292.1 8.3 0.0 0.0 300.4 3.3 303.7
015/2009 252.4 7.2 0.0 0.0 259.6 (66.5) 193.1
IEGARANHUNS (51% ISA CTEEP) 022/2011 IPCA 87.3 2.7 0.0 0.0 90.0 (2.9) 87.1
Total 650.8 18.7 0.0 0.0 669.6 (67.9) 601.7
*In 3Q18’s consolidated income statement, the results were accounted as equity income. Starting in October of 2018, the subsidiary will be fully consolidated
into ISA CTEEP’s results.
COMPANY
Dealership
BRL millionContract Index Inflation
Reinforcements
& ImprovementsRBSE PA
RAP Cycle
2018/2019
JOINTLY OWNED SUBSIDIARIES
059/2001 IPCA (31.5)
WHOLLY OWNED SUBSIDIARIES (100% ISA CTEEP)
Dealership
BRL millionPA
RAP Cycle
2018/2019
IE PINHEIROS IPCA
IEJAPI
Contract Index InflationReinforcements
& ImprovementsRTP
PARAP Cycle
2018/2019
IESUL (50% ISA CTEEP)* IPCA
IEMADEIRA (51% ISA CTEEP) IPCA
Dealership
BRL millionContract Index Inflation
Reinforcements
& ImprovementsRTP
Note: RAP net of PIS/COFINS and including regulatory charges
12
Operational Revenue
In 3Q18, consolidated gross operational revenue was BRL 716.4 million, an increase of 15.1% in relation to 3Q17,
principally due to booking the adjustment to the RAP 2018/2019 cycle, which incorporates the positive variation of the IPCA on O&M revenue, and the increase in the RAP on the RBSE receivable due to the seasonal effect on invoicing in
3Q17, pursuant to Article 7 of ANEEL Normative Resolution 762/2017.
It is important to highlight that ISA CTEEP’S consolidated adjustment installment for the 2018/2019 cycle was booked to the accounts in full for BRL 74.3 million in 3Q18, because the reimbursement of the implementation cost of the asset
control manual and the adjusted amount of the RBSE report did not impact on the 3Q18 results (these having been booked as a “right to receive” in the accounts between 2010 and 2016). However, the cash impact of these events
happened during the cycle (July 2018 to June 2019).
In 9M18, revenues posted an increase of BRL 1.2 billion compared with 9M17, principally due to the RBSE RAP, which
started being accounted for in 3Q17.
Operational Revenue
(BRL million) 3Q18 3Q17 Chg (%) 9M18 9M17 Chg (%)
Availability of Electric Network 312.9 251.8 24.3% 986.8 857.1 15.1%
O&M Revenue 282.1 218.8 28.9% 760.0 688.4 10.4%
CAAE¹ Revenue 105.2 83.7 25.7% 301.2 219.3 37.3%
Adjustment Installment (74.3) (50.7) 46.8% (74.3) (50.7) 46.8%
RBSE 397.0 365.2 8.7% 1,388.4 365.2 280.2%
Others 6.5 5.1 27.1% 20.1 18.6 7.8%
Gross Revenue 716.5 622.2 15.1% 2,395.3 1,240.9 93.0%
Deductions (110.6) (70.9) 56.0% (317.7) (158.7) 100.1%
Net Revenue 605.9 551.3 9.9% 2,077.6 1,082.2 92.0%
¹ Annual cost of electric assets (Net investment x Regulatory WACC + Gross investment x Depreciation)
Consolidated
The deductions from gross revenue relate to taxes (PIS/COFINS) and regulatory charges (CDE, RGR, P&D, PROINFA
Inspection Fee) and reached BRL 110.6 million in 3Q18 vs. BRL 70.9 million in 3Q17. The increase is explained mainly by the increase in the CDE charge related to free consumers. In 9M18, deductions reached BRL 317.7 million (vs. BRL
158.7 million in 9M17), mainly because of the impact of PIS/COFINS in the RBSE revenue.
Consolidated net operational revenue amounted to BRL 605.9 million and BRL 2.1 billion in 3Q18 and 9M18, respectively.
Other Revenues
605.9
3Q17 Gross Revenue
3Q18 Gross Revenue
110.6
63.3716.5
Deductions 3Q18 Net Revenue
1.4
622.2
RBSEAnnual Costof Electric
Assets (CAEE)
O&M AdjustmentInstallment
21.531.8
23.7
+ 94.3 million
BRL million
13
O&M Costs and Expenses
Costs and expenses, ex-depreciation, recorded an increase of 6.8% in 3Q18 vs. 3Q17 and stable in relation to 2Q18.
The variation in the quarter reflects principally:
(i) the increase in personnel expenditures in the light of the collective bargaining agreement, effective starting in
June/18 (2.9%) and the reduced capitalization of payroll expenses in projects;
(ii) higher expenses in the others line principally due to the payment of IPTU on shared land in 3Q18 and not simultaneously reimbursed.
In 9M18, costs ex-depreciation amounted to BRL 357.6 million, an increase of 5.2% compared to 9M17.
Total administrative and O&M expenses and costs in 3Q18 reported an increase of 1.2% in relation to 3Q17, reaching
BRL 265.3 million. In 9M18, this amount was BRL 791.6 million vs. BRL 522.7 million reported in 9M17 (+ 51.4%). Both variations are principally due to the recognition of the depreciation relative to the RBSE concession
reimbursement, based on amortization in 96 installments (8 years) of the depreciation amount held back between
January 2013 and June 2017 in the amount of BRL 118.1 million in the quarter and BRL 359.8 million for the 9M18 period.
Costs and Expenses
(BRL million) 3Q18 3Q17 Chg (%) 9M18 9M17 Chg (%)
Personnel (79.7) (75.2) 6.0% (236.9) (222.8) 6.3%
Material (3.5) (3.7) -6.7% (9.9) (8.6) 14.2%
Services (30.4) (31.7) -3.9% (86.3) (84.8) 1.8%
Contingencies 8.0 8.1 -0.8% 13.6 19.8 -31.0%
Others (16.2) (11.6) 40.1% (38.2) (43.5) -12.2%
Sub Total (121.8) (114.1) 6.8% (357.6) (339.9) 5.2%
Depreciation (143.5) (148.0) -3.1% (434.0) (182.8) 137.4%
Total (265.3) (262.1) 1.2% (791.6) (522.7) 51.4%
Consolidated
14
Equity Income
Equity income in 3Q18 posted an expense of BRL 2.9 million vs. revenue of BRL 4.4 million in 3Q17. This variation is
largely explained by the loss reported by IE Madeira in 3Q18 following the Annual Readjustment of the RAP, 2018/2019 cycle, with the impact of a negative adjustment installment of BRL 66.5 million in the 015/2009 agreement
and reflecting the reimbursement of the RAP received in the preceding periods2, partially compensated by the reduction
of expenses due to IE Madeira’s reversal of contingencies.
In the first nine months of 2018, equity income amounted to BRL 38.9 million, an increase of 131% compared with the
same period in 2017. This improvement is due to better results from IE Madeira in 9M18, due to the lower installment adjustment (BRL 63.2 million of negative adjustment installment in cycle 2018/2019 vs. BRL 80.0 million in negative
adjustment installment in cycle 2017/2018) and the reversal of contingencies during the period. IE Garanhuns presented a result 20.5% below 9M17, explained by the reduction of revenue due to the tariff review that occurred in
July 2017.
2.7
12.24.7
-4.9
6.7
9.7
29.4
-0.3
-0.81.5
-1.0
3Q17
-0.4
3Q18
4.4
-1.0-1.0
9M17
-2.9
1.0-1.2
38.9
9M18
16.8
-166%
+131%
IE Madeira IE Garanhuns IENNE/IESUL IEAimorés/IEParaguaçú/ERB1
2 For more information, please see the Annual Readjustment in the RAP section of this document.
BRL million
15
EBITDA and Margin
In accordance with ICVM 527/12, the consolidated EBITDA was BRL 478.6 million in 3Q18, in line with the BRL 474.7
million registered in 3Q17. In 9M18, the ICVM EBITDA amounted to BRL 1.8 billion, an increase of BRL 992.9 million
compared to the same period in 2017 and largely due to the receipt of the RAP related to the RBSE that started in 3Q17.
To reflect the operating cash generation relative to the regulatory results, the Company is showing the adjusted EBITDA, amounting to BRL 517.1 million in 3Q18, an increase of BRL 36.6 million compared to 3Q17, and BRL 1.9
billion in 9M18 vs. BRL 891.0 million in 9M17.
EBITDA excludes equity income and other non-recurring and/or non-cash effects as well as including the EBITDA
proportional to the participation of affiliates, seeking to present a more adequate vision of the Company’s operational
cash generation.
3Q18 3Q17 9M18 9M17
Net income (losses) 191.5 230.9 839.2 399.0
Income and Social Contribution Taxes (tax over income) 93.6 117.0 376.4 173.4
Net financial result 49.3 (21.9) 110.3 33.7
Depreciation and amortization 144.1 148.6 435.8 184.6
EBITDA ICVM 527/12 478.6 474.7 1,761.7 790.7
Affiliates EBITDA (weighted by ISA CTEEP's share) 38.4 48.5 178.9 166.3
Equity Income 2.9 (4.4) (38.9) (16.8)
Others¹ 0.0 0.0 (14.9) (10.8)
Acquisitions² (2.8) (38.4) (2.8) (38.4)
Adjusted EBITDA 517.1 480.5 1,884.0 891.0
Adjusted EBITDA Margin 85.3% 87.2% -1.8 b.p 90.7% 82.3% 8.3 b.p
RBSE (344.5) (326.1) (1,244.3) (326.1)
Adjusted EBITDA Ex-RBSE 172.5 154.4 639.7 564.9
Adjusted EBITDA Ex-RBSE Margin 66.0% 68.5% -2.5 b.p 76.8% 74.7% 2.0 b.p
² IENNE (3Q17) e IE SUL (3Q18)
-20.9%
-165.6%
EBITDA
(BRL million) Chg (%)
-17.0%
-20.1%
-325.7%
-3.0%
0.8%
Chg (%)
¹ Tax compensation (from "IPTU"), expenses with auctions and contingencies success fee
5.7%
7.6%
11.8%
-
-92.7%
13.2%
Consolidated
7.5%
131.3%
111.4%
281.6%
110.3%
117.0%
227.5%
136.1%
122.8%
38.0%
-92.7%
16
Financial Result
The consolidated financial result reported an expense of BRL 49.3 million in 3Q18 against BRL 21.9 million in 3Q17. In
9M18, the financial result posted an expense of BRL 110.3 million, an increase of BRL 76.6 million compared to an expense of BRL 33.7 million in 9M17. The variation is mainly explained by:
(i) the recognition of BRL 53.8 million of revenue (non-recurring) in 3Q17 upon adhering to the PERT tax amnesty
program which generated a reduction in interest on pending fines;
(ii) an increase in expenses with interest and charges on loans due to the Company’s higher debt levels which rose
from BRL 1.8 billion in 3Q17 to BRL 3.0 billion in 3Q18; partially compensated by the increase in income from financial investments in the light of higher cash balances during the period.
Financial Result
(BRL million) 3Q18 3Q17 Chg (%) 9M18 9M17 Chg (%)
Financial investment income 19.3 11.1 74.1% 48.6 32.6 48.9%
Monetary net variations (17.4) (3.5) 395.9% (36.4) (19.7) 84.6%
Interest costs (0.6) 9.8 (106.1%) (1.8) 1.5 (214.0%)
Interest and charges on loans (40.2) (28.6) 40.3% (106.9) (80.9) 32.2%
Others (10.5) 33.1 (131.7%) (13.7) 32.8 (142.0%)
Total (49.3) 21.9 (325.7%) (110.3) (33.7) 227.5%
Consolidated
Net Income Net income in 3Q18 was BRL 191.5 million, a reduction of BRL 39.4 million in relation to 3Q17. This variation was due
to the following non-recurring events in 3Q17: adherence to the PERT tax amnesty (+ BRL 31.6 million) and the positive impact of the acquisition of IENNE (+ BRL 25.3 million). Excluding these non-recurring effects, profits would
have risen 11% during the period.
In 9M18, the main driver behind the improvement was the receipt of the RBSE payments.
25.3
25.3
3Q17
-2.0
342.1
9M18
-2.0
3Q18 9M17
31.6
174.0
399.0
230.9191.5
839.2
193.5
31.6841.2
-17%
+110%BRL millions
PERT Aquisitions* Current
+11%
*3Q17: IENNE Aquisition and 3Q18: IE Sul Aquisition
17
Comparison of Results (Regulatory vs. IFRS)
In IFRS, revenue related to investments which are realized over the course of the concession agreement, are registered
as a financial asset, generating construction revenue and costs with respect to the installation of the infrastructure. The restatement of the financial asset generates revenue from remuneration of the infrastructure. In Regulatory accounting,
investments are treated as fixed assets and are depreciated according to their useful life, and the RAP according to
invoiced amounts spread over the term of the concession.
The principal variations between the consolidated result via IFRS and Regulatory standards are shown as follows:
Consolidated DRE (BRL million) Regulatory IFRS Regulatory IFRS
IFRS vs. Regulatory 3Q18 3Q18 9M18 9M18
Gross Revenue 716 1,173 -456 2,395 2,466 -70
O&M Revenue 282 282 0 760 760 0
CAAE Revenue (Annual Cost of Electric Assets) 105 0 105 301 0 301
Infrastructure Revenue 0 80 -80 0 274 -274
Concession Asset Revenue 0 206 -206 0 399 -399
Adjustment Installment -74 -5 -69 -74 -5 -69
RBSE Revenue 397 603 -206 1,388 1,018 370
Other Revenue 7 7 0 20 20 0
Deductions -111 -142 32 -318 -308 -10
Net Revenue 606 1,030 -425 2,078 2,158 -80
Infrastructure Costs 0 -75 75 0 -257 257
Costs of O&M and General Expenses -122 -119 -2 -358 -353 -4
Depreciation -144 -2 -141 -434 -7 -427
EBIT 341 834 -494 1,286 1,541 -255
Equity Income -3 124 -127 39 171 -132
Other Opertional Revenues (expenses) -3 -24 21 1 -20 21
Result Before Financial Result and Taxes 334 934 -599 1,326 1,692 -367
Financial Result -49 -49 0 -110 -110 0
IR & CSLL -94 -189 95 -376 -398 22
Net Income before Participation of Non
Controlling Shareholder191 695 -504 839 1,184 -345
Participation of Non Controlling Shareholder -3 -3 0 -10 -10 0
Consolidated Income/Losses 188 692 -504 829 1,174 -345
Change Change
Revenue: IFRS considers revenue from the installation of infrastructure refers to the right to be reimbursed for investments and is recognized as an incurred cost. Revenue from the remuneration of concession assets is considered a
financial revenue that remunerates realized investments (concession financial asset), recognized by the effective rate of
interest on the principal amount (investment) of which the interest rate is exactly equal to the receipt of future cash (received via RAP) calculated over the estimated life of the financial asset at the initial booked amount of this asset.
From 3Q18, the Company revised the estimate for the future cash flow of the financial asset with respect to inflation (IPCA and IGPM). These effects are now recognized monthly in the IFRS and no longer in ANEEL’s annual revenue
readjustment. With this change in estimates, the inflationary effect for the third quarter totaled BRL 161.0 million in the
consolidated figures, recorded in the Accounts Receivable (concession asset revenue) and in the result for the item, Revenue from Remuneration of Concession Assets.
Costs: In IFRS, the costs of implementing infrastructure refers to the cost of investments are neutralized by revenue
from the implementation of infrastructure which is calculated by adding the rates of PIS and COFINS taxes and other
charges to the value of investment cost.
Depreciation: In IFRS, the concession asset is not considered a fixed asset but rather a financial asset. In IFRS, fixed assets relate largely to assets used by the Company and not linked to the concession agreement. In the case of the
Regulatory Result, the concession asset is deemed a fixed asset with its respective depreciation.
Equity Income: The explanation of equity income is the same as for revenue, costs and depreciation as explained
above.
18
Income Tax/Social Contribution: In IFRS, IT/SC are provisioned monthly on an accrual basis and calculated pursuant to Law 12,973/14. The Company adopts real earnings methodology with a monthly estimate while the
subsidiaries adopt the quarterly presumed profit regime. The effective consolidated (IFRS) rate for 3Q18 was 21.4% and in 9M18, 25.2%. In the Regulatory results, the effective rate was 33.0% in the quarter and 30.9% in the first half
in order to equalize expectations of tax payments for the current year. The variation between rates can be explained as being mainly due to the booking of the deferred income tax of the IENNE subsidiary due to changes in the tax regime
from real profits to presumed profit.
PROCEEDS Under the Company’s Corporate Bylaws, ISA CTEEP is committed to paying a minimum dividend of either BRL359
million or 25% of the fiscal year’s net income, whichever is the higher. Additionally, extraordinary dividends may be distributed.
In June 2018, management announced dividend payment policy to the market, proposing to distribute at least 75% of regulatory net income (better proxy of cash generation), subject to approval by the Shareholders’ Meeting, limited to
the maximum ceiling on leverage of 3.0x Net Debt/EBITDA, with the possibility of payment of interim dividends as enshrined in the Corporate Bylaws.
For the fiscal year of 2018, the Company had already paid out BRL 760 million in dividends based on the retained
earnings reserve, amounting to BRL 4.615728 per share. The payment happened on June 18th, 2018 and ex-dividends dated of June 6th 2018.
DEBT In September 2018, the Company reported an increase in gross debt in relation to the outstanding balance on December 31, 2017, due to new funding in the period. In 2Q18 the 7th green bonds issuance worth BRL621 million was
concluded. In 3Q18, the Company concluded new funding operations, notably credit agreement pursuant to Law 4,131/62, in the amount of USD 150 million in conjunction with a swap instrument as a hedge against currency risk in
the period. More detailed information can be found in Explanatory Note 14 of Loans and Financing in the Quarterly Information Report.
The increase in cash and cash equivalents reflect the additional funding described above as well as the cash flow from
RBSE receivables. As a result, net debt amounted to BRL1.4 billion at the end of September 2018.
Debt
BRL (million)
Gross Debt 2,991.5 1,943.0 54.0%
Short-term Debt 295.4 451.4 -34.6%
Long-term Debt 2,696.1 1,491.5 80.8%
Consolidated Availabilities 1,604.0 616.7 160.1%
Availabilities of ISA CTEEP and Subsidiaries 1,377.7 401.7 243.0%
Availabilities of Partially Owned Subsidiaries* 226.3 214.9 5.3%
Consolidated Net Debt 1,387.5 1,326.3 4.6%
*The Company's resources are concentrated in exclusive investment funds, which are also used for the subsidiaries
and partially owned subsidiaries in a segregated manner, and refer to quotes of the investment funds with high
liquidity, conversible in cash, regardless of the expiration of the assets in which they are allocated.
09/30/2018 12/31/2017 Chg (%)
19
The Company is in compliance with established covenants and requirements for all issues. For the years 2018, 2019 and 2020, the Net Debt/EBITDA index is 3.0x. Greater details on financial indicators are available in Attachment V of
this document.
The average cost of consolidated debt was 8.34% p.a. on September 30, 2018. The IPCA inflation index for the past 12
months was 4.53% and the annualized CDI (Interbank Deposit Rate) for September was 6.39%. The average term of the consolidated debt on September 30, 2018 was 3.3 years.
INVESTMENTS
ISA CTEEP and its wholly and jointly-owned subsidiaries invested BRL 93.7 million in 3Q18, 64.3% above the amount reported for 3Q17. The variation is explained principally by:
(i) increased investment in pre-operational subsidiaries for payment of environmental licensing fees and land-related negotiations. Investments are in line with the challenging budget and schedule that has been set. It is
worth noting that the main investment flows at the subsidiaries will occur in the 3rd and 4th year of their
respective construction work;
(ii) higher investments in operational subsidiaries reflects mainly additional CapEx at IE Madeira for the solution of
pending issues, partially compensated by:
(iii) reduction in reinforcements and improvements activity. Investments in reinforcements and improvements are in
line with the planned budget. Investments between the quarters under review are not comparable since both
periods have distinct projects and depend on Authorizing Resolutions from ANEEL.
In the first nine months of this year, investments totaled BRL 327.7 million (+76.5% vs. 9M17);
Investments
(BRL million) 3Q18 3Q17 Chg (%) 9M18 9M17 Chg (%)
ISA CTEEP (Reinforcements/Improvements) 47.8 54.1 -11.6% 112.3 148.8 -24.5%
Total Subsidiaries 45.9 2.9 1457.4% 215.3 36.9 484.2%
Operational 16.8 2.7 526.5% 44.4 36.4 22.0%
Pre-operational 29.1 0.3 10843.4% 171.0 0.5 35999.3%
Total 93.7 57.0 64.3% 327.6 185.6 76.5%
Note: Realized investments are demonstrated in the competence vision
Debt Contracting and Indexation 09/30/2018
Debt Amortization Schedule (BRL million)
19%
55%
26%
BNDES - TJLP Debentures - CDI/IPCA Others74
243
1,035
232
74 70
369
894
4T18 2019 2020 2021 2022* 2023* 2024 2025+
20
CAPITAL MARKET ISA CTEEP has common (“TRPL3”) and preferred shares (“TRPL4”) listed and traded on the São Paulo Stock Exchange
(“B3”) and since 2002, also listed on Level 1 of the Corporate Governance segment, thereby valuing ethics and
transparency in the relationship with shareholders and other stakeholders. The Company’s shares are part of several stock indexes, among them the Corporate Governance Index (“IGCT”), in which companies with differentiated standards
of corporate governance are listed, and the Brazil 100 stock index (“IBrX 100”), comprising companies with the most traded equities on B3. Additionally, the Company has an American Depositary Receipts (“ADRs”) program – Rule 144A in
the United States under the “CTPTY” (common share) and “CTPZY” (preferred share) symbols.
The closing prices of ISA CTEEP’s common and preferred equities for the third quarter were BRL 55.80 and BRL 58.46,
respectively. The Company’s market capitalization on September 30, 2018 was BRL 9.5 billion.
For the 12-month period ending September 30th, 2018, ISA CTEEP’s preferred shares reported an annual daily trading
volume on B3 of BRL 20.8 million, an average of two thousand trades per day.
Performance (base 100)
-20%
-10%
0%
10%
20%
30%
40%
Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18
TRPL3 TRPL4 IBOVESPA IEEX
-4.7%
6.8%
-14.4%
-7.0%
EVENTS DURING THE PERIOD Reiteration of Investment Grade Rating by Fitch Ratings In August 2018, Fitch Ratings reiterated ISA CTEEP’s Long Term National Rating at ‘AAA+(bra)’ and its debentures
issuance of the unsecured type (4th, 5th, 6th and 7th issues) with a stable outlook.
Reopening of ANEEL Public Hearing (“PH” 41/2017) PH 41/17 was reopened on August 13, 2018, focusing on the establishment of the tariff review rules, specifically on the operational costs (O&M) and investments in improvements of a minor dimension pursuant to Technical Note (“TN”)
126/2018. In the light of this TN, ANEEL revised the methodology, considering the reduction proposal in O&M revenue
from 24% (TN 164/2017) to 19%, that is an additional BRL 40 million of revenue vs the previous proposal. ISA CTEEEP has submitted its contributions within the PH’s stipulated timeframe and awaits ANEEL’s position on the issue. Documents
may be accessed in the Company’s IR website.
ANEEL Public Consultation 015/2018 On August 17, ANEEL opened a Public Consultation for collecting suggestions for improving the methodology for calculating the Regulatory WACC in line with Technical Note 132/2018. The Public Consultation took place over a period
of 45 days between August 17 and September 30 and focused on the methodology and updating of the WACC calculation. The Company submitted its contributions at the end of the third quarter. Documents may be accessed in the
Company’s IR website.
21
Issue of a Preliminary License for ERB1 ERB1, a subsidiary jointly-owned by ISA CTEEP and Taesa, each with 50% stakes and constituted following a successful
bid by the Company at the transmission auction in April 2017, received its preliminary license in September 2018, issued by the Paraná Environmental Protection Agency (Instituto Ambiental do Paraná - “IAP”) for the 230 kV installations,
incorporating the 230 kV Sarandi-Paranavaí Norte transmission line with an approximately 81 km extension, the
Paranavaí Norte 230/138 kV substation and the Sarandi 525/230 kV substation. The project is located in the state of Paraná with a 600 km transmission line and 3 substations. The ANEEL investment is estimated at BRL1.9 billion with an
Annual Allowed Revenue (“RAP”) of BRL281 million for the 2018/2019 cycle. The stipulated timeframe for energization is August 2022.
IE Sul Acquisition In April 2018, ISA CTEEP signed a Share Purchase Agreement with Cymi Construções e Participações S.A. (“CYMI”) for
acquiring 50.00% less one share of the total capital stock of Interligação Elétrica Sul S.A. (“IE SUL”). The operation was concluded in September, all conditions precedent having been implemented and approvals from the appropriate
authorities obtained. The acquisition was worth an aggregate cash amount of BRL20 million, restated on closing at the
IPCA/IBGE inflation index. With this operation, the Company is now holder of all shares comprising IE SUL’s capital stock.
IE Tibaji construction work begins IE Tibagi, a wholly-owned subsidiary of ISA CTEEP, constituted following the Company’s successful bid at the transmission auction in April 2017, began construction work in September. Estimated ANEEL investment is of BRL135 million, with a
RAP of BRL18 million. The project is formed by the installation of the 230 kV Nova Porto Primavera (São Paulo State) – Rosana (Paraná State) transmission line and the 230/138 kV Rosana substation, which will link up to the Nova Porto
Primavera substation. The startup deadline by ANEEL is August 2022.
IE Itaúnas construction work begins IE Itaúnas, a wholly-owned subsidiary of ISA CTEEP, the result of the Company’s successful bid at the transmission auction in October 2016, began construction work on the Viana substation in September. ANEEL investment is estimated
at BRL298 million, with a RAP of BRL 47 million. The project is formed by the implementation of the 345 kV Viana 2
(Espírito Santo State) – João Neiva 2 (Espírito Santo State) transmission line, the construction of the new 345/138 kV João Neiva 2 substation, and the 345 kV Viana substation. The installation license for the transmission line and the João
Neiva 2 substation have still not been issued. The startup deadline by ANEEL is February 2022.
Signature of Concession Agreements – Transmission Auction 02/2018 In September 2018, the Company signed the concession contracts for 2 lots for which the Company successfully bid at the Transmission Auction 02/2018 held by ANEEL on June 28, 2018.
Transparency Trophy 2018 In August 2018, the Company was one of the winners of the Transparency Trophy 2018, companies with net revenues up
to BRL5 billion category. For 22 years now, the initiative has been organized by the National Association of Finance, Administration and Accounting Executives (Associação Nacional dos Executivos de Finanças, Administração e
Contabilidade - ANEFAC) in partnership with Financial, Accounting and Actuarial Research Foundation (Fundação Instituto de Pesquisas Contábeis, Atuariais e Financeiras - Fipecafi) and Serasa Experian. Considered as the “Accounting Oscar”,
the award organizers analyzed more than two thousand financial statements for 2017, selecting those companies that
showed excellence in accounting data. This award recognizes the Company for the clarity and transparency with which it communicates its economic and
accounting performance.
Restructuring of the Content of the Investor Relations Website In September 2018, ISA CTEEP’s Investor Relations website was restructured to offer more complete browsing.
22
SUBSEQUENT EVENTS
IE Aimorés and IE Paraguaçú obtain Preliminary Licenses
IE Aimorés and IE Paraguaçú, subsidiaries of ISA CTEEP and Taesa with 50% stakes each and constituted following the
Company’s successful bid at the transmission auction of October 2016, were awarded preliminary licenses issued by IBAMA in October 2018. The IE Paraguaçu project is located in the states of Minas Gerais and Bahia, with a transmission
line extension of 338 km, capex ANEEL of BRL 510 million and RAP (Annual Allowed Revenue) of BRL113.2 million (2018-2019 cycle). Aimorés is located in the state of Minas Gerais, with a transmission line extension of 208 km, ANEEL Capex
of BRL341 million and RAP of BRL75.8 million (2018-2019 cycle). ANEEL deadline to start up these projects is February
2022.
OTHER RELEVANT INFORMATION
Concession Renewal - Contract 059/2001 (RBNI/RBSE) On September 12, 2012, Provisional Measure 579/2012 (“PM 579”) was published regulating the extension of the concession agreements for generation, transmission and distribution of electric energy. According to the provisional
measure, expired concessions or concessions due to expire within 60 months from PM publication date had the option of anticipating maturity date to December 2012 with subsequent extension of the agreement for up to 30 years.
On November 01, 2012, the Ministry of Mines and Energy (MME) published Interministerial Ordinance 580 in which the compensation amounts were established due to installations energized from June 01, 2000 and known as the Basic
Network’s New Installations (“RBNI”). The amount established for ISA CTEEP was BRL 2.9 billion. On the same date, the MME published Interministerial Ordinance 579, establishing the RAP amount for ISA CTEEP at BRL515.6 million
beginning January 01, 2013 and representing a reduction of approximately 75% of the RAP.
On November 29, 2012, Provisional Measure 591 was published, authorizing the Concession Authority to pay the amount
for undepreciated assets existing prior to May 31, 2000, known as the Basic Network’s Electrical System (“RBSE”).
In December 2012, ISA CTEEP held an Extraordinary General Meeting to decide on the anticipation of the expiry date of Concession Agreement 059/2001 as proposed in PM 579. The Company’s shareholders gave their unanimous approval to
the extension of the agreement pursuant to the terms of Law 12,783/2013, the concession being extended to December
2042 and guaranteeing the Company’s right to receive amounts relative to RBNI and RBSE assets.
The amounts with respect to RBNI assets and equivalent to BRL2.9 billion were received between 2013 and 2015. As for the RBSE assets, an independent appraisal report was requested for evaluating the investments at the New Replacement
Value (“VNR”), adjusted for depreciation up to December 31, 2012. In December 2015, ANEEL ratified the value of the
RBSE assets for ISA CTEEP at BRL3.9 billion.
In April 2016, MME Ordinance 120 was published determining the amounts approved by ANEEL for RBSE installations and becoming part of the Regulatory Remuneration Base of the electric energy transmission concessionaires as from the
tariff fixing process for 2017 for an estimated 8-year period.
With the publication of ANEEL Ruling 1,484/17 of May 2017, the total RBSE amount due to ISA CTEEP was set at
BRL 4.1 billion. The initial impact of the RBSE values was the book recognition according to IFRS principles in September 2016 under the conditions established by MME’s Ordinance 120 and in the regulatory results, the impact on the
Company’s numbers is apparent as from the first receivable payments in July 2017.
ANEEL Ruling 1,275/18 incorporates the acceptance of ISA CTEEP’s appeal in 2017, in which it requested an adjustment
be made for totally depreciated assets. For this reason, the Economic and Financial Components up to the 2022/2023 cycle have been increased.
The change mentioned was contemplated in the last tariff readjustment in which RAP for the 2018/2019 cycle was also
restated at the IPCA of 2.86%. In addition, linearization of the Economic Component was realized according to the
submodule 9.1 of the Proret (ANEEL’s Procedures for Tariff Regulation) such that these payments will be constant until the 2022/2023 cycle. The result of the calculation with the adjustments as disclosed by ANEEL can be verified in the
values below, net of PIS/COFINS:
23
Economic Component Financial Component ex-Ke Ke
837711 711 711 711 711
332
750
729750 750 750 750 750
750
253
246253 253 253 253 253
253
2021/20222017/2018
1,714
2020/20212018/2019
1,7141,714
2019/2020
1,335
2024/20252022/2023 2023/2024
1,8121,714 1,714
1,003
For the 2023/2024 cycle, a total of BRL332 million would remain to be received corresponding to the Economic
component. However, the same linearization could be applied as already realized.
Under an injunction which required ANEEL on a temporary basis to recalculate the RAP excluding the cost of capital (Ke) from the “remuneration” installment, since July/17 the Company has received about 85% of the RBSE amount. However,
the receipt of the Ke depends on a legal ruling and consequently there is no definition on the form of payment of the installments of the remaining amounts which up to the 2018/2019 cycle had not been received.
From the legislative point of view, the initial bill presented for the privatization of Eletrobras (Bill 9,463/2018) proposed payment of the RBSE with two changes: the replacement of the cost of capital (Ke) by the WACC for restating the
installment of the financial component and the increase in the stipulated term for payment from 8 years to the remaining term of the concessions (about 25 years) for this same component.
In May 2018, within the scope of the same bill before Congress, a new report was published maintaining the term at 8 years for payment of the financial component in accordance with MME Ordinance 120/2016, as well as the replacement
of the Ke by the WACC, and extending its application to all transmission companies.
Supplementary Retirement Plan – Law 4,819/58 Governed by State Law 4819/58, the supplementary retirement plan applies to employees hired on prior to May 13, 1974 of autarchies and corporations, in which the state of São Paulo was the holder of the majority of shares and had
executive control.
The resources needed to meet the costs under this plan are the responsibility of the Government of the state of São
Paulo, having been implemented in accordance with an agreement dated December 10,1999 between the Finance Secretariat for the state of São Paulo (SEFAZ) and the Company. The payment of supplementary retirement benefits was
through monthly payments funded by SEFAZ. The transfer of the amount to be paid went to ISA CTEEP, the Company then in turn transferring the same amount to Fundação CESP which then had the responsibility of crediting the individual
retirees.
From January 2004, retiree benefits began to be processed directly by SEFAZ and with this, reductions were made to
original payments as for instance in relation to a ceiling (equivalent to the salary of the state governor). As a result, SEFAZ began excluding the excess value from benefits paid to retirees.
Assumptions according to ANEEL Normative Resolution 762/2017 IPCA (Dec/12-Jun/17): 34.45% WACC: 6.64% Cost of Capital (Ke): 10.74% (1S13) and 10.44% (from Jul/13 to Jun/17) Estimated amounts. WACC will be decided on the occasion of the tariff review and the asset base is subject to write-offs.
24
Class Action
Following the court dismissal of a claim, in June 2005, the Funcesp Retirees Association (“AAFC”) obtained a preliminary injunction from the Labor Courts, determining that the previous payment in full be maintained.
Thereafter, the processing of benefits payments reverted to the original model whereby the responsibility for payment was that of Fundação CESP, SEFAZ however transferring the adjusted (reduced) amount to the
Company and ISA CTEEP then settling the difference so that when transferred to Fundação CESP, payment was
made to the retirees in full as required under the injunction.
In 2017, the injunction was overturned, ISA CTEEP then ceasing to pay the difference between August and December, which resulted in a cash equivalent impact of about R$ 50 million. In December 2017, however,
Minister Alexandre Moraes of the Federal Supreme Court (“STF”) awarded a further preliminary injunction,
obliging the Company to make the additional payment to ensure full value to retirees. The Company appealed the decision and awaits a ruling from the STF. SEFAZ and FUNCESP have also appealed alleging the need to
observe the ceiling on payments and apply a discount to benefits to avoid a loss to the state of São Paulo government coffers.
Collection Lawsuit
Since 2005, SEFAZ has been transferring to the Company amounts lower than required to make full payment to
the retirees (~70%) following an injunction handed down by the 49th Labor Court. Consequently, ISA CTEEP has been topping up the amount to ensure full payment of retiree benefits (~30%). The difference paid by ISA
CTEEP is being claimed in a collection lawsuit filed against SEFAZ.
This collection lawsuit was ruled in the Company’s favor by the 2nd instance court. In August 2017, SEFAZ
lodged an appeal to the Federal Court of Appeals (STJ) and awaits examination of admissibility. As of September 30, 2018, the amount registered in the Company’s balance sheet was approximately R$ 2 billion, net
of the provisions for losses on the realization of credits realized in 2013.
In August 2018, São Paulo state Court decision obliges Sefaz to transfer the amount in full for retiree benefits
payment. No gloss up can be done before the administrative process is concluded.
25
FORTHCOMING EVENTS
3Q18 Earnings Conference Call
10.30.2018
Connection Data:
Other Countries: +1 646 828-8246
3Q18 Conference Call
10:00 a.m. (BRT) / 9:00 a.m. (EDT)
Brazil: +55 11 3193-1001 / +55 11 2820-4001
Password: ISA CTEEP
Link for webcast available on Investor Relations website: www.isacteep.com.br/ir
Annual Public Meeting - ISA CTEEP DAY
São Paulo
Date: December 06 2018 (Thursday)
Time: 9:00 a.m. (Brasília time)
Venue: Vila Bisutti 011
Address: Rua Alvorada, 1035 - Vila Olímpia - São Paulo – SP
Confirmation of presence: [email protected]
26
ATTACHMENTS
Attachment I – Regulatory Balance Sheet
Assets
(BRL thousand) 09/30/2018 12/31/17
Cash and Cash Equivalents 12,736 6,585
Financial Investments 1,591,227 610,066
Accounts Receivable 246,775 287,868
Inventory 16,099 18,831
Services in course 9,512 4,307
Recoverable taxes and contributions 314,092 14,162
Prepaid Expenses 13,145 4,607
Credit with controlled parties 423 903
Derivative instruments 0 2,611
Restricted cash 1,211 1,141
Others 41,921 42,554
2,247,141 993,635
Long-Term Assets
Restricted cash 43,818 35,674
Accounts Receivable 9,769 20,329
Accounts Receivable from the State Finance Secretariat 1,425,474 1,312,791
Pledges and Escrow 66,816 66,414
Derivative instruments 11,861 0
Others 12,490 1,000
1,570,228 1,436,208
Investments 1,141,153 1,185,326
Imobilized 7,285,026 7,336,634
Intangible 152,216 144,946
Total Assets 12,395,764 11,096,749
Consolidated
CURRENT
NON-CURRENT
27
Liabilities and Shareholders' Equity
(BRL thousand) 09/30/2018 12/31/17
Loans and Financing 98,254 268,589
Debentures 197,107 182,852
Suppliers 68,022 69,923
Taxes and Social Charges 540,175 90,502
Taxes installments 0 57,997
Regulatory Charges 39,260 16,550
Interest on Shareholders' Equity / Dividends to pay 5,137 3,112
Provisions 42,515 36,344
Amounts Payable - Fundação CESP 3,579 2,056
Special obligations - Reversal/Amortization 1,860 0
Others 13,852 61,179
1,009,761 789,104
Long-Term Liabilities
Loans and Financing 1,258,364 690,541
Debentures 1,437,775 801,007
Provision for contingencies 102,672 121,553
Deferred income taxes and social contribution 710,377 831,111
Special obligations - Reversal/Amortization 20,333 24,053
Obligations connected to concession service 333,844 321,076
Regulatory Charges 34,827 54,250
Others 34,532 6,503
3,932,724 2,850,094
SHAREHOLDER'S EQUITY
Share Capital 3,590,020 3,590,020
Capital Reserves 666 666
Income Reserves 557,337 1,994,141
Reavaliation Reserves 2,148,216 2,301,266
Accumulated profits and losses 930,754 (643,481)
7,453,279 7,457,551
Total Liabilities and Shareholders' Equity 12,395,764 11,096,749
NON-CURRENT
Consolidated
CURRENT
Participation of Non Controlling Shareholder 226,286 214,939
28
Attachment II – Regulatory Income Statement
3Q18 3Q17 Chg (%) 9M18 9M17 Chg (%)
Gross Revenue 716,485 622,225 15.1% 2,395,296 1,240,939 93.0%
Availability of Electric Network 709,948 616,311 15.2% 2,375,232 1,221,589 94.4%
Others 6,537 5,914 10.5% 20,064 19,350 3.7%
Deductions from the Operational Revenue (110,622) (70,918) 56.0% (317,701) (158,746) 100.1%
Net Revenue 605,863 551,307 9.9% 2,077,595 1,082,193 92.0%
Costs and Operational Expenses (265,302) (262,109) 1.2% (791,572) (522,697) 51.4%
Personnel (79,696) (75,195) 6.0% (236,857) (222,763) 6.3%
Material (3,472) (3,721) (6.7%) (9,850) (8,624) 14.2%
Services (30,425) (31,676) (3.9%) (86,300) (84,768) 1.8%
Depreciation (143,519) (148,038) -3.1% (434,015) (182,791) 137.4%
Others (8,190) (3,479) 135.4% (24,550) (23,750) 3.4%
Result of Service 340,561 289,198 17.8% 1,286,023 559,496 129.9%
Financial Results (49,331) 21,855 (325.7%) (110,316) (33,681) 227.5%
Income from Financial Investments 19,329 11,101 74.1% 48,562 32,617 48.9%
Result of Liquid Monetary Variation (17,390) (3,507) 395.9% (36,436) (19,739) 84.6%
Interest costs (599) 9,826 (106.1%) (1,759) 1,543 (214.0%)
Interest/Charges on loans (40,182) (28,648) 40.3% (106,938) (80,867) 32.2%
Others (10,489) 33,083 (131.7%) (13,745) 32,765 (142.0%)
Operational Result 291,230 311,053 (6.4%) 1,175,707 525,815 123.6%
Equity Equivalence (2,887) 4,401 (165.6%) 38,891 16,815 131.3%
Other Operational Revenue/Expenses (3,244) 32,486 (110.0%) 939 29,818 (96.9%)
Results before Taxes 285,099 347,940 (18.1%) 1,215,537 572,448 112.3%
Income Tax and Social Contribution on Income (93,561) (117,048) (20.1%) (376,386) (173,434) 117.0%
Current (152,616) (151,351) 0.8% (497,120) (198,583) 150.3%
Deferred 59,055 34,303 72.2% 120,734 25,149 380.1%
Consolidated Income/Losses of the Period Before the
Participation of the Non Controlling Shareholder191,538 230,892 (17.0%) 839,151 399,014 110.3%
Participation of Non Controlling Shareholder (3,419) (4,338) 100.0% (10,164) (16,053) 100.0%
Net Income 188,119 226,554 (17.0%) 828,987 382,961 116.5%
Result
(BRL thousand)
Consolidated
29
Attachment III – Indirect Cash Flow - Regulatory
09/30/2018 09/30/2017
Cash Generated by Operations 1,262,265 570,089
Net Income 839,150 399,014
Depreciation and amortization 434,028 181,464
Deferred taxes (120,734) (25,149)
Provisions for contingencies (15,943) (37,655)
Residual value of permanent assets 23,475 5,504
Amortization goodwill 28 28
Amortization goodwill Evrecy 1,797 1,792
Result of equity equivalence (38,891) (16,815)
Reversal of the loss provision in a Controlled Company (1,581) (1,655)
Result of acquisition of control 2,785 (38,479)
Interest and exchange variations due on assets and liabilities 138,151 102,039
Assets Variation (383,502) (421,499)
Restricted cash (7,609) (4,836)
Concessionaires and Permissionaires 52,364 (153,828)
Operational Warehouse 2,732 (6,169)
Accounts Receivable from the State Finance Secretariat (112,683) (125,893)
Clearing Taxes (299,117) (129,883)
Pledges and Escrow 4,246 8,412
Prepaid expenses (8,527) (3,547)
Services in course (5,205) 876
Credit with subsidiaries 480 (3,126)
Others (10,183) (3,505)
Liabilities Variation 362,676 234,942
Suppliers (3,376) 6,954
Social and Labor Obligations 449,198 205,557
Taxes installments - Law 11,941 (58,146) (67,713)
Regulatory charges 517 17,894
Provisions (4,816) 7,953
Amounts payable - Funcesp 1,523 (1,027)
Global Reversion Reserves (1,860) 0
Obligations related to service concession 0 75,747
Others (20,364) (10,423)
Investments Activites Cash Flow (1,268,908) (575,843)
Purchases of Fixed Assets (260,982) (232,804)
Financial Aplications (969,813) (275,058)
Investments (46,880) (68,460)
Cash acquired in business delas 3,667 479
Received dividends 5,100 0
Financing Activities Cash Flow 33,620 198,498
New loans 1,208,196 594,500
Loan payments (principal) (259,586) (43,801)
Loan payments (interest) (88,105) (64,402)
Financial derivative instruments 25,841 0
Transactions with non-controlling shareholders (10,164) (16,053)
Dividends paid (842,562) (271,746)
Variation in Cash and Equivalents 6,151 6,187
Opening Balance of Cash and Cash Equivalents 6,585 4,524
Closing Balance of Cash and Cash Equivalents 12,736 10,711
Cash Flow of operating activitiesConsolidated
30
Attachment IV – Regulatory Income Statement for jointly held subsidiaries: IE Madeira and IE Garanhuns
Gross Operational Revenue 79.5 108.4 -26.6% 372.1 334.4 11.3%
Operational Revenue Deductions (18.6) (17.3) 7.3% (56.3) (47.0) 19.8%
Net Operational Revenue 60.9 91.1 -33.1% 315.8 287.5 9.9%
Costs and Expenses (1.6) (10.5) -85.1% (20.8) (31.5) -33.8%
Depreciation (34.1) (33.8) 0.9% (102.3) (102.3) 0.0%
Gross Profit 25.3 46.7 -46.0% 192.7 153.8 25.4%
Financial Result (43.7) (41.9) 4.3% (133.1) (130.9) 1.7%
Income before IR & CSLL (18.4) 5.1 -459.1% 59.6 23.2 157.5%
IR & CSLL* 8.7 4.2 109.7% (1.9) (10.1) -81.0%
Net Income (9.7) 9.3 -204.1% 57.7 13.0 342.6%
CTEEP Participation (51%) (4.9) 4.7 -204.1% 29.4 6.7 342.6%
(*) Holds enterprises regarding infrastructure of transmission lines and substations of electric energy, in operation in the SUDAM areas, whose benefits
were conceeded in the months of December of 2014 and 2015, respectively. The deadline to take advantage of the fiscal benefit is 10 years with a
reduction of 75% of taxes over income and additionals.
Results
(BRL million)3Q173Q18 Chg (%) 9M18 9M17 Chg (%)
IE MADEIRA
Gross Operational Revenue 23.0 19.6 17.1% 71.0 74.7 -4.9%
Operational Revenue Deductions (3.3) (3.4) -3.2% (9.5) (10.6) -10.7%
Net Operational Revenue 19.7 16.2 21.3% 61.6 64.0 -3.9%
Costs and Expenses (3.9) (2.9) 36.5% (11.0) (9.0) 22.2%
Depreciation (6.2) (6.2) 0.3% (18.6) (18.5) 0.8%
Gross Profit 9.6 7.2 33.4% 32.0 36.6 -12.7%
Financial Result (3.7) (4.1) -9.3% (11.9) (13.8) -13.2%
Income before IR & CSLL 5.9 3.1 90.5% 20.0 22.9 -12.4%
IR & CSLL* (0.5) (0.2) 123.8% (1.0) 1.0 -204.9%
Net Income 5.3 2.8 87.7% 19.0 23.9 -20.4%
CTEEP Participation (51%) 2.7 1.4 87.7% 9.7 12.2 -20.4%
9M17 Chg (%)
IE GARANHUNS
3Q17Results
(BRL million)3Q18
(*) Holds enterprises regarding infrastructure of transmission lines and substations of electric energy, in operation in the SUDAM areas, whose benefits
were conceeded in the months of December of 2014 and 2015, respectively. The deadline to take advantage of the fiscal benefit is 10 years with a
reduction of 75% of taxes over income and additionals.
Chg (%) 9M18
31
Attachment V – Breakdown of Consolidated Debt (BRL thousand) Funding Charges Maturity 09/30/2018 12/31/2017
TJLP + 1.80% per year 03/15/29 200.9 214.2
3.50% per year 01/15/24 54.4 61.9
TJLP 03/15/29 0.0 0.0
TJLP + 2.6% per year 03/15/32 153.4 155.6
4.00% per year 08/15/18 0.0 0.1
6.00% per year 11/15/19 2.7 4.4
3rd Issuance - Single serie 116% CDI 12/26/18 173.1 169.4
4th Issuance - Single serie IPCA + 6.04% per year 07/15/21 158.6 155.2
5th Issuance - Single serie IPCA + 5.04% per year 02/15/24 318.4 309.1
6th Issuance - Single serie 105.65% CDI 12/13/20 356.2 350.1
7th Issuance - Single serie IPCA + 4.70% 04/15/25 628.5 0.0
Law 4,131 - BTMU VC + Libor + 0.28% + IR 07/17/18 0.0 166.0
Law 4,131 - MUFG VC + 3.34% p.a. + IR 07/20/20 303.3 0.0
Law 4,131 - Citibank VC + Libor + 0.47%+IR 08/24/20 302.5 0.0
Eletrobras 8% per year 11/15/21 0.1 0.1
Leasing 0.6 0.1
2,652.7 1,586.4
Funding Charges Maturity 09/30/2018 12/31/2017
TJLP + 2.1% per year 02/15/28 5.1 5.5
3.5% per year 04/15/23 8.3 9.7
TJLP + 2.6% per year 05/15/26 27.9 30.6
5.5% per year 01/15/21 23.4 31.0
TJLP + 1.9% per year 05/15/26 29.4 32.1
TJLP + 1.5% per year 05/15/26 25.4 27.8
IEMG TJLP + 2.4% per year 04/15/23 24.1 27.9
5.5% a.a. 01/15/21 2.6 0.0
2.58% above TJLP 05/15/25 5.1 0.0
3.0% per year 04/15/23 5.5 0.0
2.58% above TJLP 02/15/28 7.8 0.0
10.0% per year 05/19/30 174.3 182.7
CDI + 0.56% per month 01/16/18 0.0 9.3
338.8 356.6
2,991.5 1,943.0
BNDES
IENNE
Subsidiaries Total Gross Debt
Consolidated Total Gross Debt (R$ thousand)
IE SUL
SERRA DO JAPI
CTEEP - Debentures
CTEEP - Others
CTEEP Total Gross Debt
PINHEIROS
32
Net Debt 09/30/2018 2,566 Net Debt 09/30/2018 1,388 Net Debt 09/30/2018 1,388 Net Debt 09/30/2018 1,388
Adjusted EBITDA last 12 months 2,500 Adjusted EBITDA last 12 months 2,273 Adjusted EBITDA last 12 months 1,865 Adjusted EBITDA last 12 months 1,720
Net Debt/Adjusted EBITDA
09/30/2018 1.03
Net Debt/Adjusted EBITDA
09/30/2018 0.61
Net Debt/Adjusted EBITDA
09/30/2018 0.74
Net Debt/Adjusted EBITDA
09/30/2018 0.81
Shareholders' Equity 09/30/2018 11,425 Financial Result 09/30/2018 143 Financial Result 09/30/2018 84 Expenses with net interest
09/30/2018 143
Net Debt/Net Debt +
Shareholders' Equity 09/30/2018 0.18
Adjusted EBITDA/Financial Result
09/30/2018 15.93
Adjusted EBITDA/Financial Result
09/30/2018 22.07
Adjusted EBITDA/Expenses with net
interest 09/30/2018 12.06
International Credit - Law 4131
(quarterly verification)
BNDES
(annual verification)
Infrastructure Debentures
(4th and 5th issuance)
Simple Debentures
(quarterly verification)
The main covenants to which ISA CTEEP must be a party are as follows:
Financing contracts with BNDES (valid for 2018) must abide by maximum financial indicators of: Net Debt/BNDES
Adjusted EBITDA ≤ 3.0 and Net Debt/(Net Debt + Equity Capital) ≤ 0.6, verified at the end of each fiscal year. For the purposes of calculating and substantiating the foregoing indices, the Company must consolidate all controlled and jointly
controlled subsidiaries (pro-rated according to its stake) should its stake be 10% or higher.
The 3rd Debentures issue requires full compliance with the covenants provided in BNDES financing agreements.
The 4th Debentures issue must comply with the periodicity of quarterly verification, the financial indicators in the
deed being: Net Debt/Adjusted EBITDA < 3.5 and Adjusted EBITDA/Financial Income > 1.5 until baseline date of June 30, 2017; from baseline date of September 30, 2017, the indicator is > 2.00.
The 5th Debentures issue must comply with the periodicity of quarterly verification, the financial indicators in the deed being: Net Debt/Adjusted EBITDA < 3.5 and Adjusted EBITDA/Financial Income > 1.5 until the baseline date of June 30,
2017;from the baseline date of September 30, 2017, the indicator is > 2.00.
The 6th Debentures issue must comply with the periodicity of quarterly verification, the financial indicators in the deed set as follows: Net Debt/Adjusted EBITDA < 3.5 and Adjusted EBITDA/Financial Income > 2.0.
The Credit Agreement (Law 4131) requires the following maximum financial indicators for the full loan term based on quarterly periodicity for verification: Net Debt/Adjusted EBITDA < 3.5 Adjusted EBITDA/Net Interest Expense ≥ 2.0.
33
Attachment VI – Breakdown of Debt of Jointly held subsidiaries - (BRL thousand)
Company Bank Charges Final Maturity
Amount
guaranteed
by ISA CTEEP
Total Amount
Owed
09/30/18
ITAÚ BBA IPCA + 5.5% per year 03/18/2025 250.0 490.1
BNDES TJLP + 2.42% per year 02/15/2030 591.4 1,159.7
BNDES TJLP 02/15/2030 1.2 2.4
BNDES 2.5% per year 10/15/2022 60.4 118.5
BASA 8.5% per year* 10/10/2032 153.5 301.0
Gross Debt 1,056.6 2,071.7
Availability 86.6 169.9
Net Debt 969.9 1,901.8
BNDES TJLP + 2.05% per year 12/15/2028 95.2 186.7
BNDES 3.50% per year 08/15/2023 36.5 71.6
BNDES TJLP 12/15/2028 0.7 1.4
Gross Debt 132.4 259.6
Availability 19.1 37.4
Net Debt 113.3 222.2
1,189.0 2,331.3
TOTAL Net Debt 1,083.3 2,124.0
IE MADEIRA
51% ISA CTEEP
TOTAL Gross Debt
IE GARANHUNS
51% ISA CTEEP
34
Attachment VII – Balance Sheet – IFRS
Assets
(BRL thousand) 09/30/2018 12/312017
Cash and cash equivalents 12,736 6,585
Financial applications 1,591,227 610,066
Accounts Receivable 2,041,938 1,924,928
Inventories 34,907 37,639
Taxes and contributions to compensate 315,452 14,162
Prepaid expenses 13,145 4,607
Credit with related parties 423 903
Derivative instruments 0 2,611
Restricted Cash 1,211 1,141
Others 46,824 41,067
4,057,863 2,643,709
Long-term Receivables
Restricted Cash 43,818 35,674
Accounts Receivable 11,270,412 11,213,952
Accounts Receivable from the State Finance Secretariat 1,425,474 1,312,791
Pledges and Liens 66,816 66,414
Inventories 18,055 37,034
Derivative instruments 11,861 0
Others 12,490 1,513
12,848,926 12,667,378
Investments 1,944,839 1,880,845
Imobilized 23,870 22,879
Intangible 31,630 37,362
14,849,265 14,608,464
Total Assets 18,907,128 17,252,173
Consolidated
CURRENT
NON-CURRENT
35
Liabilities and Shareholders' Equity
(BRL thousand) 09/30/2018 12/312017
Loans and financing 98,254 268,589
Debentures 197,107 182,852
Suppliers 68,022 69,923
Taxes and Social Charges Payable 540,175 90,502
Tax Installments 0 57,997
Regulatory Charges 39,260 16,550
Interest on Shareholders' Equity/Dividends payable 5,137 3,112
Provisions 42,515 36,344
Amounts Payable - Fundação CESP 3,579 2,056
Special obligations - Reversal/Amortization 1,860 0
Others 13,852 61,179
1,009,761 789,104
Long-term Liabilities
Loans and financing 1,258,364 690,541
Debentures 1,437,775 801,007
Provision for contingencies 102,672 121,553
Deferred Income Tax and Social Contribution 2,343,209 2,418,125
Deferred PIS and COFINS 1,125,728 1,147,381
Special obligations - Reversal/Amortization 20,333 24,053
Regulatory Charges 34,827 54,250
Others 34,532 6,503
Total long-term liabilities 6,357,440 5,263,413
Non-Controlling Shareholder's Stake 226,286 214,939
Shareholders' Equity 3,590,020 3,590,020
Capital Reserves 666 666
Profits Reserve 6,549,032 7,394,031
Accumulated Profits/Losses 1,173,923 0
11,539,927 11,199,656
Total Liabilities and Shareholders' Equity 18,907,128 17,252,173
NET EQUITY
Consolidated
CURRENT
NON-CURRENT
36
Attachment VIII – Balance Sheet – IFRS
3Q18 3Q17 Chg (%) 9M18 9M17 Chg (%)
Gross Operating Revenue 1,172,585 829,531 41.4% 2,465,635 2,433,950 1.3%
Infrastructure 80,464 58,761 36.9% 274,091 177,750 54.2%
O&M 276,953 167,432 65.4% 754,826 637,060 18.5%
Concession assets 808,631 597,424 35.4% 1,416,654 1,599,790 (11.4%)
Other 6,537 5,914 10.5% 20,064 19,350 3.7%
Deductions from Operating Revenue (142,166) (85,301) 66.7% (308,008) (263,333) 17.0%
Net Operating Revenue 1,030,419 744,230 38.5% 2,157,627 2,170,617 (0.6%)
Operating Costs and Expenses (196,145) (170,576) 15.0% (616,758) (508,055) 21.4%
Personnel (82,624) (76,410) 8.1% (247,838) (232,549) 6.6%
Materials (40,385) (39,764) 1.6% (180,861) (129,923) 39.2%
Services (59,688) (48,508) 23.0% (151,142) (114,292) 32.2%
Depreciation (2,261) (2,464) (8.2%) (6,728) (7,275) (7.5%)
Other (11,187) (3,431) 226.1% (30,189) (24,017) 25.7%
Service Income 834,274 573,654 45.4% 1,540,869 1,662,561 (7.3%)
Financial Income (49,331) 21,854 (325.7%) (110,316) (33,851) 225.9%
Operating Income 784,943 595,507 31.8% 1,430,553 1,628,710 (12.2%)
Equity Income 123,664 45,858 169.7% 171,293 122,994 39.3%
Other Operating Revenues/Expenses (24,446) (1,733) 1310.6% (19,756) (3,214) 514.7%
Earnings Before Taxes 884,161 639,632 38.2% 1,582,090 1,748,490 (9.5%)
Income tax and Social Contribution on Earnings (188,942) (185,328) 2.0% (398,397) (522,328) (23.7%)
Current (152,616) (151,351) 0.8% (497,120) (198,583) 150.3%
Deferred (36,326) (33,977) 6.9% 98,723 (323,745) (130.5%)
EBITDA ICVM nº 527/12* 936,384 620,873 50.8% 1,701,029 1,791,511 -5.1%
Consolidated Profit/Loss for the Period before Non-Controlling
Shareholder's Stake695,219 454,304 53.0% 1,183,693 1,226,162 (3.5%)
Non-Controlling Shareholder's Stake (3,419) (4,337) (21.2%) (10,164) (16,053) (36.7%)
Consolidated Profit/Loss for the Period 691,800 449,967 53.7% 1,173,529 1,210,109 (3.0%)
ConsolidatedIncome Statement
(BRL thousand)
37
Attachment IX – Cash Flow - IFRS (BRL thousand)
09/30/2018 09/30/2017
Net Cash from Operating Activities 985,558 152,349
Cash from Operations 1,057,975 1,599,625
Net Earnings 1,183,693 1,226,162
Depreciation and Amortization 6,728 7,275
Deferred PIS and COFINS (10,930) 104,585
Deferred IR and CSLL (98,723) 323,745
Provision for Lawsuit Liabilities (15,943) (37,655)
Residual Cost of of Property, Plant and Equipment 1,222 44
Tax Benefit - Embedded Premium 28 28
Interest and exchange variation on assets and liabilities 138,150 102,410
Realized loss from jointly controlled company (1,581) (1,655)
Result of acquisition of control 24,756 (4,190)
Equity income (171,292) (122,994)
Amortization concession asset from controlled company acquisition 1,867 1,870
Asset Variations (72,417) (1,447,276)
Restricted cash (7,609) (4,836)
Accounts Receivable - Investment in infrastructure (274,091) (177,750)
Accounts Receivable - RBSE 1,406,640 661,267
Accounts Receivable - Financial asset (1,115,384) (1,812,348)
Accounts Receivable - O&M (35,138) (19,661)
Inventories 21,711 3,351
Accounts Receivable from the State Finance Secretariat (112,683) (125,893)
Taxes and contributions to compensate (299,117) (129,883)
Pledges and Liens 4,246 8,412
Prepaid expenses (8,527) (3,547)
Others (15,141) (5,767)
Suppliers (3,376) 6,954
Taxes and social charges to recover 449,198 205,557
Tax installments (58,146) (67,713)
Regulatory charges 517 18,078
Provisions (4,816) 7,953
Amount to pay - Funcesp 1,523 (1,027)
Global Reserve for Reversal (1,860) 0
Other Liabilities (20,364) (10,423)
Net Cash from Operating Activities (1,013,027) (344,660)
Financial applications (969,813) (275,058)
Imobilized (4,179) (532)
Intangible (922) (1,089)
Investments (46,880) (68,460)
Cash acquired in business deal 3,667 479
Received dividends 5,100 0
Net Cash from Operating Activities 33,620 198,498
Addition to loans and debentures 1,208,196 594,500
Loan Payments (interest included) (347,691) (108,203)
Payment/Receivable in Financial Derivative Instruments 25,841 0
Transactions with non controlling shareholders (10,164) (16,053)
Dividends and Interest on Own Equity Paid (842,562) (271,746)
Change in Cash and Cash Equivalents 6,151 6,187
Cash and cash equivalents at year start 6,585 4,524
Cash and cash equivalents at year end 12,736 10,711
Cash Flow from OperationsConsolidated
