CPFL Energia S.A. Management Discusses Q4 2012 Results - Earnings Call Transcript

Mar.14.13 | About: CPFL Energia (CPL)

CPFL Energia S.A. (NYSE:CPL)

Q4 2012 Earnings Call

March 14, 2013 10:00 am ET

Executives

Wilson Pinto Ferreira - Chief Executive Officer

Analysts

Márcio Prado - Santander, Equity Research

Henrique Peretti - UBS Investment Bank, Research Division

Operator

Good morning, ladies and gentlemen. We would like to welcome everyone to CPFL Energia Fourth Quarter Earnings Results. We have with us Mr. Wilson Ferreira Jr., CEO; and other officers of the company.

This call is being broadcast simultaneously via the Internet, on the website, www.cpfl.com.br/ir. Up on that address, you can also find a banner through which the presentation will be available for download. [Operator Instructions].

It is important to mention that this teleconference is being recorded.

Before proceeding, let me mention that forward-looking statements that can be made during this conference regarding CPFE Energia Management are based on the beliefs and assumptions of the company and information currently available to the company.

Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to further events, and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of CPFL Energia and cause results to differ materially from those expressed in such forward-looking statements.

Now I would like to ask Mr. Wilson Ferreira Jr. to take the floor. Mr. Ferreira, you may take the floor.

Wilson Pinto Ferreira

Good morning. We have here our presentation of the fourth quarter and the close of 2012. I think this presentation is important to refer starting on Page 3. I assume that before we start the results, give you a quick review of the environment. I'll give you an overview because I feel that sometimes, investors and analysts might have some questions about the last events of the sector and as we are the largest agent in this sector, I feel that we should clarify it from doubts, so that we can make more firm projections and positions and have a better idea of prospects.

So we will start by Page 3, and in a very transparent world, give you some of the news that somehow or other have been prevented regarding this moment and recent events of the sector. Obviously, you know about the drop of the shares, generally speaking, of these companies which were affected by Provisionary [indiscernible] 679 [ph] and companies like ours which were not but the behavior of the stock market is the same.

The circumstances, the context, and less generation after the temporary measure, has influenced the drop of the shares of both companies that have already expired concessions already amortized and depreciated. And like the exchange, sometimes we say, well, there's a floating of the exchange. The spot market also floats and you have the repercussion and the state of the reservoir from the consumption also has its impacts. So the values of the stock market or stock price affects the investors and analysts. The rationing risk is something which has come up recently, the use of thermal plants and the dispatch and the impairment of this, the dispatch of energy, and the impairment with dispatch method brings about.

So in a very summarized way, I think it's very important to give you an overview of these 3 issues that are the essence of this. First of all, the removal of the concessions, the impacts on the companies and our company in particular, and unveiling, let's say, the losses with this temporary provision, the risks of rationing, which sometimes is not being made very clear, and also about regarding the liquidity and the distributor's working capital which certainly when there are greater dispatches of energy, this has a growth impact and the company has had to take steps and also other associations like Abradee.

On Page 4, we have more specifically, in this case with CPFL, the results of this measure and the rules. In the 24th of January past, we had the application of this simple measure. You know that 100% of the company's held transmission concessions for renewal against this, the 11,000 megawatts have been generated, we have 9 companies, 2,000 megawatts a month did not adhere to the proposal of this measure presented by the government. And specifically, for the distributors, more impact on tariff would be. And the simple applications on the reduction proposals, including a reduction of generation tariffs, the amount which will be renewed, a drop of about BRL 95 to about BRL 32, bringing in a change of the tariffs with adherence of 100% of the transition system, that is to say, from that reduction of transmission costs of all the Brazilian companies of about 60%, and a more specific case, for the distributors also, the important reduction of charges which was showed here throughout the consumption chain of industrial and residential segments. For the demo on the average rate reduction which is showed here on the first chart, 18% for poly cell, 18.4% Piratininga, and 22% RGE, 19.7% for Santa Cruz, 23% for Leste Paulista, 18% for Sui Paulista and [indiscernible] start and approximately 21% for Macaca.

So with this simple measure eliminated, that was transferred all the affects to the consumer and so what impacts we have now for the sector and the country. Here, we have an impact nonetheless or a view of what the prospects of this reduction will have permanently in real terms for the future. According to a consultancy firm that lend their services to us, we can see very clearly that there is a real prospect of increasing competitiveness, I'll go into this further later, for the industry, and this has a positive repercussion regarding the competitiveness and also for the export agenda.

So because of the tariff reduction, companies in Brazil have become more competitive, and not only because of this measure but others where I'll talk about later. More competitors in the international market increasing export. At the same time, as the imports, for the same reason, will be reduced so there will be less need for imports. And we can also see in the 0.2, 0.1, for example, in 2013, an increase of the industrial activity, so there will be an impact on industrial production and also the income of the women's [indiscernible] women's now will have relevance, less expense with energy. Bottom line, tariff reduction for all consumers, an average of 20%, will impact on distribution companies or [indiscernible] on distribution companies, a reduction, of course, of expenses with generation transmission and greater competitiveness on the Brazilian industry.

Right. So this simple measure, we are now onto Page 5, brings also because [indiscernible], some opportunities we may have won, more than 2,000 megawatts did not adhere to this proposal of this price percentage. So these concessions obviously will be put out to tender at the end of this period, which is 2016, so there will be opportunities for operators such as ourselves who are very efficient in our operations to be able to seek the opportunity of rendering O&M for these concessions. Reminding you that we are a very large operator of hydroelectric plants. We are also in those plants where we have a share in the control or we are operator of these plants and on all cases, we're rendering services at lower values than those that represented as a proposal to the current concession holders, some that accepted, and part of those who did not accept. I think is a very important point, where we're not and we want that [indiscernible] opportunities for O&M power plants whose concession will expire in 2 years' time.

On the other hand, it is also important to say that all these measures have brought about, especially regarding prospects of the term of contracts of purchasing of electric power and this already happened for the large consumers of the group A, where we're already not allowed to come -- to have a concession in less than 5 years. This did not happen with this special concession, which those in the last few years, especially last 2 years, had migration to the free market, although at that time, with the freedom of, once again, having a concession in 6 months.

These consumers who are the future of the free market now will have rules which is similar to what's called the aid for special consumers. So the -- and the rule is similar to the -- they will also have to have long-term contracts and they will not, at the time of making a decision of going to the free market, they will not be able to go back in less than 5 years. Definitely stay within to the commercialization companies, the challenge of a more typical sale of the supply of a long-term energy and more competitive conditions [indiscernible] which will bring advantage for the commercialization of companies of our group, first of all, because we are large, CPFL commercialization Brazil is the largest operator of this industry at the moment. And it has, as you will know, long-term position, and we also -- we will supply some PPAs. And we also know that small commercialization operations will be consolidated. There was a boom in the last few years, a significant growth of the number of commercialization operations. And we think, with these steps, this market has become more professional and this market demands operators with credibility, with financial capacity and technical capacity to format service options and consumer service in much more sophisticated conditions than -- and would be advantageous for the large companies and companies like CPFL Brasil.

So I would like to conclude the first remarks about the 579 and my remarks about the CPFL regarding the adherence to spot market average or the exclusion of 2,000 megawatts, which is very little. There is no other impact regarding this reduction, a part would be of revenue of our generated and commercialization companies.

On Page 6, we now have the second issue which is certainly a reason to confirm of the market which has to do exactly with the energy conditions. We have tried to put here these 3 charts. Perhaps the most important charts for the clarification of the energy condition of the system at the moment. So on the upper left-hand corner, we have the reservoir levels of the national grid, the SIN. This is the equivalent -- reservoir equivalent to the North, South, Southeast and Central West. And as we may see, we in fact, finished the year with about 30 reservoir for -- well, just about 30% at that time showing a delay of the wins. And at that time, all those would worry that we would find ourselves in different circumstances or more dangerous circumstances regarding supply.

I said to the press at that time that in fact, the rainy season, the long rainy season, especially in the Northeast, Southwest and Midwest, the rains were delayed, but as always, January, February, March is always relatively rainy season. There were -- there's real prospect that those reservoirs would fill up -- all our information about our reservoirs and the weather conditions. And down below, we have the curve, the rationing curve in 2001. We had a very atypical year at that time and the curve, these are practically flat, whilst we have some other curves above showing that in this period of January, February, March will always have a positive inclination regarding the reservoirs. And the same curve inclination that we have been seeing since December. We completed January with more than 7%, 37.8% therefore, February, 46% already crossing the atypical line of the year 2001, and our expectation here on our 12th of March yesterday, almost 48% of reservoirs, 48% full. And we will close March at about 52%, 53% according to our expectations and we are now 48% in 2 weeks.

And on the right-hand side, we have a consultant to help us here. And in January, due to the situation, they have an index of rationing and that [indiscernible] 49% we'll have in February, dropped in March. In the beginning of March, it was already 0% rationing risk, 0%. So why do you think it's happened like this? So the answer is down below. In 2001, to face up to that curve which was practically flat, we had a thermal electric plant about 3,600 megawatts at that time. We had a Brazilian system, almost 90 megawatts of load, 4% of the power supply in thermoelectric plants. And at that time, the thermal electric plants were very old and not very efficient.

This situation has changed significantly. We have improved fourfold that capacity, and we now have last year, we practically have more than 13,000 megawatts. This year alone, we were putting about 3,000 megawatts, we closed the year with approximately 15,700 megawatts of thermoelectric plants, all of them with much newer equipment and better equipment, gas and better fuel. And all of those obviously will give us much greater security.

And the size of having a problem of storage of reservoirs of water, as you can see in this upper chart which shows this is not the case, we have a much greater thermoelectric capacity now, which allows us in a hydrothermal system to dispatch the energy so we can have a greater safety first of all. So the decision regarding dispatch under the conditions that this was made, totally rational, correct as we see it, and will give us the most safe energy sector, which is the objective of all our plants. So it was very important to make this disclaimer vis-a-vis these energy conditions.

And besides that, we still have -- and on Page 7, some steps are being taken now, the first has been discussed, auction A minus 0 to bring part of the supply that did not appear to the concession renewal, the option of a contract of 2 years for 2,000 megawatts. Besides that, the adoption in experimental so-called tariff flags, this will allow us to have a greater number of consumers, especially the low-voltage consumers to be able to determine that consumption time where the tariffs will be lower, and we will be able to consume energy where the system has more expensive price, but we will have further so-called tariff flags, which will be applied as from 2014. But in 2013, we will already have this. And most of the companies, this will already be on the lightbulbs and we'll use the most real generation costs as we can and applying these to the consumers.

And the third discussion going on about the regional energy auctions, all this to maximize the production capacity and rationalize the transition costs in such a way which we can have royalties which are closer to the load minimizing the cost of transmission lines. Therefore, regional auctions are important.

And finally, in fact, we had withheld or have held discussions, I think, which are very important regarding the thermal plants and the hydroelectrics with plants with or without reservoirs, which will allow us to have thermal contracts according to the criteria, not only of availability but also of quantity, so that we may have thermoelectric plants at the base of the systems working throughout the year in a different way from the thermoelectric plants, which we have -- which are availability plants which have triggered us only when we have conditions that are less favorable.

Now on Page 8, we consequently -- I think it's important to mention how this dispatch occurs and how it burdens the concessionaires. So here, we have the so-called CCEAR by availability. So it's the energy purchase contract by availability. How does this occur? In fact, the annual -- at the anniversary, annual anniversary of each company, the -- included in tariffs and fixed cost of each of these plants and has also established this expectation of what the price settlement and the differences of the stock price which should occur during the year based on its forecast, all of the systems which it has available in its system at that particular moment.

So then how does this dispatch work? Well, thinking about the stock price, theoretically, over the year, we have a spot price established. [indiscernible] happen. Stock price may be lower and this can be seen here and when it is lower since we're charging consumers in lower spot price that, that which was not dispatched, start building up a liability as a distributor towards consumers. That is in the tariff assets in -- or has resources that were taken from the consumer but not all of the energy was dispatched because the spot price is lower. So in this case, in CVA, the checking account will reduce what consumers have paid in excess.

On the other hand, what will happen and happened in second half 2012, stock price will be higher, higher than what was established by the regulator for most of the distributor companies. Obviously, sharing the inaccurate run patterns of last year. So what happens is just like the exchange rate reflects it so much. Then we have less room, the spot price tends to go up. And in this case, we will have to dispatch more thermal energy. These thermal plants are dispatched by the generation cost, at the generation cost, and probably, they will be dispatched by order of merit at a higher price that had been established biannual.

In this case, this excess value that was paid by the utility becomes united. So that in the next tariff review, be discharged from consumer. But in this case, utilities anticipated with demand on behalf of consumers and add to the tariff, it will be paid with these terms. It's important to understand this because there are a number of availability agreements, as I said. There's 13,700 who follow this pattern.

But beyond that, and here we're talking about [indiscernible] which are the system service charges. So beyond the dispatch, according to the order of merit, is the stock price has been lessened for order of merit dispatched by that threshold. But the TNC [indiscernible], The National Council for Energy, can order dispatches regardless of the order of merit. But basically, to preventive dispatches. So for instance, the spot price last week was around BRL 370, so we should have dispatched [indiscernible] of merit also [indiscernible] up to this benefit of BRL 370.

However, our dispatch is higher for power plants behind a diligent cost beyond BRL 270. The dispatch is simply preventive dispatch but it creates additional cost.

Very well. On the news, looking through -- all of this month in January, in the case of the utility vendors CPFL Energia, BRL 164 million was exactly the cost of the distributor company regarding the regulated market contracts by availability. This certainly [indiscernible] another instance in gloom refers to anything that exceeded the order of merit so it was beyond the spot price. And here, the argument here is the preventive dispatch or safety of the system. And then in January, we have 2 other items which were not part of the distribution company list. This one in yellow and in red. Yellow, you remember what I said that 2,000 megawatts on average did not embrace the proposal for newer concessions. And its volume was designed as credit for the distributors. Since the companies did not accept that, distributors were under-contracted.

And there was this exposure, involuntary exposure to the stock price. And naturally, this is involuntary exposure because the utility, it has contracted 100% that's created if generators had offered 100% of credits. Since a few did not come clean, the quarter volume fell short of the estimate so this is why we have this BRL 37 million costs that is beyond the contracted volume below utility sales on [indiscernible] or equivalent to the stock price amounted to BRL 27 million. So you may perhaps demand perfect answers, this is important also made to generate [indiscernible] completely the hydro versatile rate is the plant always to generate what it has to, what was estimated. This is -- it's passed on to consumers. And this the hydrological risk, the so-called hydrological risk.

So the expected 100 units of power and only 97 units of power is produced. So this, too, is the hydrology risk and those generators, you decided to run more plants at 32. We are certain that has its [indiscernible]. So this is the past transmissions. Now 3, now this is just the BRL 36 million, and it's important to point out, out of the 4 items mentioned here is exactly, you use those on the interactions among the groups, and the governments and we are [indiscernible] under the association. It's important to say that, [indiscernible] that. Well, we're not [indiscernible] on this exposure. What happened has happened for the first time, but it will occur again for sure, or either the hydrology risks, which was not a built-on item, but had started to be as we converted that product volume integrated. Or the dispatch of thermal plants out of merit. So the 3 items which are a result of Decree 7,945 and in this quarter, we had the Decree, this would have -- it would have been passed on to utilities. This would be [indiscernible] by city. Around BRL 100 million of this [indiscernible] to 260 will be shouldered by CVU.

However, on the other side, we have with the regulated market contracts. It's estimated that part of this contract will be shouldered by the CVU, and the annual realignment for us to have a reduction and the amount could be passed on to consumers. And this will be a utilities criteria because this exposure is not even. As you are more exposed or these are less exposed to a renewal when the time comes for the property alignment, we'll consider that and may inject half of the funds straight into the company. So look at it as transferred to consumers.

And here on the right-hand side, much bigger. Well, the structure changed, there was a change in the threshold of overcontracting. Here we have 3% and now we have 5% and this will reduce overcapacity for the industry and will make power conversions in Brazil even more robust and this is an important achievement. And -- but on the other hand, is the topic of the pricing of regulated market contract, if there was any kind of -- any random pricing, this will -- spot price -- pricing method will be made more robust than the transmission criteria. But the spot price, that will be incorporated by each utility, will be as close to reality as possible. So this not sophisticated methodology in the spot price method will be incorporated, so that this amount will also fall over time.

So I'm now on Page 13, and as a result, I'd like to show you 3 projects [ph] here. We are -- positive outlook regarding the assets that we're operating and investing from. Our CCEARs here improves distribution, this is our main business segment. Power of ordinance has been growing over the past 5 years at nearly 4% in a year. But the result of our operating profit is bigger, all growing at 8.8%. And this also shows that our concessions are more efficient and we have shared this with the market for some time, it includes 2012 with its recurring EBITDA in IFRS of BRL 2.678 million.

Now we can see that our generation strategy is becoming sharper. We'll grow more quickly, we'll have CAGR for EBITDA of 27.7% a year. We closed 2012 with BRL 1,671,000 in EBITDA from the worth and present participation of the recent strategy adopted by the company, drafted and reviewed -- the managers, which already accounted for 1/3 of the generation total or 60% in our generation as a result of investing in renewable sources. Installed capacity has been growing steadily, as you can see, at 15% a year.

Very well, on Page 19, we have the same breakdown for commercialization and services. As I told you in the beginning, commercialization in 2012 had come to a standard and we are now the greatest operation of the industry, and EBITDA has been growing BRL 250 million to BRL 280 million a year. So the uniform is to focus, diversify CPFL Brasil and CPFL Services, with the third addition of the management. We did this last year. Their model is a better focus on commercialization and on services. We have a number of distributors here. And this has led to [indiscernible] of results, the last BRL 300 million, but it's important that we're investing in commercialization. You see the number of consumers has grown in Brasil already. We use lots of strategies [indiscernible] in the northeast, in the south. 2 operations are in the southeast, so we've been growing that platform and we understand that either aim to what we invest in terms of just customer base, or either by the consolidations that may happen in the industry. And the new, fourth is CPFL Energia. As you're all aware, we matched debts off.

As a result, the bottom chart summarizes the company growth. So we have the EBITDA -- consolidated EBITDA growing at 7.5% a year, and we closed the year as the largest distribution company, market share [indiscernible] strength, and now we are the commercialization leader, 10% and we closed the year as the second biggest private generator, with 2.3% of market share.

We will now go on to Page 20. Very briefly, let's talk about the fourth quarter highlights. It's important to say that sales grew in the concession area. The startup of 2 plants, a solar plant and another smaller hydro plant. Investments over BRL 500 million in the fourth quarter, 2.5% (sic) [BRL 2.5 billion] in 2012. Dividend payment close to BRL 1,100,000 and acquisition, along with Equatorial, of Grupo Rede's assets and under the [indiscernible] bid, that we expect to conclude by the end of the first half year. Extraordinary Tariff Review, with no impact on the remuneration of distributing companies. Increase in share's liquidity by 30% last year and also, awards, specifically in regards to sustainability, innovation and in particular, the company remained at -- within the ISE, and for the first time, joined Dow Jones Sustainability Index Emerging Markets.

Very well, let's move on to 21 and 22, talking about energy sales. So in the fourth quarter of 2012, sales showed or -- this is an idea of what 2013 will be, very vibrant sales in the captive market, slightly above 3%. I called your attention to the TUSD because this is such a large line, 12.12%. And in concessions, we grew 5.6%. This can be seen in the right-hand corner graph. We also grew a lot in the taxes, double what the region grew and looking now at the South, you would see an impact. So many power plants and each is connected to Argentina that we believe we'll see an improvement on that. But we've posted a growth much higher than Brazil, particularly, along the segments in the Southeast.

Total sales growing at 12.1%. We've talked about the distributor companies, 30% of commercialization and conventional sales and 117% in the operations of CPFL Renováveis. Now -- and the news, we only have 10%. I've been in this industry a very long time and there are a few times that I have seen this kind of growth in household segment and the recovery of the industry of 1.6%.

On Page 22, we have exactly the same approach in here for 2012. So total sales grew by 3.8%. TUSD, the tariff for the use of system, the distribution system is, here, 8.1%, 14% on top or an extra 14% for commercialization and so it looks, in renewable energy, and here, what happens in the year, 7% and the industry recovered around the third quarter, or grew 7.7% and we continued showing growth higher than Brasil.

Now let me show you the 3 charts on Page 23, talking about households. Here, the most important thing is the migration in São Paulo state, so we see that people are moving away from the Metropolitan Region, where we have very little growth, 0.98%. And where are people going to? They're going to [indiscernible] from São Paulo. So here, we're talking about 2 regions, the Baixada Santista and the Campinas region. We can see that population is growing double -- at double the rate of the Metropolitan Region, and migration is 3% in the Santista Region and this will now grow with the 2 close region -- I mean, the Metropolitan Region, the Campinas is the second largest of the São Paulo states growing at 9%.

And on the right side, we see just straight ahead. The passive alignment we see real income growth and residential consumption is actually even. And here, we talk about housing credit, and perhaps this is a challenge in Brazil providing housing for the population creditors. There, you'll see a portion of Brazil, 4.8%; countries such as China have 15%; the European Union and the U.S., around 50% to 70%, so we have a lot to grow.

Now on Page 24, we have retail sales. So we see, from 2007, you'll see that we've grown 60% over this period, more than 10% and indicators of retail activity grew 75%, it's an excess of 15% in the year. So you'll see under new opening of shopping malls, it's actually 16% of the business, shopping malls are located in the CPFL concessionaires in São Paulo and Rio Grande do Sul, and okay, and a perfect alignment between retail sales and commercial consumption.

Finally, let's move on to Page 25, where we have industrial production. Well, last year, we can see here in the top chart, a lot of competitiveness -- lower competitiveness. Looking of the digits that are placed there, rising costs, problems with infrastructure, overvalued exchange rates. I'm not going to dwell on this. We've talked about it lately, but we have a number of stimuli -- stimulus proposals that the government came up with, which addresses the reduction of the burden for companies, but not too important really.

The monthly consultations and disbursements at BNDES grew about 50% from the second to the third quarter in terms of third to the fourth, with corresponding disbursements. And on the right-hand side, you'll see what I told you in the beginning, why do we believe that the industry will gain competitiveness? So comparing 2012 and the forecast for 2013, there are a number of elements that will be determinant of the index for total cost in the industry. So we'll see a drop on the unit labor cost. We see here electricity cost, a nearly 20% drop and this reflects what happened in January. Stability in domestic input as more growth in non-tradable domestic inputs; imported inputs had some growth, but you'll see that the total cost index was practically level and the index for nominal exchange rate dropped by 18% (sic) [25.4%] -- index for total cost. And this is why we believe that the industry will be more competitive on foreign markets and exports.

Now let's go on to Page 26 to our fourth quarter results. Here we have also the reported amount above and IFRS, and IFRS particularly for this quarter dispatch, which we have in the last quarter. Obviously, it's [indiscernible] expensive and does not recognize assets of regulatory basis because of the decrease. This will be reduced, the assets and liabilities, but for the time being, this is what we have. We have increased our revenue. This reflects the startup of operations, tariff adjustments, they grew 27%. In revenue, we dropped 16% EBITDA and 42% in net income. This is IFRS.

When we build on division of regulatory assets and liabilities and a group of [indiscernible] recurrence, particularly private pension funds, the result which would be managerial and the current of the company, there was a growth of 35% of EBITDA and 15% of net income. What are the things which affected negatively the company in this last quarter? Well, the most important we're talking here of BRL 310 million, which can be seen here in the EBITDA of the first quarter this year. It is 30 last year, it's 310 this year.

This leads us to bottom line more than BRL 300 million or less BRL 300 million in fact, which refer to these regulatory assets and liabilities, which we will see in the next -- which we'll see the effects in the next 12 months. And then we have regulatory assets and liabilities and also the financial income of the distributors. This is exactly the new application and the positive results for the concessionaire, although an accounting, there is no generation in cash.

And here I would like to mention that this is not an economic result, financial result, I mean. I also think what's [indiscernible] prudent the figure, we have not put out dividends. We have a reserve. But some analysts have reported in their results that this is a reduction of payout, that we would maintain the same payout of 95% of the distributable result and not the accounting result. So this report is important and now we have here and also because of the company being more conservative, these are the amount of lower legal and judicial expenses. We have reinforced legal and judicial expenses reserve. So less IPP have been strengthened. At the end of last year, we had a greater delinquency particularly, approximately [ph] at the end of the mail's [ph] mandate and administration. So we reinforced our RPP [ph] positions and we increased also our efficiency to [indiscernible] to the cost regarding dismissal of people from our confessionals.

And you will see that from the point of view of EBITDA, this group of items, regulatory assets and liabilities, nonrecurrent items have impacted the result of EBITDA. And about BRL 403 million and net income BRL 232 million in this quarter. The next [ph] explanations here on Page 27 of these results of the fourth quarter. Summarized, you can see the 2 performances the managerial, recurring managerial and the reported IFRS. We'll talk about the reported IFRS, a gap [ph] of 16%. We also have 27% increase of income of revenue growth of [indiscernible], a growth of average tariff because of adjustments. 6% of [indiscernible] improved and we showed because of the growth of variable CPFL and services and generation. This has given an increase of 27%.

And then we have a very much greater growth percentage-wise of the energy cost. And here, we have not only the cost of that energy from reserve [ph] but especially what we will talk about in the beginning with dispatch of thermal of BRL 470 million. BRL 250 million are in the dispatch [indiscernible] and so-called [indiscernible].

And also, regular cost with [indiscernible of the system of BRL 222 million, so more than half of our increase in the cost of energy refers exclusively to the dispatch of thermal [indiscernible] energy [indiscernible]. And on the other hand, the increase of expenses of R&D [ph]. And here, we have several things and I will show you the recurring -- the expenses are good. But at this moment, we will also have the thermoelectric and just in [indiscernible] more than BRL 100 million.

And moreover, [indiscernible] the separation in the second half of the year. And we have not also with coming on to operational other assets. It includes the personnel costs, the collective bargaining procedure dismissal, which was negative. Legal and judicial expenses and others that I referred to, BRL 432 million, the writeoff of discographics [ph] BRL 28 million and adjustments in bad debts, BRL 22 million and the exchange's differences as well. So from BRL 42 million to BRL 306 million.

And now Page 28, a drop of net income. And here, this [indiscernible], this negative variation with the EBITDA drop which was affected by the IFRS criteria, so EBITDA dropped 16% or BRL 160 million. There was a reduction on the restatement of net income of 27%. And here, among the very effect which is exactly the update in -- financial update of the assets of the distributors of BRL 96 million. But here a reduction and the debt charge because of the growth of macroeconomic [indiscernible].

The decrease of income and financial investment BRL 77 million, you can make a guess. And then the consolidation in CPFL Renovaveis, BRL 57 million, these are the most important items of this point. And then depreciation and amortization because they're coming into operation of assets and the renewables, and in the geographies of balance and withholding [ph] tax and also a credit of income tax because of the difference in results.

On Page 29, I will be brief just to assure you the results of 2012 and also much more for the analysts and investors can see the recurring base of the company in IFRS, a slight growth of 1.2 of EBITDA, a drop of net income 22% and the recurring results net of regulatory assets and debt and liabilities [indiscernible] which we have for next year, for 2013 I mean, because [indiscernible]. Most of the regulatory assets made up are the [indiscernible] distributors, the largest distributors of the group, which has a tariff adjustment now on April 8, in a month's time, less than a month. Much of this account of regulatory assets, much of this dispatch of thermals will be incorporated both in here [indiscernible]. But it's important to highlight here a growth, an important growth of EBITDA of 22.7% in the annual base, but totaling BRL 4,625,000,000 and the same thing would have happened to the net income growing to BRL 1,676,000,000.

The details are similar to the one that I've just given you highlighting just here the regulatory assets and liabilities BRL 670 million, which would impact the net income, BRL 439 million. And then with the discounts of the -- that we build in the balance sheet, we still have here a remaining value of BRL 700 million.

And as I've observed, I think it's important to talk about these details. There are several things going on, but the commitment that we have with the analysts and investors particularly. And to be very stringent with costs and very efficient in our operations. So here, we just have a reconciliation of the results. And the results would be of personnel, material, third-party service and others. We will have a nominal drop of 1.9% or a real drop of 7.2% when we include the inflation growth for personnel, material, etc.

Here in the personnel, we'll just have some reconciliations too because of the dismissals that we've made via [indiscernible] and the growth of CPFL Renovaveis and CPFL Servicios. And with this consolidation, we have a growth of our personnel expense of 2.9% in nominal terms and a drop of 2.7% in real terms. And on the left-hand chart. And regarding materials and services and others, we do the same. We make the same consolidation. We reported MSA [ph] and the adjusted nominal, which dropped 12.4% and the readjusted rule [ph] which dropped 10.6%. So this is included in the recount base of the company indexed BRL 108 million. We talked about BRL 100 million. And largely we have this because this is the best natural company and also because of the implementation of the euro-based budget.

On Page 31, I'm talking about the debt of the company and payout of BRL 406 million in dividends, and this has to do with the payout of 95% of the distributable results. The company then with this dispersement has more than BRL 10 million in dividends distributed since the IPO.

On Page 32, the prospect of future costs. We are planning investments of BRL 8.7 billion throughout the next 5 years. And we invested more than BRL 2.5 million last year and BRL 2,200,000,000 this year just in distribution. With the completion of the third cycle and the maintenance regarding generation and potentially renewable generation.

On Page 33, we have leverage. The company with a net debt of BRL 12.6 billion, a covenant rate which will be adjusted at the beginning of the second half of last year [indiscernible] here, considering the so-called regulatory balance or regulatory assets receivables and a reported value by IFRS, 3.6 but in the amount used for the government's 2.89. What is important here regarding this break down, 60% of the company's debt in CD [ph]. I think it's important to highlight the importance of the financing for BNDES, almost 30%. 8% in the prefixed is the PSIm, have all [ph] below the inflation.

This [indiscernible] about a reduction of the nominal cost and the real cost of the debt. We are at lowest levels ever since we started measuring 9% of nominal cost, 2% of real costs. And so this leaves us with amount of cash flows the company cleared [ph] the year around BRL 2.5 billion. You may see this on Page 34. The coverage -- cash coverage of the short-term debt and 1.3x, we've -- average term is 4.5 years and we have -- we have a very balanced profile, about BRL 2.5 billion in year, short term 12.8%.

And I'll highlight here this financial field of latitude that the beginning of January, we approved the issuance of a debenture for 13 years or to give us greater flexibility and also to freeze up 2 other commitments regarding the oil dispatch. So a very good issue coordinated by the Banco do Brasil for working capital CDI plus 0.83%, and maturity 8 years. This is the first issue that really the group has with this term maintaining our ratings by Standard & Poor's or Fitch of a AA+ because of the company's flexibility and diversification in generation, distribution efficiency, and this reflects the good fundamentals of the company.

So with this cash now coming in, in February, we have a cash position of BRL 3.4 billion at the end of February, which is almost twice the short-term amortization average term growth up to 4.6 years, and short term we have 12% of our debt.

So let's now turn to Page 37, just to report on the assets [indiscernible] For the first 4, which will start operations at the end of this year or the second semester, 582 megawatts in the first half of the year. Also in that quarter, we will include more -- another 330 megawatts, all of them contracted and we will conclude this work in the [indiscernible] by the end of the year, 1,500 megawatts of assets under operation and contracted.

Page 38, [indiscernible] the performance of the shares, as we have said, a drop, will drop together with the electric power rates in the first quarter and the year with the top reflect the good fundamentals of the company and also the question of exchange, we dropped 20%. And more of the good news is the increase of the average volume of trading.

And on Page 39, the maintenance of CPFL on [indiscernible] which is one of the 2 companies that has [indiscernible] the YOC [ph] since December '05. And we are delighted to enter the portfolio of the Dow Jones Sustainability Index emerging markets.

So this is what I have to say. And so, we have gone over our time to look at it but I am at your disposal. And I would also like to say that we have been appointed -- or Gustavo Estrella has been appointed to be the CFO of the company, taking Lorival Luz's place who has now moved with the company to go on to new challenges. It is great to be able to use our succession plan within the very important portion of our group. And we have been working for more than 5 years with an international consultant. Gustavo comes from in-house. He has been with CPFL Energia for more than 12 years all from a financial area. He is well known to some of you and -- in IR, and the last 2 years, he received the challenge of coming back to planning and controlling and to implement the Rio [indiscernible] project. And the improvements reflect [indiscernible] activity and his efforts, so it is great to be able to share this with the market. We're proud to have Gustavo Estrella to be our CFO.

For now, I'm at your disposal for questions.

Question-and-Answer Session

Operator

Ladies and gentlemen, we will now start the question-and-answer session. [Operator Instructions] Our first question comes from Mr. Marcio Prado from Santander.

Márcio Prado - Santander, Equity Research

Congratulations, Gustavo, for your appointment. I have 2 questions, one about the industry and one about the [indiscernible] outlook. About this sector, you said was about commercialization, the expectation of the consolidation of the sector, as we see it. Now the query published last week, we understand that the commercialization completes we have to pay part to the IFRS and with the energy security. And our plant [indiscernible] BRL 4 per megawatt hour traded. But when you look at the [indiscernible] IFRS Brazil, we see that in one of the largest of the sector, net margins are low. The net margin was about 5%. So question, I'm not sure if this would corroborate with the idea of a consolidation that would generate concern about the sustainability of the commercialization companies if they have to pay in part well in transaction. And so I'd like to understand, if you think this will and do you see this with concern just the side of the commercialization, this and the effect of the last week's decree. And then this nonrecurring item regarding legal expenses of BRL 150 million, can you give us more detail regarding this subsidiary and what issue of price?

Unknown Executive

So the question was, just as you said, we see the same way this problem of -- well, commercialization is in fact -- has in fact, lowered margins. This is the future of the business. And ours boils to the highest origins, perhaps, or someone would attribute [indiscernible] the number of consent by the market. And it also stir concern among us impugned by this charge by distributors. And I have no doubt and this is public, so both the association of commercialization companies have generated, have challenges, is this transition phase basically have required [indiscernible] the government, with ministers, with [indiscernible] I wouldn't say, this topic is totally behind us. And we are looking to 2 things happen. Either they will recognize that payment of this charge doesn't make any sense at all, either to generate it to the distributors. Or in the case of distributors, it will end up in -- be built in to the consumer price. Because the margin is so small and you wouldn't be able to deal with the extra [indiscernible] all of that commercialization operation as it's been talking about distribution. They tend to incorporate the topic of scale. I mean, they intend to build scale to be competitive. I have no doubt that the free market, at this moment in the world is the free market will grow and your potential of migration [indiscernible]what should have doubled the free market or will it come [indiscernible] but they must have more efficient agents. We understand we are one of these agents, not because we're one of the largest, but earned the distinctive competencies that we have. It's with the system of price and market forecasts and government practices regarding most quality approach in regards to [indiscernible] invest in [indiscernible] that will strengthen the commercialization operation, and to be very honest I believe that the [indiscernible] about the charge, CPFL will join in and they challenge this charge. Also regard the provisions that -- the latest provisions you have detected. Well, there are 2 things. First of all, we provision all our key decisions to recognize credits that were a result of incorporating new building systems, and we believe we have to reinforce these decisions based on numbers from the second quarter of -- second half year so we included BRL 25 million in provisions and 1/3 of that in the last half year. And we believe this is absolutely [indiscernible] to what we have to pay. So we've included a provision criteria that is more restrictive than we have in the past. And the other half, well 75 refers to LLP and 55 refers to the legal treatment BRL 50 million in the reinforcement to our provisions. We estimated [indiscernible] or similar companies that we detected that are the excess rate which is 10% of our operations but it would be reasonable to do this to reinforce the provision and we did that with [indiscernible] department so we believe that this was an important initiative to strengthen our legal management ability. And obviously we will profit from the managed organization [indiscernible] and as a result [indiscernible] we believe this is important. We continue being the company with the lowest provision by continuing this in the entire industry and it shows how efficient the company is but we believed we could increase this efficiency. So this is basically what it is.

Operator

Our next question [indiscernible] from JPMorgan. [Operator Instructions].

Our next question is from [indiscernible] of capital.

Unknown Analyst

Quick question about [indiscernible] accounted for as debt or income.

Unknown Executive

This has not been regulated yet. Basically, the energy development account is [indiscernible]. And we are working so that this is posted as income rather than debt. And this somehow will determine that the IFRS accounting either provides [indiscernible] overturned not posted it as a loan but as revenue for the company. So that will have positive impact under the IFRS. So we'll move this recommendation. The discussion [indiscernible] it will actually reinforce the balance sheet of the company and obviously the IFRS in its failing to recognize regulatory assets for market purposes, it shows since you have to post expenses, remember you carry under the [indiscernible] regime, you end up having a first impression of indebtedness. So it affirmed when we did the study, it was not to have a very firm focus on cost coverage but also and this has been a constant asset here proves to be recognized under the IFRS as revenue rather than debt.

Operator

Our next question comes from [indiscernible] with JPMorgan.

Unknown Analyst

We were having some problems. I will ask 2 questions about the asset [indiscernible]. Which ones are preferred to be taken up from auction? And I'd like to know whether you have an estimate of EBITDA to drive these assets. And I don't know [indiscernible] about the recurring assets, where you keep certain assets, what will happen with your holding company.

Unknown Executive

Very well. As regards assets, obviously, we have put together a group in the company to look into each of these assets that showed balance to the sender. Obviously, owing to our method of [indiscernible] with our assets with higher information, we did not have any [indiscernible] presence for assets. Any high-generation assets can be operated by CPFL but, obviously, with these larger assets, similar to the ones we have also, because our cross-reference is already established for this kind of assest. I'd say that if we have to look at the estimated and implicit costs of a -- that was built into the generation [indiscernible] at the moment and depending on the size of the plant is between 10 and 15 [indiscernible] operations, [indiscernible] operations and always have lower amount between 10% and 12% [ph] lower. So obviously, we are [indiscernible] operation. Now as regards with [indiscernible] group, the final operating structure has not been established yet for 2 things. First of all, I'd say that there was less than a week from the illegal recovery [indiscernible] and we have an operation that gathers or has the best of 2 groups as regard to regional operations. The experience of Equatorial is proven in accessing the North everyday and the advantage [indiscernible] in operating assets in the established [indiscernible], particularly in [indiscernible] also recognized. There is no -- no decision has been made as to what will be done after the conclusion of the process, but we will try to incorporate synergies into the northern assets to Equatorial and in the southeast to CPFL.

Operator

[Operator Instructions] Our next question comes from [indiscernible].

Unknown Analyst

Could you talk a little bit about the settlement of energy contracts in January, which are more good? And what do you think should occur in -- of this -- and what about the strategy of [indiscernible] energy in the first months and less during [indiscernible] seasonality?

Unknown Executive

Well, there's not much to say about the suspension. [indiscernible] suspension has a motive, which are a lot about companies but regardless of any other judgments, there was -- the provision for a typical [indiscernible] seasonality prefer. In other words, in a retract mode when price is already known. So what does this mean? Just to justify the request made by Electrobras [indiscernible] companies such as ours [indiscernible] answer your second question, that serves the generation companies, which are [indiscernible] to meet the needs of economic [ph] energy throughout the year. How is this seasonality done except for very specific characteristics, original capacity? We work if it is about, let's say, a period of 100. We work with variations not about 5% above or below when we do the 3 seasonalization [ph]. This is a practice based on the operational capacity of these assets. So theoretically, we are not one of the companies that have done a typical seasonalization. We did a typical one. Because should there be an "opportunity" of a typical seasonalization to benefit from a higher price, a stock price in the month of January, we also seek a very typical exposure and placing the company in a long position in January. You obviously would put the same company, the same assets in a short position throughout the year where there will be a very clear prospect of higher prices. Stock prices [indiscernible] still be higher still than we have this methodology applied throughout the year. So we did not operate the group's generation assets in a speculative way. We do this seasonalization in a very technical way to meet the need for the load that we are contracted for. We will [indiscernible] the allocation of prices. We are quite satisfied with the big loads that we have. But it's important to know that our generation assets [indiscernible] do that. They are obliged to do a flat seasonalization and in this case when we have an atypical seasonalization calling for a significant value for real prospect that this aspect can be reimbursed. It was only atypical because it could be done retroactively with a known stock price and were benefited from this. We generated who do not have certificates from us, contracts to be honored throughout the year. This seasonalization then couldn't be determined with [indiscernible] without the risk of the short exposure during the year. This is [indiscernible] it might have been [indiscernible] regulator. And since it does have impacts, we -- seasonalization may include some problems for operations already carried out. I think that there are -- we have all the parties served to decline which [indiscernible] vis-à-vis this procedure of January. We did not do this atypical seasonalization, therefore, we are neutral regarding this event.

Operator

Next question, Mr. Henrique Peretti from UBS.

Henrique Peretti - UBS Investment Bank, Research Division

A question about CapEx. You have a CapEx of BRL 1 billion for 2013, BRL 1,082,000,000 for CPFL Renováveis, and for general Renováveis, BRL 1,600,000,000. Why the difference? And an increase of BRL 400.80 million [ph] for distributors. What is the motive? Why go to CapEx for distribution?

Unknown Executive

Regarding the 2013, this amount regarding generation, BRL 1,072,000,000, is 62% of the CPFL and CPFL Renováveis, a 100% stake and BRL 1,072,000,000 is the pro rata of our stake. And you asked a second question regarding [indiscernible] and I couldn't hear you very well regarding 2016. The sound is bad.

Henrique Peretti - UBS Investment Bank, Research Division

The guidance has increased BRL 460 million. And another figure for 2016, why the difference? So we have a higher CapEx [indiscernible].

Unknown Executive

Mr. Ferreira can't hear either. Oh, okay. So as I have understood is that you were asking me why in 2015 and 2016, we don't have an increase of CapEx for the distributors, right? Well, the non-explanation were -- is because of the inclusion of the systems and electronic measurement, teller measurement, smart grid system. And we imagine that a discussion that is being carried out or will be carried out around 2013 as a whole and the setting of the standards, et cetera, might have a greater impact to the company as from 2015 and '16 because of the closing of the revision cycles and the [indiscernible] RGE. Next tariff cycle will be 2017. So being the 2 largest concessionaires from the point of view of residential and commercial consumers, so this increase of the level also is because of the inclusion of the teller measurement of these consumers.

Operator

At this moment, we would like to close if you don't have any questions. And I would like to ask Mr. [indiscernible] to proceed with his closing remarks.

Unknown Executive

Well, once again, I would like to thank you, all, very much for listening in. And we state our positive outlook for -- regarding the last 6 months activities more than a question of uncertainty. I think these are built important stability, regulatory stability, and the soundness of regulation. And also, it's so important that concessionaires have been very [indiscernible], as I was just referring here with my colleagues, for example, to be seen of the concessions of CPFL generators. The first will expire in 2032, and this was after '35. So this guarantees cash flow with these operations, which will be sufficient to continue to grow strongly in this segment between [indiscernible] important stake at Renováveis but also to continue participating -- we participated enough in the last generation -- large generation projects. And also, I'd like to mention the moment the villa is experiencing and the impact that this can bring to the energy producers. And the economic growth forecast is followed by an increase regarding energy sales prospects, and we are ready to meet these needs in all activities. The company is very active also in M&A, where there's a great potential for growth ambition regarding distribution and generation. As you all know, we can double our size in 5 years, but we are also [indiscernible] for our capacity and commercialization and, more recently, in services for all of this and also consider not only the level of efficiency but a reward that I have presented. And typically, we're affected in the first quarter of last year, but we understand that all these regulatory steps and [indiscernible] have only strengthened the companies, reducing the [indiscernible] activities or accounts. And we believe that the future presented to the companies will mirror these good prospects, the recovery of past results and also the decrease to future charges and the showing of a very efficient platform to generate, distribute and sell commercialized energy. We will see this in the next quarters. Thank you very much.

Operator

CPFL Energia conference for today is finished. Thank you very much, and have a good day.

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