Strategy and Competitive Advantages
Our objective is to capture growth opportunities within the Brazilian energy industry and to consolidate our position as the largest and most profitable integrated electricity company in Brazil. The key elements in our strategy for achieving this objective are described below:
We intend to search for organic growth opportunities within our distribution concessions, based on our competitive positioning.
Our concessions still require a huge volume of investments, which implies expanding our regulated assets and, consequently, our subsidiaries’ gross margin remuneration base. Thus, we will continue to carry out our investment plan, expanding the access to electricity (universalization) while enhancing the quality of the service we provide, in addition to automating our grids and systems as we evolve towards smart energy grids.
We will continue to push ahead with our program of operational excellence as the industry’s standard bearers in terms of efficiency and quality. We expect that across-the-board automation, smart metering and mobile workforce management will lead us to further leverage the resources and the use of the grids, thereby reducing marginal costs.
Our in-depth understanding of the market, prospects and the tariff structure enables us to make the most of business opportunities and to expand the range of services offered to our consumers. By integrating sales with energy generation, we are able to further strengthen our energy portfolio and attend to customers with a wide range of profiles.
In the case of our generating activities, as electricity consumption in Brazil rises over the next decade, we will continue to explore opportunities for investment in new generating projects, but subject to strict rules on return on investment, so as to ensure we can meet the demand for energy. Our expertise in renewable energy and large-scale hydro projects dovetails with the government’s outlook for expanding the energy matrix, which qualifies us as potential participants in regulated auctions.
Our track record in constructing generating projects distinguishes us for our ability to manage and deliver within deadlines and according to the business plan, which means we are competitive when participating in auctions with the lowest price and guarantees returns from the projects.
In April 2017, at ANEEL Transmission Auction No. 05/2016, we won four transmission concessions in Brazil. Those concessions produced attractive returns for the transmission segment.
In Brazil, there is huge demand for investments to expand the transmission segment. Recently, the returns in this segment have regained an even keel, thus increasing the attractiveness of the projects.
We expect new auctions to be held in the future and we will continue to evaluate the opportunities in transmission projects by focusing on the profitability of each lot and on the operational synergies with our existing assets.
We expect the merger of Elektro to provide significant synergies and a successful integration process. We have already seen some positive results, such as the expansion of trading gains and purchasing power of the procurement area.
We expect our COGS expenses to diminish through standardization of processes, reallocation of tasks, internalization and overall consolidation of the support functions within the limits established by the regulator.
We believe that our credit risk profile will improve as our companies’ indebtedness diminishes and we begin to generate cash from the greenfield projects, potentially reducing the cost of future financing. Moreover, our corporate profile has been enhanced by the merger of Elektro, whose volume of assets and robust project portfolio will enable us to access better credit conditions.
Our competitive advantages are:
- We are one of the largest energy distributors in Latin America, with assets in attractive markets, a diversified customer profile and services recognized for their excellence.
- We expect a favorable tariff review for our distribution concessions
- We operate in the energy distribution sector, with high quality and efficiency
- We have one of the major integrated energy platforms in Brazil, with a large share of regulated distribution and transmission business, long-term Multi-year Plans and concessions and generating assets with diversified matrixes
- Our solid experience in developing projects in all segments of the electricity industry, when combined with competitive financing facilities, represents a differential in capturing and developing new opportunities for growth
- High standard of governance, combined with a management team with solid experience of the sector and a controlling shareholder which is the benchmark in the industry in global best practices.
- A demonstrated ability to achieve growth through financial discipline and profitability.