Companhia Paranaense de Energia’s (ELP) CEO Luiz Fernando Leone Vianna on Q3 2015 Results – Earnings Call Transcript
Companhia Paranaense de Energia (COPEL) (NYSE: ELP ) Q3 2015 Earnings Conference Call November 12, 2015 12:00 pm ET Executives Luiz Fernando Leone Vianna – CEO Luiz Eduardo da Veiga Sebastiani – CFO & IR Officer Gilberto Mendes Fernandes – Business Management Director Sergio Luiz Lamy – CEO, Copel G&T Ricardo Goldani Dosso – CEO, Copel Renováveis Acacio Massato Nakayama – Assistant Director, Copel Distribuição Adriano Fedalto – Accounting Superintendent Analysts Carolina Carneiro – Banco Santander Lilyanna Yang – UBS Operator Good afternoon and thank you for waiting. Welcome to the Earnings Call for Companhia Paranaense de Energia Copel to discuss the results of the Third Quarter of 2015. All participants are in listen-only mode during the company’s presentation. And later, we’ll have an Q&A session, when further instructions will be provided. [Operator Instructions]. Before proceeding, we should mention that forward-looking statements that might be made during this conference call related to Copel’s business outlook, projections, operating and financial projections are based on beliefs and assumptions of the company’s management as well as on information currently available. Forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions because they relate to future events and, therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may also affect the future results of Copel, and could cause results to differ materially from those expressed in such forward-looking statements. With us today in the conference call we have Mr. Luiz Fernando Leone Vianna, CEO of the company; Mr. Luiz Eduardo da Veiga Sebastiani, CFO and IR Officer; Gilberto Mendes Fernandes, Business Management Director; Mr. Sergio Luiz Lamy, CEO of Copel G&T; Mr. Ricardo Goldani Dosso, CEO of Copel Renováveis; and Acacio Massato Nakayama, Assistant Director of Copel Distribuição. The presentation will be delivered by Copel’s management, and can be followed on the company’s website www.copel.com/ir. Now, I will turn the conference to Mr. Luiz Fernando Vianna, CEO of the company. Please Mr. Luiz Fernando. Luiz Fernando Leone Vianna Good afternoon. Welcome to the conference call for the 3Q ’15 earnings. Events which are considered to be very important to discuss about our company and also about some perspective of the sector, I remember that in our prior opportunity to talk, we were close to have the Provisional Measure 68 disclosed and it has been published mid-August. It brought important change in the rules for the power plant auctions that it had expired contracts and also the perspective of other GSF restructuring. Since then the discussion is about the provisional measure and its consequences really have taken us a lot of our time. About the restructuring of the GSF, we have discussed a lot on this matter internally and we have participated actively in tutorial discussions all aiming the best scenario for the company. From the beginning of November and now by the means of the technical standards of 238/2015 has presented the conditions for the restructuring. Right now we are concentrated in the analysis of the feasibility of this agreement that the renewal of the injunctions that protect the generators of the cost related to GSF since June of this year. Now about the power plant auctions which contract has not being renewed the new rules that allow the concession to keep part of the energy to be produced became more attractive for the assets but on the other hand, the demand paying the payments of grant fee which becomes a great challenge for project especially our sectorial scenario that hasn’t told the restriction, cash restriction to generators and also our economic scenario that also limits the funding option. On the part of the distributors we had an important advance and the expansion perspective for the concession contract. The Federal Accounting Board had its questions answered and now has concluded the process recommending to the MME the expansion of 40 concessions among them further distribution. The agency also has already presented proceedings of the amendment for that expansion and there are conditions for the efficiency in two dimension, service quality and economic finance management, sustainability. So right now we are analyzing other conditions and we are going to submit our decision to shareholders in an extraordinary general meeting that is already being set for December 2. The third quarter also was marked by a more profound Brazilian economic crisis and that has impacted the energy consumption; it’s rough 2.7% vis-à-vis the third quarter of the prior year, according to EPE data. Considering our [indiscernible] market the figures are much better but also negative. The captive market had of drop of 1% vis-à-vis the same period of the prior year and the total market that considers the captive market and for consumers had a drop of 2.5% that impacted the economic results of the distributor in this period. Along the last month also we have seen an improvement in the hydrology especially of regions South and Southeast and along with the reduction of the demand has encouraged the government by the Electric Sector Monitoring Council to switch off the most expensive thermal power plants after August with that reduction in the cost of energy for the system and also the reduction of the tariff that dropped from 55 megawatt-hours to 45 megawatt-hour and releasing a little bit of cost up here for consumers. It’s important to mention that our TPP Araucária has not been impacted by that measure; it’s still operating and available for operation. Along the third quarter that plant has operated during 55 days and made conservative with 548 gigawatt to the system. Still talking about hydrology, the improvement in the reservoir and the switching off of the TPP have allowed higher energy production coming from the HPP, therefore, reducing the exposure to GSF that was an 86% in the 3Q ’15 above the 80% that we have seen in the first half of 2015 and aligned to what we have seen between July and September of 2014. Now Slide number 4, I would like to say that the Federal Regional courts of the 1st Region has approved Copel’s DNT request and suspended any time of bonus related to the concession contract for either HPP up to the moment when analyzes that administrative process that deals with the request to exclude the liability relating to the delay and the conclusion of the plant’s work. With that injunction we are protected about delivery energy in the contract [indiscernible] since the beginning of October is still in the legal area we should highlight the decision of the Supreme Court that has ignored a decision from the Parana Court that determined that Copel should pay R$540 million to Ivaí Engenharia related to concession work of CCH Derivação do Rio Jordão in the 1990s. Copel now is waiting for the publication of this court’s decision and also the answer of Parana Justice Court and with shareholders and the market informed about the process. So we mention the period’s results I would like to highlight that all in parts that are part of the portfolio Brisa Potiguar Complex are already operating. Therefore, we have reached 278 megawatts in an commercial operation we have already produced 422 gigawatt-hour of wind energy in 2015. It is also important to highlight that the four wind parks São Miguel do Gostoso Complex, which it has 108 megawatts of installed capacity and it is a partnership between Copel and Voltalia are also ready to operate. We’re just waiting for the conclusion for this transmission lines and that activity is on the direct accountability of other agents and after that we will start commercial operations. Now the challenge is to start the concession of the wind with Cutia Wind Complex that has 13 wind parks and totals 332 megawatts of installed capacity, and that has provided answer that to — precursor to start commercial operations in 2017 and in 2019. Now I will turn the floor to Luiz Eduardo Sebastiani, our CFO and IR Officer and he’s going to go into the details of our earnings in the quarter. Luiz Eduardo da Veiga Sebastiani Thank you very much, Mr. CEO, Vianna, this is very important moment for the company. The relationship with investors, with the market relatively new information, information important for about our company and we have here superintendents in addition to the officers already mentioned, we have our financial superintendent and also our business development director among our other directors. So good afternoon everyone. Thank you once again for taking part on this conference call about our results. On Slide 5, as you can see we have operating revenue that has increased 20% in the first nine months of 2015 overcoming the R$11 billion. The main reason for that expansion is the growth of 35% of the revenue and that is a result of adjustments defined by Aneel and applied to the tariffs of Copel Distribuição. And we had just an annual adjustment in June and an extraordinary adjustment in March and that was needed to pay increase of energy cost and charges. Also, we have the recognition of almost R$1 billion regarding the result of assets and liabilities in the period. That amount was registered in the first half of the year and it comprised mainly by the tariff deferment and those end up being recovered by tariff after the adjustment in June 24 of this year. And when we consider adjusted figures of the third quarter that is a negative recognition in R$16 million. Now the supply revenue that it has major product of the phase of Copel GeT and total phase of Thermoelectric Araucária reduction of 5% up to September. In Slide 6, we have cost of operating expenses that reached R$10.4 billion between January and September of 2015, 27% higher than the one we had in the same period of last year and that can be explained mainly by the elevation of energy cost that were marked for resale that increased 44% vis-à-vis the same period of last year. That increase is a reflection of the higher cost with acquisition of energy at Itaipu that has increased due to the tariff adjustment and also the dollar appreciation. In addition to that also contributed to the adjustments of contract that were adjusted by the inflation, at the end of transfer of funds from CDE and ACR accounts that offset cost is over $1 billion last year. Also we had an increase of 46% in charges cost reflecting mainly in higher ESS related to the dispatch of thermal power plants out of the order of merit. Manageable cost has increased 16% in the first nine months of 2015 due to the higher expenses with personnel and outsource services and as a consequence of the inflation that has reached around 10% investors at time and the cost increase needed to sustain the growth of the company and to keep the quality standards. I would like to highlight that we have here in Parana along the year a lot of events, climatic events that were very severe and they have generated extraordinary cost. It sounds like [indiscernible] EBITDA is 10% lower than the one we had in the same period of last year totaling R$1.6 billion with a margin of 14% on the operating revenue. The cash generation of Copel GeT accounts for 66% of the consolidated EBITDA positively sound 10% and Copel Telecom 5%. Other companies of the group account for 19% and the main contribution here comes from Araucária TPP. About the EBITDA margin in Copel GeT has closed the first nine months of year with the margin of 30%, Distribuição 2% and Telecom 43%. On Slide 8, we have the consolidated net income for Copel has reached R$863 million up to September of 2015, 19% lower than the same period of 2014 due mainly to lower GSF and also the reduction of the POD sale. Analyzing the subsidiaries’ results we can see that Copel Distribuição it had a net income of R$98 million reserving the loss that happened in the same period of last year. Copel GeT close the period, the first nine months of the year was a net income of R$705 million, 29% lower than the same period of last year and Copel Telecom R$43 million of net income aligned with the same period of 2014. So these were our highlights, we are now available for your questions. I would like to ask your permission Mr. CEO and also our analysts or investors that are following us. We would like right now to make comments or announcements or explanations due to analysis that has been already published in the market and that is about Copel Distribuição balance sheet. Here we have with us, our accountant superintendent that has an important role in the company but also in the sector. He has done accounting of the first in this area and also in the regulating energy sector, and so it’s very important to have him with us and he’s Adriano Fedalto and we are already anticipating to listeners a few comments on that matter. Thank you very much Mr. Adriano. Adriano Fedalto Good afternoon everyone. Thank you for this opportunity to add a little bit more information about our figures of Copel Distribuição. We have seen that this work is our intense quarter for all the distributors; they are going into a process of renewing concessions that is our case as well, and we had very specific events here of Copel and we would like to talk about them so that we can add more information about what has already been seen our accounting for the third quarter, so I would like to ask your permission to tell you a little bit more in my accounting language so that you can have more information. You have seen just like all of us the third quarter and we will be talking us specifically about the third quarter of 2015. We have seen that Copel Distribuição had a negative EBITDA of R$85 million. This is the figure that we would like to go over with you. We have some very specific events in the sector and some specific events for Copel, and we will bring to you a brief review of those. So now I will ask you, your permission to break the ground. Well let’s start by talking about the revenue of Copel Distribuição. We had an event advance now in the third quarter that has generated R$36 million of PIS and COFINS, taxes that has not been recognized. We have a practice here at Copel and all the distributors, everyone operates in the non-cumulative regimen of pace and [indiscernible] and we have been following those movement in credits and we adjust our tax bracket in a way that we have to charge our consumers. But now in the third quarter 2015 that amount, that amounted to R$36 million; the adjustment required time. So you will see the adjustment in these brackets of our consumers now in the fourth quarter and we will recover part of that amount or actually the full amount in the fourth quarter, so this is the first adjustment when we do the reconciliation of R$85 million of the negative EBITDA. I would ask you to follow that up with us so that we come up to the total amount that we really reflect the reality of the company in terms of the EBITDA so right now are just R$36 million. A second event that have also impacted specifically the third quarter is related to the tariff flag. We had an adjustment of R$33 million in the quarter due to effective receivables in June of 2015 and you may see that in our document, so we have other sectorial assets then they have been adjusted for the third quarter and R$33 million so this is another event because of the tariff receivables that was being posted as sectorial assets and it has been adjusted in the third quarter. We have revenue adjustment of R$5 million that is in accounting, that is re-accounting of CVA, we have been seeing CVA and the movement they become even more complex with time so their adjustments here some re-accounting and those were R$5 million, so please consider that as a non-recurring adjustment. Now going forward with the revenues, we have R$14 million from estimates of R$57 million of amortization of [indiscernible] two specific event first R$14 million once again, we have closed with the best information possible in June 30 and when you concluded the date, we have to do an adjustment of R$14 million. Now the amortization of CVA usually the amounts were not representative and in our cases specifically with the deferral of R$1 billion that we had accumulated in the sectorial asset account and transferred that after June. We have a specific effect of R$7 million which is recurring from June to July. Also, they have been adjusted now in this third quarter, so these event is specific event and I would like to have your understanding here just making it very clear these were specific events. And finally the last adjustment that we see in revenues that we had revenues not accounted, not posted R$42 million. Now that happened now here in the R$42 million that has impacted our results. As soon as the market recovers this will be also posted either in the fourth quarter or when the market recovers itself in the first quarter of next year but this is not a loss for the company, just an adjusted because of the fluctuation of the market as we have seen in the last quarter. So this fact of situation of events total R$130 million, R$137 million and, therefore, we have negative EBITDA 85% and you can take that out we’ll have a positive EBITDA of R$20 million which will bring it best to reality. We had several off timely events, I mean, once in a lifetime event and they had some temporary effect here. Now going forward, the cost we had some specific events once again for the sector for the company that have reviewed the concession or are reviewing the concession. We discussed a lot with Aneel and distribution sector and especially the companies that are right now that just gained a renewal of their concessions and or July 7 most of them have their contract expired and we need it to reflect the debt on our balance sheet. And what was the better estimate for a financial balance, how much I will be reimbursed if I have to give away my concession. So since we operate it up to the expiration of course we need to deal with that number. So what was the best disclosure of our balance sheet in September are now have guided us by the means of a report directed to the whole sector. And so given if a concession is replaced we’ll have at least 24 months to do that adjustment, a possible bidding so that the new concession takes over the process. So the criteria was to work with 24 months of that financial asset transfers to an intangible asset. Therefore, our quote will increase and we’ll work with that amount divided by 24 and that is going to affect the revenues that I am receiving to operate the concession. So that even is going to be reflected in all concessions areas that are undergoing the process at Amanhã (phonetic) and also that reflects the moment of the slow down also that has impacted our EBITDA reducing it to R$11 million in the quarter. Follow-up that figure again in our reconciliation. Something else that happened specifically in Copel is what we had low additional costs. We are already working with process for tariff review in our distributors. We are receiving them now and we are preparing ourselves so that our base can be referred with the lowest addition as possible. Therefore, we analyze all our work, everything we are doing in a serious so that we can adjust ourselves to the regulating standards that we consider reasonable and that quarter there we had an adjustment of R$11 million. Also there was a reclassification our financial expenses to operating expenses. Therefore, this impacted the EBITDA and R$13 million that was to VACATICV (phonetic) or amount that we pay are consumers. 2015 was intense climatically speaking. We then were closing that as financial expenses. As all companies in the electric sector we are adjusting ourselves with the conditions and characteristics of the sector and to the new accounting rules. And so we have the R$13 million financial expenses there being classified now as operation of expenses, so this also once again there is one-time thing. And finally in other adjustment in the results, in the third quarter of 2015 when we compare it to the second one is it an increase for the allowance of provision or doubtful debt account. We are very close now — there was an increase in the third quarter because of the increase in our traffics but was an event that we thought in this third quarter of 2015. Consequently, all these adjustments in our account of expenses reflected R$45 million. So if we start at 85 of our average and add up all of the events or the expenses we then will be with an EBITDA that should be over R$111 — sorry once again ask your permission to say it, and I just want to help our shareholders and investors. We are seeing specifically our expenses with depreciation and amortization it is only adjusted for EBITDA purposes and now is R$67 million and we see that if we calculate it in a more macro manner and building our base of 2015 you’re going to reach R$87 million. So we have an expectation of depreciation. We will adjust our EBIT expectation and we find our adjustments relating our EBITDA expectations. And I will conclude saying about the supply. I notice that this known in the market in the sector but we Copel use a criteria that is very sophisticated so that we have a better disclosure of our figures and we work with 30 days and 31 days. So in the quarter that closes 30 days we will see a little bit higher amount of that, and for September 30 we have variable R$10 million because of the 30 days that will also be adjusted in October because of that criteria. So in summary, now to open the Q&A session that I’m sure everyone is interested and that’s what I had to say. If you have any questions I’ll be available to answer them and I want all of you to be helping you to bring transparent figures, transparent numbers, that’s our objective always. Thank you very much. Question-and-Answer Session Operator Now we are going to start the Q&A session. [Operator Instructions]. Our first question is from Mr. Marcus [indiscernible] at JPMorgan. Mr. Marcus? Unidentified Analyst Good afternoon, Vianna and Sebastiani. Thank you for this opportunity. I have two questions, both related to the Distribuição. The first one is related to the renewal of the assets that have been proposed by Aneel. My question is, is it really worthwhile for Copel to renew that asset? If we check the leverage level that was indicated by Aneel so that you could renew the concession and should you have to have extra funding there maybe if I can just restate in R$1 million so if we analyze the adjusted EBITDA going to need an even if we completed that and we work with an EBITDA higher R$300 million a year it is still very far. So my question is would it be good to renew even if it’s better to try indemnity? We have the assets of R$2.5 billion and to work with something close to R$4 billion, would that make more sense to investors once within we have better return this way rather than having an asset with a low level of efficiency? If you despite keep this asset what sort of measures can we see in terms of distributor recovery efficiency gain so that we could work closer to the regulating agencies to generate value to shareholders, that is, in the last three years the company was very clear relating to your level of efficiency in the near future and when we look the figure three years later we see that there is a long way to go. So I have data here from the Distribuição. If it were adjusted material services the third quarter of 2015 vis-à-vis third quarter of 2014 the quarter yield has increased to 28% way above inflation. So that’s only a fact in terms of a trajectory of manageable cost, are they feasible to be reduced? And I already thank you for your answer and for this opportunity. Unidentified Company Representative Good afternoon. [indiscernible] everyone. This is Acosta (phonetic), I am the assistant director of the distributor. About your question, first, the expansion of the contract yesterday the approval was a rectification of the contractor or the proceedings of the contracts have been approved for the expansion of the distributor contract. In fact, the new contract comes with a few innovations also related to the economic financial sustainability of the concessionary agent. So this is new vis-à-vis what we had in a prior client contract and now it’s we have a strong management in terms of the performance of the contract for keeping the concession more 30 years. As far as Copel is concerned, we have no doubt that we should renew the contract. Obviously Copel is adapting itself and was waiting for the condition and you can see that we are trying to be compliant with the new condition, especially about the sustainability and that is going to be renewed especially checked in the next five years. So in terms of cost then and mitigation and other indicators that will be considered especially quality indicators we are already working. Yet, we have the variables that are not controllable the same but we do understand that for cost reduction and in order to reach the quality index for the new contract we depend on the company’s action. Here we could mention an automation program for the rural sector where we still have a strong contribution in the quality topic and we have already started planning starting in 2016 for the next three years the company will invest in automation in the rural sector. And surely in controlling the duration of interruptions and reducing that according to our target. And with that we will also automate the rural grid and at work, and of course, we are working as well to reduce cost and to work faster and to reduce the displacement that we have and the number of people that we need to have complete the target stated in the new contract. And obviously that’s an investment means more working more remuneration. I’m sorry to insist that you understand that these measures are business mention I’m not to have to company close to the regulatory EBITDA or you have additional measures for that? It is obvious that these are specific measures that we are adopting and we see that there is a greater facility and a scale gain. And of course we — if we consider continuing the actions we are already practicing. Then terms of course this is major effective tool to the compliance with the regulations. Thank you. Operator Our next question is from Mr. [indiscernible], Credit Suisse. Unidentified Analyst Hello everyone, good afternoon. I have a quick question. About the auction of expired concession you said that you’re interested in keeping public disclosure, public disclosure is one that does not have the grant an impairment. What is the idea of Copel about this auction? Are you going to take part on that? Are you going with your own capital? Can you give us any idea how these things work? Luiz Fernando Leone Vianna This is Luiz Fernando. Yes, Copel will take part on that, this is Lot B, and we have not decided what we are going to do, if we are going to go in alone, it will have a partnership, we are deciding between today and tomorrow, and we already have funding for that operation. And [indiscernible] on capital and third-party capital. Unidentified Analyst And finally, your objective is Parigot de Souza or other product lines as well? Luiz Fernando Leone Vianna No, only Parigot de Souza and the other small clients that come with it. Unidentified Analyst Okay that’s fine. Thank you. Operator Our next question is from Ms. Carolina Carneiro, Santander. Ms. Carolina? Carolina Carneiro Good afternoon everyone. About the auction, can you give us an overview? Are you going to take part on the A minus 1 auction that should happen this year? And can you talk a little bit about the selling price of those? And if you can also talk about contracting energy, we know that you have certain amount of energy for next year, so I would like to know if you have anything else to tell us about that contract? Thank you. Sergio Luiz Lamy Good afternoon Carolina, this is Sergio Lamy, Copel GeT. About the first question Auction A minus 1 of this year, no, it’s not going to be possible for Copel to participate because we do not have energy for sale after 2016. Therefore, we would not be able to participate on the A minus 1 auction. For the other years 2017 on this we would have a commercialization strategy and that strategy starts to be deployed at the end of 2015 and it will continue along 2016. I would like to add we even started the participation of A minus 1 but with disclosure of the selling price, as we have mentioned, we decided to stay out of it and wait for another opportunity. Operator Ms. Carolina. Next question is from Mr. [indiscernible] from Citigroup. Unidentified Analyst Thank you for the call. About Colider with the injection of Copel did not do anything else on this quarter, so what is the talk, what the regulator do you have a perspective about when this is going to be analyzed? And another question on the distribution, should we keep on waiting for the next quarter increase that we saw in the last quarter; should we see a reduction what is the perspective for the short term? Thank you. Sergio Luiz Lamy Good afternoon, Katie, this is Mr. Luiz Lamy, Copel GeT. About the first question Colider product plant. Our request to anticipate to takeover was because we understand there was a delay from the agencies to decide about the responsibility for Colider? So now to bring directors had meeting results, and in that meeting they promised us that this would be discussed in April. And so far in October nothing has happened but we understand that there was not another possibility other than to try and anticipate that and that has been done in the first region. I don’t know if that answer is enough for you but maybe Acacio now can talk about the distributor. A – Acacio Massato Nakayama Good afternoon, Katie. Yes, of course, there is special attention in terms of cost and to be close to the regulatory cost, the major variation that we have seen is that we still keep on we intend to decrease cost but the climate and other factors have been causing the increase in manageable cost. The idea is that as we have seen previous technologies that might mitigate that to try and re-establish effective possible in our system reducing backend improving quality and maximizing our productivity reducing cost. Now going back to Colider, we should not expect much or an answer in conclusion in the short-term, am I right? Unidentified Company Representative No. On the contrary, there is decision, this board decision of anticipated guardian or trust that should happen, we expect to have an answer of the deliberation still this year that is what we expect. Thank you. Operator Our next question is from Mr. Marcello Scott from UBS. Unidentified Analyst Thank you all. I would like to go back to cut out questions. I understood that you had 20% of contracted energy and that contract increase in the long year, when you say that you have no energy available to sell, is that because they want to have a buffer for GSF or may be a protection for Colíder or other power plants that might be delayed, that is my first question thank you? Luiz Fernando Leone Vianna Good afternoon Marcello, yes, that is yes, we have certain amount of contracted energy and we are saving time for a buffer for the GSF for taxes in the next year and just to cover Colíder that should just become operational and in the midst of next year okay. And what you have in terms of forecast of GSF for next year and another question, if you have a favorable decision about Colíder, if you get this waiver from now, do you understand that you could have an offset which in theory you have already said in terms of energy, so do you understand that you could have some type of exemption because of what is already paid for. Luiz Fernando Leone Vianna Can you please repeat your question? Yes, the first question is GSF for 2016 and my second question is that if you have a favorable decision about what you have already paid in terms of penalty. Luiz Fernando Leone Vianna Okay, our expectation for GSF in 2016 is of 84% more or less that’s an average for the year, and decision about Colíder will redirect our strategy related to the amount of energy we have for 2016 depending on the decision where we will have a favorable expectation about what we have requested and obviously that could place us in a more comfortable situation in terms of energy for next year and we could look for commercialization. Unidentified Analyst So just confirming, you expect 84% of GSF for 2016 right? Luiz Fernando Leone Vianna Yes. Operator Our next question is from Ms. Lilyanna Yang from UBS. Ms. Lilyanna? Lilyanna Yang Thank you for this opportunity. Good afternoon everyone. About Copel Distribuição, can you tell us a little bit, what you expect to have in terms of demand for next year and were you short or long in managing distribution for this year? And can you talk about the recurring of EBITDA for the next year, I want to understand if you have a specific program, some specific effort to reduce your PMSO that’s around R$80 million higher than the regulatory levels? Second question about your dividend policy do you intend to pay on the net income, I would like to have an idea about the capital structure because now we’re showing 2.5 times higher net for EBITDA. Thank you. Luiz Eduardo da Veiga Sebastiani Lilyanna, this is Sebastiani. Lilyanna, can you repeat your question especially the one related to the distributor? Lilyanna Yang Of course, about distribution, I would like to have an idea of specific measures you would have to reduce the level of operating cost that team has sold now R$280 million higher than what would be the target regulatory level? And can you give us perspective of volume and demand for next year and is in this year now that you have an exposure or with the surplus of energy at Copel Distribuição because I’m trying to understand the result of the third quarter in addition to the items that have been mentioned by you on the beginning? Luiz Eduardo da Veiga Sebastiani Thank you very much, Lilyanna. Good afternoon, Lilyanna. The distributor will keep on working to reduce cost especially now in a more adjusted manner because of the no contract that is under analysis on our side and obviously some rules have been added and the distributor will adjust itself to comply with the concession contract, that show that the measures that are providing results are compliant with the contract. So we will keep on following the same path. About contracting energy, so far that this year is not exposed and is within the regulatory condition. Lilyanna Yang What about the demand? Can you tell us anything about it? Luiz Eduardo da Veiga Sebastiani About the demand and consumption we have seen a movement because of economic scenario of the country that is reflecting on the energy consumption as well as with a strong impact on the residential market because of the tariff increase. It is a natural movement, but in our market in Parana, we have seen a low retraction and we expect to see a recovery after 2016 when [indiscernible] starts moving again and considering that Parana has an agro-industrial area that is strong in with mechanism to mitigate impact. Lilyanna Yang Okay, the second question is for Mr. Sebastiani that is related to the dividend levels. Luiz Eduardo da Veiga Sebastiani Thank you very much, Lilyanna. There are no chances in the payout policy of the company. We are at a very interesting level wanting companies that are found and even that we might have an increase in the dark because leverage and investments. We have not concluded the need of payout operations right now. Thank you. Operator Please wait while we wait for more questions. Our next question is from Carolina Carneiro, Santander. Ms. Carolina. Carolina Carneiro I am sorry it got disconnected. I just would like to add a question to my prior question. What is under your assumption, is it 0.84 is that for next year? What type of the demand drop are you working with to reach the figure in considering that you foresee a GSF so high for 2016? Just to make it clear this was though was not able to listen, I got disconnected earlier on. But why are you not considering with the Provisional Measure 688 with the final — its final terms? So what would you have to change in the provisional measure, so do you see any possible changes to it so that you would consider being complaint about GSF for 2016? Unidentified Company Representative We estimate an instability from now on. In terms of the demand, we should not have significant changes in our forecast and of course that this figure takes into consideration that you’re are not able to recover reservoirs such as a southeast even if we have a good rainy season, if not able to recover that trap we expect that this recovery should happen in a longer term. So we still believe on the possibility of having a GSF very low for next year. About Provisional Measure 688, since we have most agents and that provisional measure and the part of it that talks about has a hydrological risk for non-contracted energy in the ACR in the regulated contracted environment the proposal and the current proposal really does not please use, does not please Copel, and I can tell you that it does not believe most of the generators agents, and of course, we have not made a final decision yet in terms of that situation. We’re doing our math and obviously we request that more openly soon. But there is nothing that I can tell you right now, the way that is being placed — a set for non-contracted energy. Does not – the decisions has not been made. We’re [indiscernible] all studies to make a final decision. Yes, we of course sees the possibility of having a final proposal of change from the government. Well obviously the measure is still under evolving. There is a possibility of some adjustment done to it, but we do not believe in major changes there. We do not expect to have important and relevant changes in what has already proposed in that provisional measure. Thank you very much. Do you have an expectation for a long-term contract…. Carolina Carneiro Do you have an expectation for a long-term contract to price? How many — I’m sorry five yes, it could be five years? Yes, you have a stronger commercialization, I don’t know how liquidity is, but do you have a price expectation for three, five years? Unidentified Company Representative Carolina, we are working internally following strategies of the company and — it will not be wise to disclose that information was more objective data available. So we will keep our internal work being done about that information, and I apologize for not being able to tell you more. Thank you very much. Operator If there are no further questions, I would like to turn before to the company or management for final remarks. Luiz Fernando Leone Vianna This is Luiz Fernando Vianna, and my final remarks are that the sectorial crisis will impact the companies and the sector. We’re taking all measures needed to mitigate great crisis and in spite of the results we believe that we have been able to successful [indiscernible] and we expect that Provisional Measure 688 that should be appro1ved next week and we expect it will help us unlock the short-term market, because it’s totally strong. And that prioritization ends up worsening the crisis. But maybe the sector has to grow through this problem to find a solution and then have the market going back to work. And that’s all we have to say, thank you very much. Operator The conference call of Copel has concluded. Thank you very much for your participation and have a nice afternoon.