Eletropaulo returns to red in Q1

Brazilian power distributor AES Eletropaulo posted a net loss of 13.6mn reais (US$4.4mn) in the first quarter of 2004, reversing a 14.2mn-real profit in the same period 2003, the company announced Friday. Gross revenue increased 14% year on year to 2.19bn reais in 1Q04, mainly because power tariffs increased 10.9% in July 2003, Eletropaulo CFO Andrea Ruschmann said in a conference call. Operating expenses rose 12% due to higher transmission fees, she said. Power sales fell 3.9% to 7,892GWh, mainly because 18 industrial clients stopped using the company's services. Industrial sales fell 14%, commercial sector sales fell 1.4%, and residential sales increased 2.2%, while consumption by government and rural consumers increased 0.75%, company CEO Eduardo Bernini said. Since the end of last year the company has been trying to implement commercial policies to improve customer service and offer additional services according to individual client needs through special call centers and consultancy services. Despite the loss in clients and power sales, the company does not plan to change the strategy, Bernini said. "We want to be competitive in the market. Its an opportunity to improve the profile of large clients to use margins not seen in other clients," he said. The market regulator must ensure that power distributors and independent power producers are charged the same taxes and electric sector fees, he added. The main reason for the company's overall loss in Q1 was the debt restructuring agreement signed with banks, which led to financial expenses of 86mn reais compared with financial revenues of 127mn reais in corresponding period last year. "The debt renegotiation converted great part of debt to local currency from the US dollars," Ruschmann said. "But to do this we had to account for everything in this first quarter, and because the real weakened in the period, we posted a loss." At end-March, 76% of the company's debt was real-denominated and 24% was dollar-denominated, she said. "We now have a debt-payment capacity aligned with our cash flow capacity." Eletropaulo invested 46mn reais in Q1. Total investment in 2004 is seen at around 300mn reais. Total sales are not expected to rise significantly for the whole of 2004, Bernini said. "We do expect a change in the mix of customers, with residential clients taking a bigger share of sales and industrial clients decreasing their participation in sales," he said. In 2004, industrial customers accounted for 28.7% of Eletropaulo's sales, residential clients, 32.7%, commercial clients 28% and rural and government 10.6%. AES Eletropaulo is controlled by US power company AES. Brazil's national development bank BNDES has a 49% stake.