Adriano Rudek de Moura - CFO and IR Officer Sergio Luiz Lamy - Director President, Copel Geração e Transmissão

Marcelo Sá - UBS

Good morning and thank you for waiting. Welcome to the Presentation of Companhia Paranaense de Energia Copel for the presentation of the results for the third quarter of 2017. I would like to inform that all participants will be in listen-only mode during the Company’s presentation and next we will initiate the Q&A session when further instructions will be provided. [Operator Instructions] Before proceeding, I would like to clarify that any statements made during this conference call involving Copel’s business outlook or financial and operating forecast and targets are mere beliefs and assumptions of the Company’s management, and the information currently available. Forward-looking statements are not guarantees of performance, as they involve risks, uncertainties and assumptions, given that they refer to future events, and thus are dependent on circumstances that may or may not occur. The general economic conditions, industry conditions and other operating factors could come to affect the future performance of Copel, and lead to results that are materially different from those expressed in such forward-looking statements. Here with us today are Mr. Adriano Rudek de Moura, CFO and IR Officer; Mr. Fabio Malina Losso, Governance Officer, Risk and Compliance; Sergio Luiz Lamy, Director President of Copel Geração e Transmissão; Mr. Antônio Justino Spinello, Director President of Copel Comercialização; Mr. Dinorah Botto Portugal, Director of Copel Comercialização; Acacio Massato Nakayama, Director of Copel Distribuição; Maurício Dayan Arbetman from Copel Telecomunicações; and Rafael Moura de Oliveira, CFO of Copel Telecom. The presentation by the management of Copel can be followed through the website of the company ir.copel.com. I would like to give the floor to Mr. Moura, CFO and IR Officer.

Good morning, everyone. I would like to thank you for your participation in this conference call. Initially and exceptionally, the presentation of the results of this quarter was late by a few days mainly due to issues related to the financial statement of a subsidiary of the Company, and indirect subsidiary called Araucária TPP as communicated to the market on November 14th. It is in summary an investment that is still being assessed by the Company with the support of independent experts. This task is not completed but we are doing all we can to finalize as soon as possible, and we will keep you informed. The expectation of 3.2 [indiscernible] we will be able to find additional information on this subject. Now, moving on to slide three. I would like to initially highlight the reversal of losses of R$75 million posted in the third quarter of 2016 with net income of R$390 million, which is posted in this quarter. With this result, we already accumulated year-to-date a net income close to a R$1 billion, and it’s still slightly lower than that of 2016 where the year-to-date net income in the same period was R$1,058 million. This result stems from a combination of factors that we’ll elaborate more during this presentation. However, I would like to mention two extraordinary events that positively impacted the results this quarter. First of all, the adhesion to PERT, the special program for tax regularization stemming from an understanding with the Brazilian IRS in terms of taxation of CVA. And just to give you a brief history, in June of 2016, the Brazilian IRS issued a new understanding through Cosit’s Reply to Inquiry number 101 and that’s the changed the taxation of CVA, according to the accrual basis and no longer to cash basis with effect since December 2014. This understanding is supported by the amendment to the concession contract in December 2017 that ensures that any residual balance from Sectorial Financial Assets and Liabilities will be indemnified at the end of the concession. And as a consequence, any impact from these changes in the taxation regime from sectorial assets and liabilities had a positive impact to net income of Copel Distribuição of R$114 million this quarter. This impact did not affect the Company’s EBITDA tax and was also recognized in the income tax line and also the line of financial results. The second extraordinary and relevant item that had positive effect in the quarter was the impairment reversal of some projects amounting R$158 million. In this case, this amount had direct impact on Copel’s EBITDA [indiscernible] Thus, the operating performance measured by EBITDA of R$644 million, which is up by 48% when compared to the same period of 2016 also includes the positive impact of the impairment reversal of R$158 million that increased EBITDA of Copel Distribuição. As we move further, I would also like to highlight growth in our operating -- consolidated revenue of 25%, which mainly reflects the growth of 5% in the grid market of Copel Distribuição and the average adjustment of almost 6% applied to the tariffs of Copel Distribuidora as of June 24th of this year. I would like to remind you that operating revenue in the third quarter of 2016 was negatively impacted by non-recurring effect of R$206 million related to the remeasurement of RBSE. Operating costs and expenses were up 16%, mainly reflecting higher costs with energy purchase due to higher GSF that on average was 83% in the third quarter of 2016, going up 64% in the third quarter of 2017 and the highest PLD or spot price, so that was R$436 per megawatt hour, this quarter an average of R$112 megawatt hour in the same quarter, almost four times higher. So, recently, this impact comes from drought [ph], hydrological imbalance in the country, the highest many, many years. So, now, moving onto slide four. It’s clear to see now the performance of each business where we will show EBITDA reported per subsidiary. Starting with Copel GeT, feel the most relevant results in all of our business. EBITDA was R$381 million, up by 76% vis-à-vis the third quarter of 2016. As we already mentioned, there is extraordinary impact related to the reversal of impairment related to generation assets amounting to R$163 million, mostly impacted by the reversal related to Araucária TPP and the wind farm stemming from a discount rate reversal and also the assumptions related to the available energy for long-term sale. In relation to Araucária TPP, in October, we signed a new contract for gas purchase with Petrobras. This contract is for the supply of 2,190,000 cubic meters a day that does not include the take or pay clause. With that the plant is now available for the SIN, the National Interconnected System as of October 14th, while it is added to ONS. In terms of this contract, it’s worth mentioning that on November 24th, we signed an amendment to the contract that aims at extending its effectiveness until December 31st of this year and that also includes the possibility of presenting collateral from the parent company as a guarantee for the payment of the contract. However, the impairment reversal was just not higher due to R$43 million of provision for Colíder HPP operation. The start-up of the plant had been reviewed, because recently the EPC contract had difficulties with the nationalization of equipment at the Brazilian IRS. And it should start up in May, the second turbine could start up in July and the third should start up in November 2018. Another aspect that influenced the performance of Copel, GeT was -- the like-for-like comparison due to the non-recurring negative impact of R$206 million in the third quarter of 2016 related to the re-measurement of RBSE. Now, Copel Distribuição posted an improvement of almost 42% of EBITDA vis-à-vis the third quarter of 2016, which is the equivalent to an increment of R$50 million [ph] and this mainly reflects the performance of the grid market and improvement in managerial costs and lower balance provisions mainly related to allowance for doubtful accounts. Now, in terms of consumption performance, consumption of energy in the concession of Copel Distribuição. The economy of Paraná was up by 1.6% in the first six months of 2016, mainly boosted by agribusiness and industry. The industrial production in the state was up by 4.6% until September, which has highly contributed to the generation of jobs. Paraná created 28,603 formal jobs from January to September this year, according to the General Register of Employed and Unemployed, CAGED, recently published by the Ministry of Labor. It was the best result in the last three years. And this rebounded the economy, also brings about positive results to Copel. In the third quarter of this year, the grid market of Copel Distribuição, as we mentioned before, was up 5% vis-à-vis the same period of 2016, whereas energy consumption in Brazil was up by only 0.4% and in the south of the country, posted 4% according to data published by EPU. Now, speaking about the reduction of cost in the distributors, there was a reduction of R$14 million with provisions mainly PECLD whereas manageable costs of Copel Distribuição excluding some estimated loss provision and reversals presented a reduction of about 1% in the organization of 2.5% in the last 12 months. Copel Distribuição cost with personnel and management presented growth of 1%, a lower performance considering the adjustment of 9.15% applied to salaries as of October 2016, and this is a result of a very vigorous discipline to reduce costs in all areas of the Company including the reduction of 228 employees due to a policy of not filling up vacancies. In the first nine months of 2017, Copel Distribuição had an EBITDA of R$462 million; this result was much better than that posted in the same period the year before. Obviously this didn’t happen by chance because it reflects very strict improvement plans to improve profitability of the Company, so that we can review the regulatory levels as soon as possible. Copel Telecom on the other hand posted a growth of 32% in EBITDA in the third quarter and this is mainly due to the increase in the number of customers. Now moving on to slide five. In order to make a better comparison, we presented the recurring EBITDA for subsidiary that is we are excluding the impact stemming from extraordinary items that we already mentioned. Thus, not including the effect of the impairment reversal amounting to R$163 million this quarter and the negative impact of $R$206 million related to the remeasurement of RBSE in the third quarter of last year, GeT presented a reduction of 50% in EBITDA reaching R$219 million. And this mainly stems from higher costs with the purchase of energy, which went from R$12 million in the third quarter of 2016 to R$195 million this quarter, in addition to increases in the costs with taxes for the use of the bridge, resulting from the adjustment that occurred in July of this year. However, the accumulated EBITDA -- the recurring EBITDA of Copel GeT is over R$1.2 billion, only 6.5% lower than in the same period of the year before, and this continues to be the highest contribution in terms of EBITDA of Copel with 46 -- accounted for 46% of the total. Again, I would like to reinstate the consistent improvement in the results of Copel Distribuição is a growth in recurring EBITDA of almost 42% in the quarter and an improvement of over 24 times in the year-to-date results with increment of R$443 million, which is the second most important business of the Company. In the case of Copel Telecom, we must also acknowledge the relevant increase in EBITDA both in the quarter, year-to-date of 32% and 18% respectively, mainly supported by the growth in our customer base. In summary, in like-for-like comparison, I think the main message is that recurring EBITDA had a significant improvement in Copel Distribuição and Copel Telecom, both this quarter and year-to-date when compared to the same periods of the previous year. And in the case of Copel GeT, EBITDA was negatively impacted due to the relevant increase in cost with the purchase of energy, also impacted by GSF and PLD posting the worse level during the last few years, especially in this quarter. Just to give you an idea once again, the average GSF in the quarter was 64.2% whereas in the same period of 2016, the average was 82.8%. In the case of the average PLD in the quarter of 2016 it was R$112 and this quarter R$436. Year-to-date, this impact was dilutive at Copel GeT mainly due to the good performance in the first quarter whereas in the contrary, GSF and PLD were really positive. The bottom-line is that consolidated EBITDA in the quarter was down 26% when compared to the same base of year before. However, it includes almost 24% year-to-date in recurring basis. On the next page, next slide, you will see a summary of what we just said. Moving to page seven. Here, we can see in more detail, the growth of operating revenue of 25% in this third quarter, when compared to the same period of 2016, surpassing R$3.6 billion. In order to run a better comparison, I would once again remind you that the revenue of the third quarter 2016 had a negative impact of the adjustment R$206 million related to the re-measurement of RBSE. However, excluding this effect, we had an increase in revenue in this quarter of 17%. Now, elaborating a little bit further on the impact of the revenue, let’s also notice that revenue of energy to distributors posted growth of 12%, basically explained by a growth of 0.8% in the volume of energy sold to end consumers and the readjustment applied to Copel Distribuição tariffs as of June 24th this year, which resulted in about 10%. Now, sales to consumers, we already have Copel Distribuição -- sales to Copel Distribuição. This is the first full year of operations of the subsidiary that it posted revenues of R$216 million. [Ph] Now, availability of the network posted an increase of 12% that was impacted by a growth of almost 5% in the grid market by the distributor and also tariff adjustments of Copel that resulted in adjustment of TUSD 0.85% as of June 24, 2017. Now Telecom’s revenue was up by 29% and this was by the expansion of the customer base of Copel Telecom as we mentioned before. Now, the acknowledgment of the CVA line reflects mainly higher costs in energy purchases by Copel Distribuição impacted by GSF and PLD in the period. And finally, the reduction of 33% in other operating revenues mainly reflects lower revenues of construction that some asset contributed to this in the third quarter 2016 and they started up in the last 12 months. Next slide on page eight. We give you more details on costs and operating expenses that reached R$3.2 billion in the third quarter of 2017, up by 16% when compared to the same period of 2016. However, we would like to remind you that in this quarter, we acknowledged R$158 million in impairment reversal, partially offsetting the other increases. Excluding this impact, the increase in costs would be around 22%, mainly explained by higher costs with the purchase of energy. This cost with the purchase of energy totaled R$2 billion, up by 784 million when compared to 2016. And as I said before, that alone [ph] had an increase of 183 million with costs -- with the purchase of energy. But with the distributor, it is worth mentioning that the costs related to GSF are part of the sectorial financial assets and liability line, as I said before. So, it was a reduction of about 15% in costs with the use of network due to the increase in the spot price throughout 2017, partially offset by higher costs with services -- service costs in the system due to higher thermal dispatch and the readjustment in the tariff of the transmission line of Itaipu. In the case of provisions and reversals excluding the reversal of the impairment of R$158 million, it has been a reduction of 36 million equivalent to 38% and this mainly reflects a lower provisions in PECLD and labor issues. Now manageable costs had a stable, flat performance in comparison to the third quarter of 2016, despite salary adjustments of about 9.15% and other adjustments that we will elaborate further in the coming slides. Now, moving on to slide nine. It is possible to know notice that even with the adjustment of 9.15% applied to salaries in October 2016 and cost of personnel and managers and excluding provisions related to indemnifications to the retirees and other costs, given all that, we still posted a growth of 2% vis-à-vis the third quarter of 2016. This performance reflects and then other measures the policy adopted by the Company of not filling out vacancies. This can be noted through the number of people employed by the Company. In September 2016, our headcount was 8,563 employees whereas this year by the end of September, we had 8,418 employees, reduction of 145 people in 12 months. And talking about cost of the personnel, the total costs of R$353 million this quarter. And currently, there are 170 people who adhere to the voluntary redundancy program. Only in the third quarter alone, there were 67 people that adhered to the program with an additional cost of approximately R$12 million. Moreover, I’d like to say that salaries did not have an actual increase in 2016 and the readjustment applied this year was just reflecting the INPC of September that reached1.63%. Costs with third-party services and others presented a reduction, mainly reflecting the review of all of the contracts that we reviewed recently. Manageable costs were down by 0.2%. However, considering that the inflation in the period was 2.5% to these costs, would present actual drop -- real drop of 2.7%. Another important point that should be highlighted, refers to the control of manageable costs that managed carried out in comparison to the budget forecast. So, it was a reduction of over 340 million in the first nine months of 2017, and a budget forecast of R$2.3 billion for [indiscernible]. On slide 10, here, I would like to highlight our leverage level where we can see a slight improvement vis-à-vis the previous quarter, now, slightly below four times. However, this is still a topic that merits our attention. I would like to remind you that this increase in net debt over EBITDA ratio of the company is a consequence of a more aggressive strategy of investments in the last few years. It should improve organically with the start-up of these projects starting next year. We understand that the addition of cash generation of 18 new projects had the combination of several initiatives, some already in deployment -- deployed as a reduction of costs, the physical and financial schedule of some projects should also reflect in an improvement of leverage. And as we are talking about the appreciation of the asset divestment, I would like to say that in this last one phase, we reported a material fact about the participation of Copel as selling the public offering of follow-on of units of Sanepar. Initially it will be 6.4 million units. We are still talking about the leverage level of the Company. We are very focused on reducing this leverage and still -- and keeping with the targets of the covenants of -- at the most 3.5 times. I would like to emphasize that we continue pursuing a very vigorous financial discipline to evaluate the new investment as well as looking at doing all we can to focus on the projects that we have underway to comply with all of the contractual demands and terms, so as to preserve the total resources which are already posted for such projects. Before going to the Q&A session, I would like to tell you that during the summit of leaders of the global pact conducted in New York September 22nd, Copel was chosen was the UN to coordinate the office of the global pact for civil program in the south region of the bill. This proposal involved the government, companies, civil the society and universities to develop innovative projects and also to look for solutions for several urban challenges. Copel restated its commitment towards the development of society and business in a sustainable manner. Moreover, more recently, we launched a public offering to attract start-ups interested to engage in innovative partnerships in technological areas related to the areas of operations, so, as to look for projects, products, solutions and services that can add value to the business of the company. In exchange, the startup selected, we receive some money to deploy products, solutions to services in the Copel environment in addition to context and exposures to partners. I must also say that for fifth time in a row the last seven years, Copel Distribuição was elected the best distributing company of energy in Latin America. The announcement was made during the international seminar promoted by the Commission for Integration of Regional Energy, CIER in Montevideo in Uruguay. And in addition to that Copel was also recognized by customers as a benchmark in information and communication and social responsibility. This acknowledgement stems from our investment to improve the quality of the energy we provide to customers and the highlight goes to a program called Mais Clic Rural. In August, we completed the first phase of the project that involved the new technology that will be utilized to reduce the shipping miles in some rural areas of the entire state the Paraná. In the first phase, we entered 916 reclosers. And for each installed equipment, on average, we reclosed some equipment, especially in services and this has the purpose of optimizing maintenance and services of our technical team of Copel that have to be relocated. So, this is all of the highlights. And now we are available to take your questions.

Thank you very much. And now, we will initiate the Q&A session. [Operator Instructions] Our first question is from Marcelo Sá from UBS. You may proceed, sir. Marcelo Sá: Good morning and thank you for this call. I have two questions. The first question is about transmission. There is a legal barrier imposed by Aneel saying that you could not participate in transmission auctions and now this has -- this ban has been released. So, my question is, whether you’re still interested in participating in the auction that will take place this December, considering the fact that now the rainfall came again, it’s beginning to rain again? And so, considering that the rainfall will be within the average, it’s probably that GSF will be lower and maybe the spot price should be lower next year. What is your view about that considering that you have more than 30% of energy ready contracted for 2018?

Good morning, Marcelo. And thank you for your question. Here is Sergio Luiz Lamy from Copel Geração e Transmissão. To answer your first question about Copel Geração e Transmissão’s participation in the next auction of new transmission concession, in fact Aneel recognized their mistake. Once they imposed that legal barrier so that Copel could not participate in the auction, so once that case has been solved, I can assure you that Copel will participate in the next transmission auction, very much in keeping with its strategic objectives. Now, about your second question, we said that Copel Geração e Transmissão would be in the range of 30% of energy -- not contracted for 2018. In fact, this number, it’s a pure figure for energy contracts terminated and does not review anything considering the setup of new generation projects. In fact, if we take into account the schedule of the new start ups, I may tell you that we have been preparing ourselves to participate in this new auction of A plus 1 -- A minus 1 minus 2 in the auction of 2019 and 2020. Looking at all of these aspects, we believe that our contract level would be about 85% of contracts for 2018. So, the energy contract terminated would be around 20%, which is absolutely in keeping with our projection for PLD amount and GSF amount for the coming years. I could even say that we could stage that there is no expectation of having a very favorable GSF or very favorable spot price for 2018. We will be -- I mean, our expectation is that certainly our position will be much better than that of 2017. But, we still believe that the amount will be reasonably high in 2018. Therefore, unless, of course I am saying that considering the fact that we will have a good level of rainfall in the southeast region, still in line with the long-term average. And this long-term average will not be able to recover the reservoirs, because in order to recover the levels of our reservoirs, we would need a much higher rainfall, in the long run. As we do not have that expectation, so certainly in 2018, we will still have some reasonable levels of PLD. Therefore, we believe that this level of contract is still safe and comfortable and it will deliver better results further down the line. Marcelo Sá: Let me just summarize to see whether I understood correctly. Today, we have 30% of energy contracts terminated and they will be in auction option at the end of the year. And then, you can probably reduce that number. So, again, your target will be to have next year 15%. Are contracts terminated or today you are more -- I mean, you have more contracts terminated. And if rainfall is still within the current average, it wouldn’t be enough to recover the reservoir.

Yes. The PLD projection for next year is around R$150 per megawatt hour. We are considering optimistic projection, but if you considered the MPD platform, there is a projection of around R$185 per megawatt hours. Copel’s projection is an average PLD, it’s R$200 per megawatt hour of average PLD, unless we have a much higher rainfall level, especially now in the southeast region. Marcelo Sá: And I have another question related to transmission. Now, you’re participating in the auction, your leverage level is still high, increased your net debt in the last quarter and your EBITDA was up, so your net debt over EBITDA ratios was down a bit. It was not due to cash generation in the quarter. Do you think that in order to participate in transmission you will start with a final offering?

I can probably ask our financial officer to answer that question. The major disbursements or new projects will occur in the next few years. So, our cash level is very much aligned. So, we don’t see any problem in that area.

Our next question comes from [indiscernible] from HSBC. You may proceed, sir.

We saw that the equity income line had a weak result, especially because of the low performance of the transmission projects. I would like you to elaborate further what happened that -- whether that was something that was a one-off thing? And my second question is that the divestment plan, we noticed that you will not participate in the secondary offering in the part, [ph] but in addition to that, you will participate. What else do you intend to do, do you intend to sell more assets?

Thank you for your questions. And once again, this is Sergio Luiz Lamy. I will answer your first question about our equity income, particularly related to the Geração e Transmissão, Generation and Transmission. And then, on your second question related to divestment plan, I will prefer your question to our Director for new businesses who will answer that question. In terms of equity income of Geração e Transmissão, the issue is very simple, because we were heavily impacted by the tariff review of Aneel and more recently, the main reason behind this performance is that tariff review. And now I will give the floor to [indiscernible].

Yes, we already have a preliminary study on divestments. And as of next year we intend to initiate that plan initiating in January.

[Operator Instructions] Our next question is from [indiscernible] from HSBC. You may proceed, sir.

I just have one more question on the energy auctions. Do you think there will be great demand from distributors? And also I would like to understand your view about competition.

Well, once again, this is Sergio Luiz Lamy from Copel Geração e Transmissão, once again thank you for your question. I think our expectation is that there will be some demand. I cannot say whether there will be a lot of demand but there will be some demand. And there will probably be a reasonable level of competition.

[Operator Instructions] As there are no further questions from the participants, we will now give the floor back to the Company for the final remarks.

We would like to conclude this conference call. Thank you very much for participating. Thank you and have a very good weekend.

Ladies and gentlemen, Copel’s conference call on the results for the third quarter 2017 is now concluded. Thank you very much.