Enel Chile SA (ENIC) 2024 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Enel Chile's first quarter 2024 results conference call. My name is Victor, and I will be your operator for today. During this conference call, we may make statements that constitute forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect only our current expectations are not guarantees of future performance and involve risks and uncertainties.

Actual results may differ materially from those anticipated in the forward-looking statements as a result of various factors. These factors are described in Enel Chile's press release reporting its first quarter 2024 results.

The presentation accompanying this conference call and Enel Chile's annual report on Form 20-F include under risk factors. You may access our first quarter 2024 results press release and presentation on our website, www.enel.cl and our 20-F on the SEC's website, www.sec.gov.

Readers are cautioned to not place undue reliance on those forward-looking statements, which speak only as of their date. Enel Chile undertakes no obligation to update these forward-looking statements or to disclose any development as a result of these forward-looking statements become inaccurate, except as required by law.

I would now like to turn the presentation over to Mrs. Isabella Klemes, Head of Investor Relations of Enel Chile. Please proceed.

Good morning, and welcome to Enel Chile's 2024 first quarter results presentation. Thank you all for joining us today. My name is Isabella Klemes, I'm the Head of Investor Relations team. Joining me this morning is our CEO and CFO, Giuseppe Turchiarelli.

As announced it on April 29, our shareholders meeting is designated a new Board of Directors, and I would like to thank the former members for their contributions to our company over the years. And our best wishes for the new members that will be part of our new Board.

In this sector governance of our annex, you can find the new name and they want designated to be the new Chairman of our Board and the Chairman of the Directors Committee. Also on the same date, the Board of Directors issued a material fact nominated Giuseppe Turchiarelli as our new CEO. Up to the designation of our new CFO, Giuseppe will also hold in the interim deposition of our CFO.

Our presentation and related financial information are available on our website at www.enel.cl in the Investors section and in our app investors. In addition, a replay of the call will be soon be available. At the end of the presentation, there will be an opportunity to ask questions via phone or webcast chat through the link ask-a-question. Media participants are connected only in listening mode.

In the following slides, Giuseppe will open the presentation with our key highlights of the period, then go through our portfolio management actions and regulatory context update and finally will give us a view of the business, economic and financial performance. Thank you all for your attention.

And now let me hand over the call to Giuseppe.

Thank you, Isabela. Good morning, and thanks for joining us. Let's start the presentation with our main highlights on slide 2. In this quarter, our hydro generation portfolio continued to perform remarkably. As a result of the exceptional ideologic seen last year, mainly due to El Nino phenomenon in 2023 and a better meltdown season.

The performance gave us a strong start to the year in terms of efficient generation portfolio mix. Today, the [CME] in publish the last month of regulated fiction cap price in all players offering. Given this relief, we will be able to confirm whether or not our offering was competitive. We will only know the winner name in that coming days.

On the regulatory side, we have some important news to share. First, the Qinnan and Congress approve below related to this acquisition mechanism back to you. A very positive important sign of stability in the energy market. Low cleaning, -- 67 has already been published last April 30.

Second, we continue to expect the new distribution tariff 2024 to enter into force in the second half of the year. The distribution tariff review came in [2024], 2028 process has already started. We are expecting some update in the few next month. We will include all topics later. In terms of our profitability, I'm pleased to announce that 2024 is started with solid results in terms of EBITDA and net income, which reflects our confidence in our guidance for this year.

To conclude, the shareholder meeting approved the final dividend for 2023 of CLP4.58 per share. Now in May, we will pay CLP3.98 per share, complementing the amount already distributed in paid as interim dividend during January this year.

Now let us move to slide 3 to review how we executed our goals and strategy, lower and more efficient generation portfolio mix. The favorable hydrological condition during 2023, not seen since '20 segment. A lot of flip a more comfortable whether availability until the end of the first quarter 2024. These effects associated with the piece of the making season during 2024 resulted in a higher hydro generation of 0.9 terawatt hours.

Net electricity generation totalled 6.1 terawatt hour as of March 2024, exceeding my 19% the production during the first quarter of 2023, mainly due to higher hydro and renewable generation resulting from the improved hydrology and the addition of new projects, respectively. We both offset the lower thermal dispatch, mostly related to the better hydro situation of the period.

Our energy sales totalled 8.5 terawatt hour in March 2024, 0.8% higher than the level recorded in the first quarter of 2023, primarily due to higher sales to regulated customers. In terms of our balance, during this quarter, we increased our purchases from third parties by around 0.6 terawatt per hour. As part of our continued effort to diversify our sourcing.

As a results, our spot purchases have decreased by 0.9 terawatt per hour, almost 60% of this reduction was in the no solar hours. And all has been told the regarding the [patient] kind of planning for 2024. So we continue to have a conservative either a projection for 2024 of 9.6 terawatt per hour. [Link between] the cumene, we see a drier scenario for this year versus 2023.

The big difference we see from the [Triad deal] took in the past is that now we have plenty of gas volume to fulfill our needs. Thanks to a [maintenance] contract and our long-time LNG contract with Shell. For reference, we have already achieved new firm agreement with several electric and gas supplier for up to 2.6 million cubic meter per day from May to September 2024. And in addition of 3.5 million kilometer at a day from October to December this year, giving that certainty to optimize our portfolio during 2024.

Now let's move to the next slide to review our main KPI on slide 4. In terms of the renewable impact increased capacity in the first quarter, we reached 6.5 gigawatts of net capacity, representing a 77% stake in our generation portfolio. These enable us to reach [76%] CO2-free production, 11 basis points higher than in the first quarter 2023.

Regarding analytics, an important complement to our integrated offering that support the electrification of our clients. We have improved the performance of several TPA compared to 2023, as you can see in the slides. Regarding the distribution segment, the number of clients in distributed energy in our concession area continues to grow, for what concern the quality CPI looking at the last 12-month indicator. They have remained in line with the same period last year.

Now on the next slide, let's look at some of the related to regulatory context. As you may recall, last call, we have indicated that in January this year the Minister of Energy presented a draft low related to the studies energy mechanism with the purpose of continuing at maintaining a mitigating the projected tariff increases to final customers.

At the same time, they also need to improve the client protection mechanism, known as the ABC mechanisms. For low gradual repayment of the community sector with the generators and establish a transitory substitute for the most vulnerable clients.

If you know what this casted and approved by the Senate and Congress in 18 and published and come into force last Tuesday, April 3. Now we are waiting for two important steps. First, the publication of the sub sovereign guarantee degree needed to start the factory in process. These guarantee should be presented investor that will be part of depletion coordinated by the IDB expected for the next month.

Second, publication of the PMP decrease expected by the end of June with the publication of this document, the tariff on the regulated prior shall be updated. We expect that the clients shall receive new tariffs at the beginning of the second half of 2024.

As of March 2024, we had in account receivables related to fact already made of factoring of -- the $49 million with the publication of this solving decrease in the [King decree], we expect to execute the factoring from the current accounts receivable during the second half of this year, ranging from $450 million to $600 million .

We expect that by the end of 2024, the accounts receivable net of factoring should range between $400 million and $500 million. On the distribution tariff regime, the regulatory final report of the 2023, '24 cycle was published in February. In the tariff decree for the same period the remuneration shall be published within the next few months.

Regarding the 2024, [2028] cycle initiated in January 2024, we expect that the external consultant responsible for analyzing the reference more than any company establish has started work and final report is foreseen to be published early in Q4 2024. We expect that by the end of this year, the regulator shall be published the preliminary technical report of this new cycle.

Even though the new cycle shall not have a relevant change in terms of modeling, we will continue our work with a leading association to address the changes in the regulatory model image in need. We believe the distribution leverage required to guarantee that diversification in decarbonization plan required by the governor is another society cannot be jeopardized by the lack of the signature infrastructure.

Now let's review on the next slide, how our earnings releases the first call. Our economic and financial performance for this quarter was very solid. Here is a quick summary of the main figures, which I will detail later.

As you can see this quarter EBITDA remains stable compared to the first quarter 2023, even post the first quarter 2023, we had an important contribution from that trading activity. Our generation portfolio mix in the quarter explained largely these solid results.

The net income improved by 6% compared to the same period last year, reaching $157 million for this quarter. This was mainly due to the recognition of extra interest, which positively impacted the financial results. And FFO also show an improvement of 34% in the period, which reached $114 million in this quarter. Improvement tool has been impacted by the effective combination and factors. We will see more detail in the following slides.

Now on the next slide, let's review the progress on CapEx. Our total CapEx reached $179 million in the previous first quarter which is 65% higher than the figures from the first quarter of last year. I would like to mention that 67% of our total CapEx to keep adding close to $120 million was related to renewable and storage. And 22% equavalent to $40 million was related to Greece, mainly due to new customer recognition as a result of the growth of our customer base.

Regarding asset management CapEx, which represented 30% or $54 million of our total CapEx. It increased by around 50% compared to the last year figures. Mainly explained by increased maintenance activity in conventional generation plants and distribution base.

Finally, development CapEx reached [$130 million], representing 58% of our total CapEx, an increase of 77% compared to the last year's figures. Considering our renewable portfolio and the cost reduction in activity at some of our IT-related plants to improve their efficiency.

Now the [Hill] on the next slide. We review a summary of this first quarter EBITDA breakdown. In the first quarter of 2024, our EBITDA reached $293 million, in line with the last [three] year figures. fix mainly explain the main aspect of this it.

First, I'd like to highlight the positive contribution from EPA, the equivalent to $53 million, primarily due to higher volume, mainly regulated market and index session in the same market. Second, the positive effect of $40 billion of the industrial sources, mainly explained by lower variable cost mostly and better regulatory scenario and a more efficient generation mix that enable to reduce our fuel consumption.

Third, the positive contribution of $47 million related to commercial SaaS sourcing, primarily due to lower purchases in the spot market in terms of lower volume and lower prices, partially offset by higher volume purchases from third parties.

In addition, we had a positive effect of $4 million related to the grid managing this variation is mainly explained by the grid remuneration, which is mainly associated with about '23, 2024 regulated report publication. The above mentioned effects were partially offset by, first, a negative effect of $118 million related to the gas trading activities carried out during the first quarter 2023 for around 10 [fields]. Second, we had the negative effect of $25 million related to the next PPA agreements signed during 2023.

Let's move on to the next slide where we will review the net income evolution accounting for $157 million, Our net income increased by 6% versus last year figures. Let me guide you through the main aspects. EBITDA in line with the last figures as I've already explained higher depreciation amortization of $13 million, mainly resulting from higher depreciation in power due to our new renewable projects in operation in Chile and pace of devaluation in the period, which was partially offset by the change in the consolidation perimeter, given that [Kansas] City.

Partially offset by lower bad debt accrual and an increase in Annex be to a reduction in the commission that level as the results of the commercial agreements in cutting programs executed in the period.

Regarding financial results in the investments, we recorded a $19 million improvement, primarily explained by $21 million related to higher interest in adjustment due to the factory recognition. Income taxes decreased $19 million, mainly due to penalty provision innovation from preliminary period.

Moving to asset of analysis from the next slide. Let's review in detail our FFO for this period. This quarter, our FFO reached $140 million, representing an improvement of $29 million compared to the same period in 2023.

As we detailed -- the effects explain our SSL in the field. $493 million coming from EBITDA mainly thanks to our PPA sales and a positive performance of the last seven connections sourcing explain the ratings and negative effect coming from the cumulative stabilization mechanism effect in our receivable equivalent to $105 million this quarter.

These negative effects, meaning partially offset by the execution of the IDB factoring related to pick two, which amounted to $15 million this quarter. The result a negative effect coming from the working capital that reached [$29 million] as a consequence of timing coming from 2023. In addition, income tax this quarter negatively impacted our FFO by $26 million, mainly explained by tax savings in generation business in 2024.

To conclude, in terms of financial expenses, we paid $34 million, mainly embedded that extreme today, making a comparison of debt fell between first quarter 2024 and first quarter 2023, we can see how the figures are very much in line. The only main difference is related to the net impact of the tech accumulation, as you can see in this slide.

Now let's take a look at our liquidity and leverage position. Our OpEx decreased around 1% to $4.4 billion by the end of March 2024 versus December 2013. We foresee that our net debt continued to decrease by second half 2024 considering the execution of net working capital protection expected for the period. Therefore, the tunnel indebtedness level is a temporary condition that will be recovered by the end of the year.

The leverage of our debt maturity decreased temporary to 5.7 years as of March 2024 from 6.1 year as of December 2003. And the portion of the fixed rate is maintained at [EPA] percent of the total debt in line with same year 2023. The average cost of our debt reached 4.83% as of March 31, in line with December 2023.

In terms of the PDP, we have a comfortable position to support upcoming debt maturity in 2024, in coping with of headwind in the that market related to the economic situation. As of March 31, 2024, we had signed two new credit line with third parties totaling $150 million. And with a fleet of $750 million.

In terms of maturity for 2024, we have approximately $770 million maturing in 2024, including the $400 million of the Yankee bond in Generation seven and generation, which was successfully paid in April. The payment was relied using a short-term inter-company debt between financing and [Ciena's] using part of the revolving committed credit line available for NLCA.

Now I will close the presentation with some closing remarks. We have seen a strong start to the year in terms of operating performance, mainly in generation business. The better than expected hydrology in 2023 was reflected in a better reservoir level at the beginning of this year.

The pace of demand down season in our generation mix also supported our solid results. Sound liquidity put us in a comfortable position to support our short term strategy and cover the maturity forward decline -- as a part of our derisking and deleverage strategy announced in our last Capital Market Day.

Finally, the next months will be very important in terms of regulatory update for the sector and then you need on the sovereign guarantee decree that will support the start of the factory and adapt the recovery as well as the publication of the 2023, 2024 such difficulty for the distribution business.

Let me now hand over to Isabela.

Thank you for your attention, and now let's begin with the Q&A section. We will receive questions via phone and chat in the webcast. The Q&A section is open. Operator, please, you may start speaking.

Thank you. And at this time, we'll conduct a question-and-answer session. (Operator Instructions)

Our first question, comes from the line of -- go ahead.

Okay. We have a question from the line.

Javier Suarez, Mediobanca.

Hi, good morning and congratulations to you said before appointment as new CEO. A two or three questions. The first one is on the impact that the approval of the new stabilization mechanism may have on the working capital improvement during 2024 and the next following years, I'm particularly interested in the period 2024 to 2026, the separate [NOVA] by the Congress. And that should have a positive impact on your --- on the cash flow generation.

Second point is also on the on your latest expectations for the approval of the 2020 to 2024 electricity distribution tariffs. The tariffs decrease would be valid during the third quarter. But if you can share with us your latest expectations on what you see or quantified as possible upside from this new regulation? And the third comment is, if you can share with us your latest expectation for the debt of the company by the year-end.

And the final -- the final comment is on the comment that you have made that you feel comfortable with current guidance for 2024. So the my argument would be that taking into consideration that hydro production is a higher or is likely to be higher than your assumption in the current business plan, taking into consideration that the new stabilization mechanism should allow for the collection of some pending regulatory receivables, there should be and upsize from the new distribution framework. So then we see a current target as conservative. If you can elaborate on that would be helpful. Thank you.

Thank you, Javier Suarez.

Hi, Javier and thank you for your congratulation. Well, in terms of price stabilization mechanism, as I said in the previously delayed been approved in public. So now we are waiting for several next step, but we show a vote in the most important fact that we are waiting for our vessels, the emission of the sovereign decreased that to give us the guarantee that we cover 30% of our creditors if we need in order to proceed with the factoring.

And the second set is the publication that came key decree at the end of June, the Maison, which where we can define exactly the amount of factoring that is supposed to be done in the second half. Now second half means between at the end of third quarter, beginning of fourth quarter. We have certain amounts our estimation according to the recognition that we have. We should be between $450 million and $600 million.

If we are able to proceed with these factoring, we are going to close the year with the account receivables that will be between four $400 million and $700 million. Consider that in part -- let me say most of these, the amount will be recovered between 2025 and 2026, we -- a small portion related to the PEC one that will be recovered in 2027 according to the law. So this was concerned the first question.

In terms of the impact of VAD of the 2020 and 2024, we have already included in our profit and loss. So we are talking about around $20 million comparing with our previous assumption. In terms of that at the end of the year, we supposed to close the current year with a net debt around $3.6 million. Let me say that, clearly these amount that I'm giving you is based also on the possibility of performing the factoring that we are the nation's. So if everybody's doing well, we are going to close $3.6 billion net debt at the end of the year with a ratio net debt-to-EBITDA, lower than 3 times as our guidance and targets already in declared time.

The guidance, apparently with the result of first quarter clearly expected a better guidance. As I said at the beginning, we are not we don't know yet how the rainy season will performance. So basically, we prefer to be conservative to confirm the guidance that we declare in the Capital Market Day. Clearly there could be some possible upside, but is clearly to [nationwide].

We probably gave you a better or a more updated guidance section as soon as we're going to close the second half because as you probably remember, the new season use to start end of April, beginning of May or for the -- closing on June that will be public. At the end of July, we are able to give a better view on the guidance. But as of today, we confirm the guidance that we presented in the Capital Market Day.

And just to be 100% crystal clear on your first answer on the amount of regulatory receivables by the year end. So you were mentioning that amount of regulatory receivables by the year-end should be along the lines of $400 million, and that should mean a reduction through the year between $400 million to $600 million, is this correct?

Yes, between $400 million and $500 million will be year-end credit receivables. Depending on how much we're able to do in terms of [factoring]. And again, I will repeat it, the factoring we are supposed to have between $450 million to $600 million in terms of factoring and we are estimating to close the year with a credit between $400 million and $500 million.

Thank you, Javier. As we do not have another question from the line, let's go to the chat. The first question is coming from Fernando Gonzalez from BTG. Fernando is saying, Giuseppe, congratulations on your appointment? Can we assume continuity from a strategic point of view or is there something different that you'd like to focus on? What are the things that you will dedicate more time and that concerns you most and the company? Then Fernando has other question. So go one by one. --

Thank you, Fernando for you congratulations. Well, in general, I can tell you that no change in terms of strategy. I mean, we stick with strategy that we have already presented in the last year in our Capital Market Day. So the topics and the focus for the company is still the same. That means capitalization in terms of clearly increase our capacity in terms of renewables with a special focus on the financial stability that we have as a pillar in our strategy. So I don't I see any kind of changes so far.

So let's go to the second question from Fernando. Could you please elaborate more on the $25 million negative impact on EBITDA from the Metka PPA agreement?

I mean, last year in the first quarter 2023, we reached an agreement with our supplier of energy. We had the PPA with this company Metka. In the PPA for seeing the start of the operation this year with a certain amount of in certain points of commission delivery.

We for some reason we negotiate with this company and uptake of the contract and the negotiation foreseeing at different delivery points and the compensation regarding the new contract, the update of the contract with Metka was $25 million in 2023. So basically, it is a one-off effect that we had last year that clearly we're not going to be repeated this year. Thats a matter of a very strategic negotiation with our supplier.

Okay. Then the final question for the night. What are your thoughts on the potential regulatory change that is being discussed about the way the spot market works? Is it a change that you agree with?

Well, I mean, -- we are still evaluating the point consider that the spot price and the impact on the proprietary very sensible topic. So we are trying to figure out, which is the best way of a possible changes for at least energy. We are at the beginning of the call and we are going to give you more update in the following call.

Thank you, Giuseppe. Now we have a question also on chat here from Florencia Mayorga from MetLife. Florencia is asking if you could repeat again the outstanding about PEC, about we are expecting also for the end of 2024. And also, if we have any update about the prices from the recent regulated adoption?

In terms of accounts receivable coming from PEC, we are assuming to add the amount of factoring that was between $450 million to $600 million in the second half of this year. This factoring in year two, we are going to close the credit receivable at the end of 2024 in a range between $400 million to $500 million.

Well, for what concern the regulatory tender, I mean, right now, we are waiting for the release of the reserved price, the cap price that we mentioned before. And we believe that in a couple of hour or the next hour we are going to have some more information and we are going to evaluate in order to understand whether we want or not.

Okay. So another question is coming from [Ignacio Galvez] from Santander. Good morning. Financial cost during fourth quarter 2023 and first quarter 2024 contains some costs related to electrical buses, accounts receivables. Are these nonrecurring costs are already over or should we expect additional costs in the next quarters? Thank you.

Giuseppe, this is the question.

Basically, in order to understanding the effect related to the transaction that we had with the buses, we sold the asset to third parties. We are not going to address any additional effect in the following month. Just a matter of account impact not a financial one. The business of Enel and [electric bus works in this way, with] such an effect once you sell the business.

Okay. Thank you, Giuseppe. Then let's go to the final question, the last one from Tomas Gonzalez from Scotiabank. Giuseppe, Isabela congratulations on the your appointment to CEO, well deserved recognition. The question of Tomas is can you give us an update in relation to the potential sale of up to 49% of renewable assets? And if we say it could be result in a higher dividends going forward?

Thank you, Thomas. Well, we are going to add that with the potential sale of a minority stake of our assets, we don't have as of today, any kind of update for you, but in the following month in June, I hope to give you more color on that.

In terms of additional dividend that we're going to see how the process and the price will be. As of today, really early to discuss about this topic.

Thank you, Giuseppe. So with this, we conclude our conference call. The Investors Relation team is available for any doubts you may have. Many thanks for your attention and have a great end of week.

Thank you for your participation in today's conference. That does conclude the program. You may now disconnect. Everyone have a great day.