Enel Chile SA (ENIC) 2018 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Enel Chile 9 Months 2018 Results Conference Call. My name is Ashley, and I will be your operator for today. (Operator Instructions)

Before we begin, during this conference call, we may make statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect only your current expectations, are not guarantees of future performance and involve risk 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 9M 2018 results.

The presentation accompanying this conference call and Enel Chile's annual report on form 20-F, including under risk factors. You may access our 9M 2018 results press release and presentation on our website, www.enelchile.com, and our 20-F on the SEC's website, www.sec.gov.

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

As a reminder, this conference call is being recorded.

I would now like to turn the presentation over to Ms. Susana Rey, Head of Investor Relations of Enel Chile. Please proceed.

(technical difficulty)

Pardon me, ladies and gentlemen. We can go ahead and resume. Ms. Susana Rey, you may go ahead and proceed.

Can you hear me?

Yes, we can hear you.

Okay, thank you. Good morning, ladies and gentlemen, and welcome to Enel Chile's 9 Months 2018 Results Presentation. I'm Susana Rey, Head of Investor Relations.

Here with me are: Paolo Pallotti, CEO of Enel Chile; and Mr. Raffaele Grandi, CFO of the company. We invite you to follow along with this presentation uploaded to our website. And as always, we will have a question-and-answer session for those on the call.

Let me hand over the call now to Mr. Paolo.

Thank you, Susanna. Sorry for the technical inconvenience. Let's start the call. As you are aware, on September 27, Nicola Cotugno, the former CEO, and Raffaele Grandi submitted their resignation, and I was appointed as the new CEO of Enel Chile by Enel Chile Board of Directors as of October 1, 2018.

Let me first take this opportunity to thank both Nicola and Raffaele for the great job they have carried out, among other in the context of Elqui reorganization, involving in the merger of Enel Green Power Latin America and the tender offer of Enel Generación Chile. I wish them the very best for their respective new challenges. Raffaele will be with us until today. And once again, I would like to thank you very much and all the best for him. Marcelo De Jesus, who is joining us after his previous experience in Eletropaulo will be our new CFO as of November 1.

In this presentation, I will provide some highlights of the period and take you through the operational performances. Then I will hand over the presentation to Raffaele to comment on our financials.

Let me start with the highlights of the period. Enel Chile reported an EBITDA of USD 900 million, $99 million or 12% higher versus 9 months 2017, driven by the contribution of Enel Green Power Chile and in a lower extent by a more efficient generation mix as a consequence of an higher hydro dispatch.

We started to consolidate Enel Green Power Chile since April 2. Therefore, September 2018 financial includes only 6 months of operations. Attributable net income decreased by 16% to $332 million due to the nonrecurring effect of the extraordinary gain associated with the sale of Electrogás in 2017. Excluding this effect, net income would have grown by 4%.

Enel Chile generation grew by 13%, totaling 14.4 terawatt hour, with a 26% increase in hydroelectric generation, while physical sale increased by 2%, reaching 17.7 terrawatt hour in September this year.

Generation. 19% EBITDA growth is explained by USD 124 million as a consequence of the consolidation of the EGP Chile business. Distributed energy grew by 2%, totaling 12.6 terawatt hour, while clients increased by 2%, reaching 1.9 million as of September 2018. Distribution performance and contribution margin was stable in the period.

On September 28, the new tariff decree has been published in order to recognize additional financial resources to comply with the new technical standards introduced in December 2017.

Let me highlight that since September, Enel Chile Group was included in the Dow Jones Sustainability Chile Index, Dow Jones Sustainability Emerging Market Index and Dow Jones Sustainability MILA Pacific Alliance Index.

Let's move to the following slide, Slide #3. Installed capacity increased by 19%, amounting to 7.5 gigawatts, explained by the addition of 1.2 gigawatts renewable capacity to our portfolio, improving our generation mix. Net production increased by 13%, amounting to 14.4 terawatt hour, driven by 1.6 terawatt hour of higher additional renewable generation coming from EGP, of which 0.8 terawatt hour comes from wind and 0.5 terawatt hours from solar. 1.2 of higher hydro generation due to better hydrology conditions, primarily in Ralco, Pangue, Pehuenche and Cipreses. As a consequence, we were able to decrease by 1.1 terawatt hour our thermal generation. Please note that due to the recovery in the hydrology condition during this year, especially for the Maule and the Bío Bío areas, the level of water in all our reservoir is higher than the same date in the previous year.

Physical energy sales increased by 2% or 333 gigawatt hours, primarily due to 1.5 terawatt hours of higher contracted sales with customers, offset by 1.1 terawatt hours of lower consumption of distribution companies and 38 gigawatts hours of lower sale in the spot market.

Let's move to Slide #4. Electricity distributed increased by 2%, driven by higher tolls of 484 gigawatts hours due to higher sales from other companies that use our grid, offset by lower sales to industrial customers of 167 gigawatts hours and commercial customers of 32 gigawatts hours. Customer rose by 2% or 34,000 during the period, reaching 1.9 million clients, thanks to the increase of residential customers.

With regards to our interruption in the SAIDI that considered the last 12 months of operations show an important 32% improvement in respect to last year. Please have in mind that the indicator in 2017 was negatively affected by exceptional levels of rain and snow. Not considering these events -- these weather effects, SAIDI would have reached 227 minutes, showing also an improvement in third quarter 2018 or 22% due to our operating plan and execution.

Energy losses remain stable at 5.1%, very close to the technical losses.

Slide #5. On September 28, the decree [5T] 218 of the [Minas Gerais] -- of the Minister of Energy was published in the Official Gazette. The decree provides an increase in current distribution tariff October 2018-October 2022 in order to provide companies with economic resources to finance investments to comply with the new technical standard introduced in last December.

Current technical rule published in December 2017 and officially in force since September 2018 provide new requirements mainly in terms of quality of supply, commercial quality and smart meters. Specifically, there were 6 new targets in terms of continuity standards, such as SAIDI and SAIFI to be measured at municipality level. As per commercial quality, new requirements are set in order to provide information and follow-up to our customer base. In addition, the regulator required companies to install smart meters to all their customer base in a 7-year minimum -- maximum period, 100% at 2025.

Let's have a look at the CapEx in Slide #6. Maintenance CapEx increased by 15% versus 2017, primarily due to the consolidation of EGP and the extraordinary maintenance in one of our thermal facility, partially offset by higher efficiency in CapEx.

Connections show no change versus 2017. Growth CapEx increased by 35% versus 2017, primarily explained by our renewable generation project, Los Cóndores, of $45 million. Important to mention that we reached 71% level of completion with the investment of USD 589 million as of September 2018. Also, we increased our investment in distribution business of around $6 million, mostly related to the implementation of the smart meters.

Moving to the sustainable value creation in next Slide 7. During this year, Enel Chile has been included in the FTSE4Good Series Index, Dow Jones Sustainability Chile Index, Dow Jones Sustainability Emerging Market Index and Dow Jones Sustainability MILA Pacific Alliance Index. This is an evidence of the strong commitment and considered the ESG practices as an integral part of our business model.

The FTSE4Good Index Series are designed to measure the performance of companies demonstrating the strong environmental, social and governance practices. Transparent management and clearly defined ESG criteria make FTSE4Good indexes suitable tools to be used in a wide variety of market participants when creating or assessing sustainable investment products.

Now, I will pass the call to Raffaele to comment our financials.

Yes, thank you, Paolo. Good morning, everyone. First, let's go please on Slide 8, where we can make a financial summary for these 9 months. Contribution margin increased by 13%, driven by the consolidation of Enel Green Power Chile operations, coupled with 14% of lower operating cost due to a more efficient generation mix as a consequence of higher water availability during the third quarter, driving in lower fuel consumption and energy purchases.

Reported EBITDA is up by 12% to $900 million due to the contribution of Enel Green Power. Attributable net income stands at $332 million with a 16% decrease versus 9-month last year, driven by the extraordinary gain booked in 2017 due to the sale of Electrogás. Excluding this positive effect, net income would have increased by 4%.

Gross Capex increased 26%, reaching $322 million, as previously mentioned. Company net debt reached $3.5 billion, mainly explained by the consolidation of Enel Green Power Chile's debt and the new debt issued by Enel Chile to finance the Elqui project while funds from operations stands at around $698 million, 32% higher than 2017.

Now, let's have a look at group EBITDA by global business line on Slide 9. EBITDA in generation amounted to $706 million. The 19% increase is attributable to lower energy purchases by $139 million, partly explained by 2017 gigawatts hours of lower contracted purchases. This lower cost includes $109 million of Enel Green Power.

Lower fuel cost for $56 million and lower other cost of $47 million related with the commercialization of gas and [renewable] income. This is offset by lower sales for $64 million, mostly as a consequence of lower average sale price in pesos, partially offset by higher volume of 333 gigawatt hours.

EBITDA from distribution business is $3 million lower versus 9 months last year, amounting to $220 million. This is associated with the higher OpEx for $4 million, mainly explained by $30 million of higher maintenance expenses, partially offset by the decrease in personnel cost of $9 million. Higher contribution margin as a result of lower compensation to customer and lower fines offset by lower energy margin and lower performance of our nonregulated businesses related with public lighting.

Now let's go please on Slide 10, where we can take a deeper look at the main drivers of our net ordinary income. Depreciation and amortization increased by $61 million due to the addition of the assets of Enel Green Power that accounted to $65 million. Financial results amounted to an expense of $117 million and increased $92 million, mainly due to $43 million of higher financial expenses of Enel Chile's new debt and $42 million from the consolidation of Enel Green Power Chile.

Other nonoperating results decreased by $169 million due to the sale of Electrogás, as previously mentioned, booked on February 2017. Taxes decreased by around 24%, primarily as a consequence of lower tax expenses as a consequence of the sale of Electrogás, offset by higher corporate tax rate, passing from 25.5% to 27% for $6 million. Minorities net income decreased by 65%, mainly as a consequence of the higher stake of the Enel Chile in Enel Generación since April 2, passing from 60% to 94.5%. Given all the aforementioned, ordinary net income decreased 16%. But if we exclude the sale of Electrogás, we reported a net income grown by 4%.

Now please let's go to Slide 11, where we can have a look at our cash flow. Funds from operation amounted to $698 million. This is important to note is that it was sufficient to fully cover our maintenance and growth Capex of $322 million. Net free cash flow after dividends and Capex stands at a positive $18 million. Regarding net dividends, we paid $358 million, of which $306 million were paid to Enel Chile's shareholders.

Now we can go to Slide 12 and have a look at our net debt. Our gross debt increased by about $2.5 billion versus December 2017, amounting to $3.8 billion, primarily as a consequence of the debt raised to finance the Elqui project and the consolidation of the Enel Green Power Chile debt. The average cost of our debt decreased to 5.2% versus last year, explained by a lower interest rate of Enel Green Power Chile and of the new Enel Chile debt. Our net debt increased by $2.9 billion, mainly due to deposition of the 34% additional stake of Enel Generación Chile for $1.7 billion, the consolidation of Enel Green Power net financial debt for $1.1 billion. This slightly offset by the positive free cash flow after CapEx and dividend of $18 million. We still have a bridge loan for around $430 million maturing in July 2019. Beside that, we have an annual average of $200 million maturing in the next 5 years.

Now I will pass the floor to Paolo for any closing remarks. Please, Paolo.

Thank you, Raffaele. To end this call, let me share with you some closing considerations. 9-month EBITDA increased by 12%, showing a recovery from the adverse scenario, particularly as a consequence of higher water availability during the first quarter this year, better hydrology during September and the consolidation of our renewable business. This has allowed a low reliance on thermal production and an optimization of the variable cost, confirming the opportunities derived from a very well diversified business. The increase in EBITDA was and will continue to be fueled by the growth in renewable and network business, in line with our strategy. Strong FFO level has been supported by our generation business growth.

Finally, let me tell you that we will continue to be focused on maintaining our leader role in energy sector in Chile and to comply with our target.

Thank you for your attention, and now let's open the Q&A session. Operator?

(Operator Instructions) And I am not showing any questions at this time.

Since there are no further questions, I would like to thank your -- participating in today's conference call. If you need further assistance, our Investor Relations team and myself will be glad to help you. I also invite you to visit our website, where you can obtain the most relevant data concerning our company. Thank you very much for your participation and interest and have a nice weekend. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.