Enel Chile Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2024

There are 4 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Enochila'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 meaning 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.

Operator

These factors are described in Enochila's press release reporting its Q1 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 1st quarter 2024 results press release and presentation on our website, www.anno. Dotcl 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 dates.

Operator

Enochile 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 Clements, Head of Investor Relations of Enel Chile. Please proceed.

Speaker 1

Good morning, and welcome to Enel Chile 20 24 First Quarter Results Presentation. Thank you all for joining us today. My name is Isabella Clemens. I'm the Head of Investor Relations team. Joining me this morning is our CEO and CFO, Giuseppe Quicarelli.

Speaker 1

As announced on April 29, our shareholders meeting designated a new Board of Directors, and I would like to thank the formal members for their contribution to our company over the years. And our best wishes for the new members that will be part of our new board. In the sector governance of our Annex, you can find the new names and the ones 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, Isha Materio Fax, nominated Giuseppe Turcierelli as our new CEO. Up to the designation of a new CFO, Giuseppe will also hold in the interim the position of our CFO.

Speaker 1

Our presentation and related financial information are available on our website www.oneo.cl in the Investors section and in our app Investors. In addition, a replay of the call will 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 listen and mode. The following slide, Giuseppe will open the presentation with our key highlights of the period, then go through our management actions and regulatory context updates, and finally, we'll give you a view of the business economic and financial performance.

Speaker 1

Thank you all for your attention. And now let me hand over the call to Giuseppe.

Speaker 2

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 hydrogeneration portfolio continued to perform remarkably, a result of the exceptional hydrologic seen last year, mainly due to a linear phenomenon in 2023 and a better meltdown season. This performance gave us a strong start to the year in terms of efficient generation portfolio mix.

Speaker 2

Today, the CME will publish the last month's regulated action cap price in all player offering. Given this release, we will be able to confirm whether or not our offering was competitive. We will only know the winner name in the upcoming days. On the regulatory side, we have some important news to share. First, the Chilean Congress approved the law related to the stabilization mechanics PAG 3, a very positive and important sign of stability in the energy market.

Speaker 2

Law 2,167 has already been published last April 30. 2nd, we continue to expect the new distribution tariff 2024 to enter into force in the second half of the year. The distribution tariff review 20242028 process has already started, and we are expecting some updates in the few next months. We will dig into all topics later. In terms of our profitability, I'm pleased to announce that 2024 has started with solid results in terms of EBITDA and net income, which reflects our confidence in our guidance for this year.

Speaker 2

To conclude, the shareholders meeting approved the final dividend for 2023 of MXN 4.58 per share. Now in May, we will pay 3.98 pesos per share, complementing the amount already distributed being paid as interim dividend during January this year. Now let us move to Slide 3 to review how we executed our goals and strategy toward a more efficient generation of polymers. The favorable hydrological condition during 2023 not seen since 20 10 allowed us to have a more comfortable weather availability until the end of the Q1 2024. This effect associated with the peak of the melting season during 2024 resulted in a higher hydro generation of 0.9 terawatt hour.

Speaker 2

Net electricity generation totaled 6 0.1 terawatt hour as of March 2024, exceeding by 19% the production during the Q1 of 2023, mainly due to higher hydro and renewable generation, resulting from the improved hydrology and the addition of new projects, respectively. These also offset the lower thermal dispatch, mostly related to the better hydro situation of the period. Our energy sales totaled 8.5 terawatt hour in March 2024, 0.8% higher than the level recorded in the Q1 of 2023, primarily due to higher sales to regulated customers. In terms of our balance, during this quarter, we increased our purchases from 3rd parties by around 0.6 terawatt hour as a part of our continued effort to diversify our sourcing. As a result, our spot purchases have decreased by 0.9 terawatt hour, almost 60% of this reduction was in the north solar hours.

Speaker 2

A lot has been told regarding the potential for anemia for 2024. So we continue to have a conservative hydro projection for 2024 of 9.6 terawatt hour. Let me say that even if we see a drier scenario for this year versus 2023, The big difference we see from the drier tier occurred in the past is that now we have plenty of gas volume to fulfill our needs, thanks to Argentina contract and our long term LNG contract with Shell. For reference, we have already executed new firm agreement with several Argentina and gas suppliers for up to 2,600,000 cubic meters per day from May to September 234 and an additional 3,500,000 cubic meters per day from October to December this year, giving us certainty to optimize our portfolio during 2024. Now let's move to the next slide to review our main KPI on Slide 4.

Speaker 2

In terms of renewable and that increased capacity, in this Q1, we reached 6.5 gigawatt of net capacity, representing a 77% stake in our generation portfolio. This enabled us to reach 76% CO2 preproduction, 11 basis points higher than in the Q1 of 2023. Regarding Enel X, an important complement to our integrated offering that support the electrification of our clients, we have improved the performance of several KPI compared to 2023, as you can see in the slide. Regarding the distribution segment, the number of clients and distributed energy in our concession area continue to grow. For what's concerned the quality of KPI, looking at the last 12 months indicator, they have remained in line with the same period last year.

Speaker 2

Now on the next slide, let's look at some updates related to the regulatory context. As you may recall, last call we have indicated that in January this year, the Minister of Energy presented a trust law related to the stabilization of energy mechanism with the purpose of continuing the PEC mechanism and mitigating the projected tariff increases to finance customers. At the same time, they also aim to improve the client protection mechanism known as MPC mechanism to allow gradual repayment of accumulated debt to the generators and establish a transitory subsidy for the most vulnerable clients. This new law was discussed and approved by the Chilean Congress in April and published and coming to force last Tuesday, April 30. Now we are waiting for 2 important steps.

Speaker 2

First, the publication of the sovereign guaranteed decree needed to start the factoring process. This guarantee shall be presented to investors that will be part of the vision coordinated by the IDB expected for the next month. 2nd, the publication of the PMP decree expected by the end of June. With the publication of these documents, the tariff from the regulated client shall be updated. We expect that the client shall receive the new tariffs at the beginning of the second half of twenty 4.

Speaker 2

As of March 2024, we had an account receivable related to the fact already in net of factoring of $849,000,000 With the publication of the sovereign decrease and the gain decrease, we expect to execute the restructuring of the current accounts receivable during the second half of this year, ranging from $450,000,000 to $600,000,000 We expect that by the end of 2024, the accounts received on net of factoring should range between $400,000,000 $400,000,000 On the distribution tariff regime, the regulatory final report for the 2020, 2024 cycle was published in February. And the tariff decrease in the same period remuneration shall be published within the next few months. Regarding the 2024, 2020 cycle initiated in January 2024, We expect that external consultant responsible for realizing the reference modeling company studies has started work. And the final report is foreseen to be published early in the Q4 2024. We expect that by the end of this year, the regulator shall establish the preliminary technical report of this new cycle.

Speaker 2

Even though the new cycle shall not have a relevant change in terms of modeling, we will continue our work within the association to address the changes in the regulatory model to match the needs we believe the distribution business required to guarantee that the rectification and decarbonization plan required by the government and the society cannot be jeopardized by the lack of the distribution infrastructure. Now let's review on the next slide how our earnings indicators perform. Our economic and financial performance for this quarter is very solid. Here is a quick summary of the main figures, which I will detail later. As you can see, this quarter EBITDA remained stable compared to the Q1 of 2023.

Speaker 2

Even though in the Q1 of 2023, we had an important contribution from gas trading activities. 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 $157,000,000 for this quarter. This was mainly due to the recognition of equity interest, which positively impacted the financial results. Net FFO also showed an improvement of 34% per sales in the period, which reached $114,000,000 in this quarter.

Speaker 2

The improvement too has been impacted by the fact that combination FX. We will see more details in the following slides. Now on the next slide, let's review the progress on CapEx. Our total CapEx reached $179,000,000 in this first quarter, which is 65 percent higher than the previous from the Q1 of last year. I would like to mention that 67% of our total CapEx equivalent to $120,000,000 was related to renewables and storage And 22% equivalent to $40,000,000 was related to Greece, mainly due to new customer connection as a result of the growth of our customer base.

Speaker 2

Regarding asset management CapEx, which represents 30% or $54,000,000 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 business. Finally, development CapEx reached $103,000,000 representing 58% of our total CapEx, an increase of 77% compared to the last year. Considering our renewable portfolio and activity at some of our hydroelectric plants to improve their efficiency. Let's now take a look at the next slide, where we review a summary of this Q1 EBITDA by time. In the Q1 of 2024, our EBITDA reached $293,000,000 in line with the last 3 year figures.

Speaker 2

Let me explain the main effect of this quarter. First, I would like to highlight the positive contribution from EPA sales declined to $53,000,000 primarily due to higher volume mainly in regulated market and indexation in the same market. 2nd, the positive effect of $40,000,000,000 of the industrial sourcing, mainly explained by lower variable cost, considering a better regulatory scenario and a more efficient generation mix that enable to reduce our fuel consumption. 3rd, reported the contribution of $47,000,000 related to commercial fast sourcing, primarily due to lower purchase in the stock market in terms of lower volume and lower prices, partially offset by higher volume prices from 3rd party. In addition, we had a positive effect of €4,000,000 on or related to the grid margin.

Speaker 2

This variation is mainly explained by the grid remuneration, which is mainly associated to the bad territory, 2024 regulated report publication. The above mentioned effects were partially offset by: first, a negative effect of $118,000,000 related to the gas trading activities carryout during the first quarter 2023 for around 10 terabits. 2nd, it has a negative effect of $25,000,000 related to the Mezhda PPA agreement signed during 2023. Let's move on to the next slide, where we will review the net income evolution accounting for $157,000,000 Our net income increased by 6% versus last year figures. Let me drive you through the main aspect.

Speaker 2

EBITDA in line with the last figure as I have already explained, higher depreciation amortization of $13,000,000 mainly resulting from higher depreciation in M and A Power due to our new renewable project in operation and general peso devaluation in the period, which was partially offset by the change in the consolidation perimeter given the cardiac sales, partially offset by lower bad debt accrual in Greece and in the commercial debt level as a result of the commercial agreement and cutting programs executed individually. Regarding financial results and equity investments, we recorded a $19,000,000 improvement, primarily explained by $21,000,000 related to higher interest and adjustment due to the PEG 2 recognition. Income taxes decreased by $2,000,000 mainly due to penalty provision reduction from preliminary period. Moving to FFO analysis on the next slide. Let's review in detail our FFO for this period.

Speaker 2

This quarter, our FFO reached $114,000,000 representing an improvement of $29,000,000 compared to the same period in 2023. Let me detail the main effect that explain our FFO in this period. Dollars 293,000,000 coming from EBITDA, mainly thanks to our PPA sales and according to the performance of data and commercial sourcing as explained previously. A negative effect coming from the cumulative stabilization mechanism effect in our receivable equivalent to $105,000,000 in this quarter. This negative effect is being partially offset by the execution of the IBB factor related to PEG2, which amounted to $15,000,000 this quarter.

Speaker 2

There is also negative effect coming from the working capital that reached $29,000,000 as a consequence of payment coming from 2023. In addition, income tax this quarter negatively impacted our FFO by $26,000,000 mainly explained by tax savings and generation business in 2024. To conclude, in terms of financial expenses, we paid $34,000,000 on million under the debt interest. Making the comparison of the preferred between Q1 2024 and Q1 2023, you can see how the figures are very much in line. The only main difference is related to the net impact of the tax accumulation, as you can see in the slide.

Speaker 2

Now let's take a look at our liquidity and leverage position. Our drop back decreased around 1% to €4,400,000,000 by the end of March 2024 versus December 2023. We foresee that our net debt will continue to decrease by second half twenty twenty four, considering the execution of net working capital protection expected for the period. Therefore, the covenant indebtedness level is a temporary condition that will be recovered by the end of the year. The average of our debt maturity decreased temporarily to 5.7 years as of March 2024 from 6.1 years as of December 2023.

Speaker 2

And the portion of the fixed rate is maintained at 88 percent of the total debt in line with December 23. The average cost of our debt reached 4.83% as of March 2024, along December 2020. In terms of liquidity, we have a comfortable position to support upcoming debt maturity in 2024 and cope with possible headwinds in the debt market related to the current situation. As of March 31, 24, we had signed 2 new credit lines with third parties totaling 100 and $50,000,000 and with a fee of $750,000,000 In terms of maturity for Chem24, we have approximately EUR 770,000,000 maturing 2024, including $400,000,000 of the E and T bond generation, which was successfully paid in April. The payment was realized using a short term intercompany debt between Enel Eneracion and Enelchin using part of the revolving committed credit line available for Enelchina.

Speaker 2

Now I will close the presentation with some closing remarks. We had 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 the meltdown season and our generation mix also supported our solid results. Such sound liquidity put us in a comfortable position to support our short term strategy and cover the maturity over the plan period as part of our de risking and deleverage strategy announced in our last Capital Market Day.

Speaker 2

Finally, the next month will be very important in terms of regulatory update for the sector as the release of the sovereign guarantee decree that will support the start of the factory and the debt recovery as well as the publication of the 2020 to mid-twenty 4 tariff disputes of the distribution business. Let me now hand over to Isabella.

Speaker 1

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

Operator

Thank you. And at this time, we'll conduct a question and answer session. Sorry, our first question will come from the line of go ahead.

Speaker 1

Okay. Do you have a question from the line?

Operator

Yes. Our first question will come from the line of Javier Suarez from Mediobanca. Your line is open.

Speaker 3

Hi. Good morning and congratulations to Giuseppe for appointment as new CEO. 2 or 3 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.

Speaker 3

This is approved by the Congress and that should have a positive impact on your cash flow generation. The second point is also on the your latest expectations from the approval of the 2020 to 2024 electricity distribution tariff. The tariffs decrease should be valid during the Q3. But if you can share with us your latest expectations on what you see or quantify as possible upside from this new regulation. And the third comment is if you can share with us your latest expectation by debt for the debt of the company by the year end.

Speaker 3

And the final comment is on the comment that you have made that you feel comfortable with current guidance for 2024. So my argument would be that taking into consideration that hydro production is 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 and there should be some upside from the new distribution framework. Shouldn't we see current target as conservative? If you can elaborate on that, that would be helpful. Thank you.

Speaker 1

Thank you, Javier. Giuseppe?

Speaker 2

Hi, Javier, and thank you for your congratulations. Well, in terms of price stabilization mechanism, as I said in the previously, the law has been approved and public. So now we are waiting for several next steps, which of probably the most important fact that we are waiting for are, first of all, emission of the sovereign decree that give us the guarantee that we cover 30% of our credit that we need in order to proceed with the factoring. And the second fact is the obligation that P and P decrease at the end of June, based on which we can define exactly the amount of factoring that is supposed to be done in the second half. Now second half means between 3rd end of Q3 beginning of Q4.

Speaker 2

When we are talking about our estimation according to the information that we have, it should be between $450,000,000 $600,000,000 If we are able to proceed with this factoring, we are going to close the year with account receivable that will be between $400,000,000 $500,000,000 Consider that part let me say, most of these amount will be recovered between 2020 5 2026 with a small portion related to the PEC-one that will be recovered in 20 27 according to the law. So this is what concerns the first question. In terms of the impact of VAT 2020 and 2024, we have already included in our profit and loss. So we are talking about around $20,000,000 comparing with our previous assumption. In terms of debt, at the end of the year, we're supposed to close the year with a net debt around 3 point $6,000,000 Let me say that clearly this amount that I'm giving you is based also on the possibility of performing this factoring that we already mentioned.

Speaker 2

So if everything is going well, we are going to close $3,600,000,000 net debt at the end of the year with ratio net debt to EBITDA lower than 3x as our guidance and target already declared several times. The guidance, yes, apparently with the results of the Q1 clearly is expected a better guidance. As I said at the beginning, we are not we don't know yet how the rainy season will perform. So basically, we prefer to be conservative and to confirm the guidance that we declared in the Capital Market Day. Clearly, there could be some possible upside, but it's clearly to mention it.

Speaker 2

We probably give you a better or a more updated guidance as soon as we're going to close the second half because as you probably remember the rainy season used to start end of April, maybe on May, so for the closing of January for the closing on June that will be public. At the end of July, we are able to give a better view of the guidance. But as of today, we confirm with the guidance that we presented in the Capital Markets Day.

Speaker 3

And to be just 100% crystal clear on your first answer on the amount of regulatory receivables by the year end. So you were mentioning that, that amount of regulatory receivables by the year end should be at along the lines of $400,000,000 and that should mean a reduction through the year between $400,000,000 to $600,000,000 Is this correct?

Speaker 2

Yes. Between $400,000,000 $500,000,000 will be the year end credit receivable, depending on how much we're able to do in terms of factors. But again, I will repeat it. The factoring, we're supposed to have between 450 to 600 in terms of factoring. And we are estimating to close the year with a credit between €400,000,000 €400,000,000

Speaker 3

Fantastic. Many thanks.

Speaker 1

Thank you, Javier. As we do not have another question from the line, let's go to the chat, okay? The first question is coming from Fernand Gonzalez from BTG and Fernandes. Giuseppe, congratulations on your appointment. Can we assume continuity from a strategic point of view?

Speaker 1

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 in the company. Then Fernando has other questions, so I go 1 by 1.

Speaker 2

Well, thank you, Thomas. Thank you for your congratulations. And well, in general, I can tell you that no change in terms of strategy. I mean, we are stick with the strategy that we have already presented last year in our Capital Markets Day. So the topics and the focus for the company is the same.

Speaker 2

That means the capitalization in terms of clearly increase our capacity in terms of renewable with a special focus on the financial stability that we have as a pillar in our studies. So I don't see any kind of changes so far.

Speaker 1

Okay. So let's go to the second question from Fernand. Could you please elaborate more on the $25,000,000 negative impact on EBITDA from the America PPA agreement?

Speaker 2

Yes. I mean, last year, in Q1 of 2023, we reached an agreement with our supplier of energy. We had a PPA in mind with this company, Metka. And the PPA foreseen the start of the operation this year with a certain amount in a certain point of connection delivery. We for several reasons, we negotiate with this company an update of the contract and the negotiation foreseen a different delivery point and the compensation regarding the new contract, the update of the contract with Meta was $25,000,000 in 2023.

Speaker 2

So basically, it is a one off effect that we had last year that clearly is not going to be repeated this year. Just a matter of very specific negotiation with our supplier.

Speaker 1

Okay. Then the final question on Fener is, what are your thoughts on the potential regulatory change that is being discussed about the way the spot market works? Is this a change that you agree with?

Speaker 2

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

Speaker 1

Thank you, Giuseppe. Now we have a question also from the chat here from Florentia Mallorca from MetLife. Florentia is asking if you could repeat again the outstanding about spec, what we are expecting also for the end of 2024 and also if we have any update about the prices from the recent regulated

Speaker 2

auction? Well, in terms of account receivable coming from the pack, We are assuming to have an amount of in the second half of this year. If this factoring will occur, we are going to close the credit receivable at the end of 2024 in a range between $400,000,000 and $500,000,000 Well, for what's concerned, the regulatory tender, I mean, right now, we are waiting for the release of the reserve price, the cap price that we mentioned before. And we believe that in a couple of hour, on the next hour, we are going to have some more information and we are going to evaluate in order to understand whether we won or not.

Speaker 1

Okay. Thank you, Josep. So the another question is coming from Ignacio Galvez from Santander. Good morning. Financial costs during Q4 2023 and Q1 2020 4 contain some costs related to electrical business accounts receivables.

Speaker 1

Are these nonrecurring costs already over? Or should we expect additional costs in the next quarters? Thank you. Thank you, Ignacio. Giuseppe, so we got the question.

Speaker 2

Basically, it's a no returning effect related to the transaction that we had with the buses. We sold the asset to third parties And we are not going to have any additional effect in the following months. It's just a matter of account impact, not a financial one. But this the business of Dental and the electric bath works in this way with such an effect once you sell the business.

Speaker 1

Okay. Thank you, Giuseppe. Again, let's go to the final question, the last one from Tomas Gonzalez from Scotiabank. The question of Thomas is, can you give us an update in relation to the potential sale of up to 49% of renewable assets and if this sale could be result in a higher dividend going forward? Thank you.

Speaker 2

Thank you, Thomas. Well, we are going to add with the potential phase of minority stake of our assets. We don't have as of today any kind of update for you. But in the following months, in June, I hope to give you more color on that. In terms of additional dividend, we're going to see how the process and the price will be.

Speaker 2

As of today, it's really, really early to discuss about this topic.

Speaker 1

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

Operator

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

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Enel Chile Q1 2024
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