Enel Americas SA
SGO:ENELAM
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Good day, ladies and gentlemen, and welcome to Enel Américas First Quarter 2021 Results Conference Call. My name is Celine, and I will be your operator for today. [Operator Instructions]
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. These statements could include statements regarding the intent, belief or current expectations of Enel Américas and its management with respect to, among other things, Enel Américas business plan, Enel Américas cost reduction plans, trends affecting Enel Amséricas' financial condition or results of operations, including market trends in the electricity sector in Chile or elsewhere; supervision and regulation of the electricity sector in Chile or elsewhere and the future effect of any changes in the laws and regulations applicable to Enel Américas or its affiliates. Such forward-looking statements reflect only our current expectations, are not guarantee 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 include a decline in the equity capital markets of the United States or Chile, an increase in the market rates of interest in the United States or elsewhere, adverse decisions by government regulators in Chile or elsewhere and other factors described in Enel Américas' annual report on the Form 20-F, including under Risk Factors. You may access our 20-F on the SEC website, www.sec.gov. Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of their date. Enel Américas 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.
I would now like to turn the presentation over to Mr. Rafael de la Haza, Enel Américas' Head of Investor Relations. Please proceed.
Thank you, Celina. Good afternoon, ladies and gentlemen, [Foreign Language], and welcome to our first 2021 results presentation. I'm Rafael de la Haza, Head of Investor Relations of the company of Enel Américas. And in the coming slides, Aurelio Bustilho, who is our CFO, will be presenting the main figures of this period first quarter 2021.
Let me remind you that this presentation will follow the slides that have been already uploaded into the company's website. Following the presentation, we will have the usual Q&A session. [Operator Instructions].
Now let me hand over the call to Aurelio, who will start by outlining the main highlights of the period in Slide #2. Please, Aurelio.
Thank you, Rafael. Good afternoon, everybody. During the first quarter of 2021, we have seen a recovery in terms of energy sales in distribution business in Brazil. I would like to remind you that on the first quarter of 2020, only March was impacted by COVID, while in the first quarter of 2021, it affected the full quarter. At the same time, we have seen that tariffs adjustments have been positive for us. Enel Rio increased its tariff by 6.02% on average in March, and in Ceará increased 8.95% on average a few days ago just affecting April onwards in case of Ceará.
In terms of EBITDA, we had a reduction of 12.7%, but most of this decrease is explained by currency devaluation. Without considering FX effect, our EBITDA decreased by 3.3%, mainly explained by lower results in the generation business.
We also want to highlight that our consolidated revenues were in line with last year, the positive sign of recovery from the effects of COVID on our results. At the same time, we were able to improve our FFO mainly due to lower net working capital and lower financial expenses.
As you all know, last week, we had our annual shareholders meeting, and we are glad to see that we are moving ahead in terms of gender equality, as 2 women were appointed as directors of the company.
During the period, we had an upgrade on our credit rates from Feller Rate which consider that the merger with EGP Américas is a credit positive and will strengthen our business profile, the risk of our operations and give us higher growth capacity.
In this sense, the merge approved by our shareholders' meeting in December was finally completed on April 1 and the tender offer concluded on April 13, leaving our controller shareholders with only 2.3% ownership. Now we are looking forward to all the challenges and opportunities that we will have in this new space, starting the consolidation of EGP Américas from the quarter 2 -- the second quarter of 2021.
Let's move to the following slide to see the evolution of currencies, demand and collection. Local currency suffered significant devaluation against U.S. dollars during this quarter, except for Colombian peso. Argentinian peso decreased 14%, while Brazilian reals and Peruvian sol dropped by 23% and 8%, relatively. Regarding electricity distributed, we are glad to see a recovery in Brazil, which increased by 1%. On the other hand, Argentina decreased by 6%, while Colombia peso slightly decreased by 1%.
Finally, in terms of collection, we had an important recovery in Peru, increased 10.1 percentage points and a slower recovery in with 1.1 percentage points. On the other hand, Brazil slightly decreased by 0.7 percentage points and Argentina dropped by 4.9 percentage points.
Now let's have a look at our investments for the period in the next slide. During the first 3 months of this year, Our CapEx decreased by 2.7% compared to the same period to -- to last -- of last year, reaching USD 291 million. This includes a negative impact coming from currency devaluation of minus $52 million. Without this effect, CapEx would have increased by 15%, showing our strong commitment with the countries in which we are present. Our investments were mainly devoted to maintenance CapEx and focus in distribution business looking to improve service quality.
From a geographical point of view, 54% of investments in this quarter were made on our subsidiaries in Brazil, from which most part came from distribution business. Finally, it's worth to highlight that almost 95% of our CapEx is SDG related, confirm our focus in ESG.
Now let's our operating highlights on the following slides. In generation business, our installed capacity remained at the same as last year at 11.3 gigawatt from which 55% is hydro. Net production in the first quarter reached 9.7 terawatt hours, a reduction of 9% compared to the same period of last year, explained by lower generation in Brazil, Argentina and Colombia. Our generation sales decreased by 4% in the quarter, reaching 14.2 terawatt hours, explained by reductions in Argentina, Brazil and Colombia, mostly affected by lower demand due to be pandemic.
Now let's analyze our network business in Slide 6. Electricity distribute reached 30.1 terawatt hours in this period, the same level as in the same period last year. Regarding number of customers, we had an organic increase of around 360,000, mainly explained by an increase in Enel Sao Paulo and Enel Goiás and Codensa in Colombia. In terms of quality indicators, SAIDI and SAIFI improved or remained flat in all the countries, except for SAIDI, Brazil, mainly due to weather conditions in Sao Paulo. On the other hand, energy losses increased in the 4 countries as a consequence of the economic situation in the region due to COVID.
On next slide, we'll see Enel X and retail businesses. Enel X business, we had a solid growth in charging points, photovoltaic panels and public lighting. While the credit card business stayed in line with last year. This performance shows the strategic relevance of Enel X in the energy transition in Latin America. On the other hand, microinsurance decreased by 29% as a consequence of a decrease in door-to-door campaigns due to the COVID pandemic. Regarding retail business, the number of delivery points increased by 28%, reaching 3,963 and the energy sold amounted to 5 terawatt hours, which means a 26% increase.
Let's now have a look at our ESG highlights in the coming slides. Following our focus of contributing with the United Nations Sustainability Development Goals, we have been supporting our community with different projects, which, in total, have a positive impact in more than 6.7 million people. The recently completed merger with EGP Américas, puts our company in an excellent position to lead transition and contributed to with reducing our CO2 emission, which is a focus in our strategy. This is also perceived as a positive step for credit agencies, which is reflected upgraded rating given by Feller Rate some weeks ago.
Finally, as mentioned before, we did an important step in terms of gender equality as we now have 2 women as part of our Board of Directors, voted by our shareholders in our region in recent General Shareholders Meeting.
Now let me comment about the financial results for the period starting from Slide #9. EBITDA reached USD 741 million, 12.7% lower than the same period last year. This is mainly explained by the negative impact of currency devaluation in the 4 countries where we operate, especially in Brazil, and to a lower result in generation business due to a lower sales in Brazil and Argentina. Without considering FX effect, EBITDA would have decreased by 3.3%.
Group net income decreased by 11.8%, reached USD 183 million. This is mainly explained by the lower EBITDA, above mentioned, partially offset by better financial results. Without considering the negative impact from FX, net income would have decreased by 1.8%. Funds from operation, FFO, in the period reached USD 186 million, an increase of 46.6% compared to the same period of last year, while net debt increased by 2% reaching USD 4.5 billion. We will analyze detailed cash flow and debt later in this presentation.
On the coming slide, we'll see EBITDA evolution and its breakdown. Starting from USD 848 million of EBITDA on first -- of the first quarter of 2020, we see that large Hydro represents the main explanation for EBITDA reduction with a decrease of USD 38 million. Thermal Generation and Networks businesses slightly decreased, while Retail and Enel X showed a better result, reaching a total EBITDA, excluding FX impact of USD 824 million, which is 3% compared to the first quarter of 2020. Currency devaluation had a negative impact of USD 79 million. Consider this plus other impact, we get to a final EBITDA of USD 741 million, 13% lower than the same period of last year.
On a currency basis, we see that the main contributor for the consolidated EBITDA was Colombia with 43%, while Brazil represents 36%, Peru 18% and Argentina 3%.
Let's have a focus on generation and networks businesses on Slide 11 and 12. EBITDA in generation business decreased by 16%, mainly explained by lower results in Argentina and Brazil. In Argentina, we had lower generation mainly in Costanera as a consequence of lower demand. We were also affected by lower prices and higher costs due to inflation. In the case of Brazil, we had lower hydro generation and lower energy sales, mainly in Cachoeira Dourada. OpEx also increased in the case of Brazil.
Currency devaluation had a negative impact of USD 25 million. As shown on the prior chart, Colombia contributed with more than 50% of generation EBITDA.
Let's see networks business in the next slide. EBITDA in networks business dropped by 80%. However, most of this decrease is explained by the currency devaluation, which had a negative impact of USD 60 million. Net of FX Brazil, Colombia and Peru improved their EBITDA compared to the past year. We are glad to see a recovery in terms of demand in Brazil, mainly Brazil in Rio and Goiás, which increased compared to the first quarter in 2020.
In addition, as we mentioned before, tariff adjustments in Enel Rio and Enel Ceará implied an increase on our tariff as mentioned before. Again, Ceará will also
[Technical Difficulty]
Hi, Aurelio. Aurelio, please continue.
Thank you so much. Sorry for the interruption. Well, I'm experiencing light dwell. Again, we are glad to see a recovery in terms of demand in Brazil, mainly in Rio and Goiás, which will increase compared to the first quarter 2020.
In addition, as we mentioned before, tariff adjustments in Rio and Enel Ceará implied increase and increase in our tariffs as mentioned before.
EBITDA in networks business came mainly from Brazil and Colombia with 53% and 32%, respectively. Peru contributed with a 14% and Argentina, 1%.
Let's analyze our cash flow in the next slides. FFO or funds from operations amounted to USD 186 million on the period, starting from an EBITDA of USD 741 million, and this result includes a negative net working capital in the period for an amount of USD 362 million, 27% lower than the same period of last year.
The improvement in net working capital is due to lower bad debt provisions and lower payments, including the period. Tax paid during the period amounted to USD 185 million, while net financial expense amount to minus USD 7 million. After investments for USD 291 million, as indicated in previous slides, we get a free cash flow of minus USD 105 million.
Let me now analyze the debt of our company in the Slide 14. Gross debt amounted to almost USD 5.7 billion, a decrease of 4.3% compared to December 2020.
The FX effect accounts for a debt reduction of more than USD 0.4 billion due to the fact that most of our debt is in local currency. This was partially offset by debt increase mainly in Enel Ceará and Enel Goiás, Enel Rio and Enel Américas Holding.
Looking at our net debt, starting with USD 4.4 billion of last year, we have the minus USD 105 million of free cash flow, as mentioned in the previous slides. Net dividends paid amounted to USD 124 million and after financial receivables for minus $16 million. And FX effect for minus USD 123 million. Total net debt reached USD 4.5 billion, an increase of $90 million.
In terms of currency and country, we see that Brazil remains as the largest contributor, while the debt at holding level represents 20% despite an increasing in -- during this period.
Finally, regarding the cost debt, we can see increase for this period going from 4.9% to 5.1%, mainly explained by a growing trend in -- and this is associated with variable rates of debts in Brazil. This is partially offset by better rate conditions in the refinancing of debts in Brazil, Colombia and holding.
Now on the following slides, Let's see some indicators in connection with the merger with EGP Américas. On Slide 15, we can see after the integration of Enel Green Powers Américas access into our company, our installed capacity increased -- will increase, no long ago, from April onwards by 33%, moving from the previous 11.3 gigawatts to 15 gigawatts. Our capacity now is combined by 47% of hydro, 11% of wind, 9% of solar and thermal represents only 3 -- sorry, 33%, an important reduction compared to the 45% represented before the merger.
In addition, we have 3.1 gigawatts of capacity, which is currently under construction. On the following slide, we'll see a pro forma of our results considering EGP Américas asset for the first quarter, again, just for pro forma purposes.
Net production of EGP Américas assets were 2.6 terawatt hours, which represent 21% of the production of Enel Américas. Considering the new capacity, we would have reached 12.3 terawatts hours in the period.
Regarding sales, EGP Américas would have contributed with 3.9 terawatt hours, 21% of the energy sold by Enel Américas. With this, we would have reached total sales of 18.1 terawatt hours, a 22% increase compared to the first half of 2020.
EBITDA of EGP Américas in the first quarter was USD 95 million, meaning that we would have reached USD 836 million as total EBITDA in the first quarter instead of $741 million. Our net debt-to-EBITDA ratio would have remained the same as net debt of EGP Américas is currently very low.
Finally, in terms CapEx. Considering the investments of the EGP América for USD 187 million, we would have reached a total CapEx of USD 478 million, from which 42% corresponds to renewable generation.
Let me conclude this presentation with some closing remarks. Within the difficult times that we are facing, we are actively working to mitigate any potential impact and doing our best to help our communities and the places that we operate. This quarter, we saw a recovery in terms of demand in Brazil and solid results in network business. Despite this difficult environment, we have been able to improve our cash flow in a significant way, while reducing our gross debt.
Finally, we are beginning a new phase for our company after the completion of the merger with EGP Américas. We are confident that this will bring benefits to our shareholders. Please, Rafael.
Yes. Well, thank you, Aurelio, for the explanation, very clear. I now pass the call to the operator for the Q&A session. Operator, please, proceed.
[Operator Instructions] We have our first question coming from the line of Javier Suarez with Mediobanca.
I have 3 questions. The first one is on the FFO improvement that we have seen during the first quarter. So if you can elaborate for that, the reasons for the improvement in the FFO in the net working capital during the first quarter, and that is sustainable by the year-end. So the question is related to the impact that improvement in net working capital has had on free cash flow generation during the first quarter? That would be the first thing.
The second question is on Slide #3 and talking about collection. We have seen some significant recovery in Peru and slight worsening in Brazil. So you can help us to understand the reasons behind that improvement in Peru and worsening in Brazil?
And then the third question is on the energy losses on the Slide #6. There has been like of a significant deterioration in energy losses level in all geographies. So you can help us to understand dynamics here and what we may expect as managerial decisions to improve the situation?
Thank you, Javier. Thank you for your questions. Well, let me tell you that FFO, we have the following impacts. Let me tell you that the first one is not recurrent, right? On 2020, we postponed payments from -- for suppliers from 2019 to the -- postponement of payments from 2019 to 2020. So it's -- part of this improvement is because 2020 was very affected, let's say, with the payments from 2019, especially for the CapEx that we made that we executed in the end in the last quarter of 2019.
So this effect is more or less 30% of the improvement in terms of FFO during this period. But the positive thing is that this improvement that we have in collection seems to move in a very good way, especially in Colombia, and Peru and also in Brazil, despite it's a little bit lower in Brazil, but it seems that the recovery is consistent.
Let me tell you that especially in some regions like Rio and Argentina, we are not allowed yet to disconnect clients that didn't pay. So our vision is that since the situation is becoming, and we estimate in becoming more, let's say, normal in terms of the pandemic, we are able to recovery and accelerate the collection recovery.
And the third issue is the lower payments in terms of financial expenses. So these 3 things, the collection is the one that is recurrent, we want -- and we are confident that we'll move this way for the next quarter. The payments in terms of suppliers, of course, it's more an issue for the first quarter of 2020. And the financial costs, we are actively working in the liability management in order to improve the situation, okay?
In terms of collection, jumping into your second question, That's more or less what I explained to you. Argentina, basically Argentina and Rio, not all the distribution, but Rio, since we have more restrictions to not disconnect people and that do not pay, we are, of course, operating in giving -- facilitating payments and so on in installment in order to recover. But we are not fully deploying into our full potential in terms of market discipline yet. But again, in Colombia and Peru, we are recovering, and this is more or less compensating these effects. And the other distribution in Brazil that we are improving, like Sao Paulo, for example.
In terms of losses, this is an important issue regarding pandemic that we observed in the market. We -- especially regarding the normalization, what we call, we have our systems to detect the commercial losses, but we are not fully operating in this -- especially in this, in our distribution due to the COVID restrictions. So we know exactly where it is happening.
But again, since the operation is normalized, we will recover this with our operations and normalize and put discipline in the market like we did in the past. But most of it -- well, the main concern is, of course, Argentina, is the highest increase. But it's related to the impossibility to do normalization of the losses.
The other distribution companies, again, Brazil is a little bit higher. But it's all concentrated in Rio and in some parts in Sao Paulo, but most of them in Rio due to the restrictions for the pandemic. So which means that as soon as we can operate -- normally operated, we'll recover these losses.
We have our next question coming from the line of Andrew McCarthy with CrediCorp.
My first question, I remember from the last quarterly call we had, there was a question on the EBITDA outlook for this year and I think there, Aurelio, you were talking about maybe a range of USD 4 billion to USD 4.2 billion, depending on when the EGP Américas deal finally closed. I was just wondering if you could maybe in light of having advanced a bit further along the year now, if you could give you sort of update on that at all?
And then in terms of my second question, just going back to the -- obviously, the future of the business in Colombia and obviously, you've got ongoing negotiations there with GEB, just wondering if you could maybe provide any color or update on how that's going and whether you have any idea of timing of when that should likely complete?
Thank you, Andrew, for your questions. Well, we are -- we maintain our -- this range of EBITDA that we told you -- told to the market in the last quarter. Of course, we need to see the evolution of currencies. We are in the economic view exposed to these effects. But again, in terms of cash flow, it is almost neutral because our debt is mostly in local currency. Our CapEx, mostly 50% is services and local services in local currency, which means that in terms of cash flow, we have a balance in terms of cash flow in view of our balance sheet.
But we maintained this USD 4 billion to USD 4.2 billion rough estimation in terms of EBITDA for this year. Let's see how it develops. In terms of Colombia, well, Colombia is facing difficult, let's say, some situation regarded their tax reform and so on and eventually a downgrade or some effect. But we are confident. We operate in Colombia more than 20 years. We are confident that the country have -- the country has all the fundamentals to pass through this situation and keep a very good place for investments, very good solid regulation, a very solid institution.
So we maintain our confidence in the country. And that's why we are advancing -- you said -- you mentioned our discussions with Grupo Energía de Bogotá, which is advancing a very good and positive and very constructive way. And we hope, as soon as possible, we can reach a deal, lots of details going on, as we explained in the -- in our relevant fact in the beginning of the year.
But we are advancing a very good, positive and constructive mood. And we are confident that as soon as possible, we will get a very good agreement to Grupo Energía de Bogotá to Enel Américas and to our shareholders. And again, the company, it is very important to us to keep on growing in this country, which is -- has an important and a very good potential despite this situation the country is facing right now, but we believe and is still bet a lot in this country.
Fantastic. And maybe just one follow-up question, if I may, just on the CapEx. Obviously, with the pandemic, I guess it's not always easy to advance with all the plans, both in the network business and expanding the renewables business. I was just wondering from the ground up, what you're seeing there, if there are any sort of particular delays on that side that might be worth remarking on?
Andrew, no, we are not seeing delays. So we are confident in our plan. We have a vision -- we have a very industrial vision and long-term vision of the -- to be positioned in the -- in all the value chain of this industry. That's why we made the merger. So we want to move forward with the renewable plan and also modernization with our distribution grid. So we maintain our plans. And of course, the cost, we have some restrictions in terms of field operations, but we trained our teams, and we are very prepared to move forward because it's important to be successful in our vision of this success utility for the next year. So we maintain our projects and our deadlines and our guidance in terms of CapEx.
Aurelio, we have received another question from Tomas Gonzales, Scotiabank. He's having some problems with the connection and the question is related to the Conta COVID in Brazil. And the question is if Enel Américas considers that also in 2021, will be necessary a new Conta COVID also for this year for our distribution companies to ensure a good situation of our distribution companies in the country.
Well, first of all, the Conta COVID, you know that we got the financial Conta COVID. And it is still pending the decision for the economic recognition of Conta COVID. So the first one that we -- the disbursement that we received in July, more or less $500 million in that period. And we didn't have -- yes, we didn't have yet the economic recognition of this. So we are discussing with the regulator this issue.
And also, we are discussing because it is a reality. Our countries in Brazil, in this case, we are still facing the situation of COVID, of the pandemic. So we are -- probably the demand we are recovering, but on the same hand, this -- especially this situation to not be possible to disconnect clients and increasing losses and increasing affecting the collection. This is something that we are discussing with the regulator.
But this is in the same package of the economic recognition in order to have a final, let's say, a final figure, a final number. And we are confident that at the end, the regulator is being sensible to this, of course, taking all the -- taking in consideration the situation of the country -- the country and the inflation effect and so on. But as I told you, the adjustments are being done. We see the readjustment of Rio, for example, of Ceará. And we are addressing this discussion of COVID, let's say, higher impact in the discussion of economic equilibrium that is moving forward with the regulator as it was planned before.
Okay. Perfect. As far as I can see on the screen, we do not have more questions from the audience. So I conclude the results conference call. And thank you very much to everybody, and let me remind you that net Investor Relations team is available for any doubt that you may have. Thank you very much.
This concludes today's conference call. Thank you for participating. You may now disconnect.