Enel Americas SA
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Good day, ladies and gentlemen, and welcome to Enel Americas First Quarter 2024 Results Conference Call. My name is Gigi, and I'll be your operator for today. [Operator Instructions]. This presentation contains statements that could constitute forward-looking statements. These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of Enel Americas and its management with respect to, among other things, Enel Americas business plans, and Enel Americas cost reduction plans and trends affecting Enel Americas 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 Americas or its subsidiaries. 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 in the forward-looking statements as a result of various factors. These factors include a decline in the equity capital markets and 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 Americas integrated annual report. Readers are cautioned not to place undue reliance on those forward-looking statements, which stay only as of their dates. Enel Americas undertakes no obligation to release publicly the results of any revisions to these forward-looking statements, except as required by law. I would now like to turn the presentation over to Mr. Jorge Velis, Enel Americas Head of Investor Relations. Please proceed.
Thank you, Gigi. Good evening, ladies and gentlemen, and welcome to our first quarter 2024 results presentation. I'm Jorge Velis, the new Head of IR of Enel Americas, taking this position as our former Head of IR, Rafael De La Haza, has taken the CFO role for Enel Americas as of April 1. In the coming slides, our CEO, Aurelio Bustilho, and our CFO, Rafael De La Haza will be presenting the main figures of this period. Let me remind you that this presentation will follow the slides that have already been uploaded in the company's website. Following the presentation, we will have the Q&A session. If you want to make a question, please send it through the webcast or write up to our corporate e-mail ir.enelamericas@enel.com. Now, let me hand over the call to Aurelio who will start by outlining the main highlights of the period.
Thank you, Jorge. Let me begin this presentation by highlighting our commitment with our operations in Brazil. As you know, in the last few months, we have suffered some extreme weather events and extraordinary situations out of our control that have affected our services. In the last days, we have announced a solid investment plan that aims to solve the situation. We will see more details of this in the next slide. Moving to this quarter results, EBITDA reached USD 1.1 billion in this quarter, which represents an increase of 14% compared to the first quarter of 2023. This improvement is mainly explained by Colombia and to a better result in Argentina, which moved from a negative EBITDA in 2023 to a positive one during this quarter. We also had a positive FX effect in this quarter due to the appreciation of the Brazilian real and the Colombian peso. We were able to reduce our cost of debt in about 120 basis points, reaching an average cost of 11%. This is mainly explained by lower interest rates in Brazil and Colombia, and also by lower debt in Brazil as part of our liability management strategy. Finally, group net income reached USD 0.4 billion this first quarter, an increase of 17% compared to the same period last year, mainly explained by better EBITDA and an improvement in Peruvian operations, which as you know, are considered below EBITDA. Regarding our Peruvian operations, let me highlight that all the figures in this presentation are excluding Peruvian assets unless we indicate the opposite. Now, in the coming slides, I will show the details of our investment plans in grids business in Brazil. Recently, we announced our investment plans for Enel Sao Paulo and Enel Ceará, which add up to a total of BRL 11 billion to be deployed in the 2024, 2026 period. This implies investments of around BRL 2 billion and BRL 1.6 billion per year in Sao Paulo and in Ceará, respectively, which represents an increase of over 40% compared to the average of previous yes. We are increasing our base of internal employees by 1,200 and 1,750 in each company, respectively, aiming at improving and accelerate our response to any request of our customers. The main initiatives of our plans include, among other things, focus on preventive maintenance, increase in event and planning, modernization of network, expansion of communication channels and customer service. With these 2 analysis plans, along with our CapEx commitment in our other operations, we totaled BRL 11 billion for 2024 and '26 period, reinforcing our commitment with our operations in Brazil. Despite most of energy cuts that we have faced in the last few months were due to extreme weather events and extraordinary situations of our country. We want to be part of the solution and our early puts in our best effort in order to leave behind the service problems suffered by our customers. Let's analyze our investment during this period. During the first quarter of this year, our CapEx decreased by 4%, reaching $556 million. As we announced in our stats plan, we are looking to be more selective in our investments, especially in renewable projects. 78% of total investments were allocated into Brazil, where as mentioned, we are reinforcing our commitment with improving service quality and preventive maintenance. By business line, 55% was invested in grids and 43% in generation. Asset development CapEx matched $282 million with 77% reverted to renewables. Let's now analyze our operating highlights on Slide #6. In generation, our installed capacity reached 12.2 gigawatts and includes to 200 megawatts during the first quarter of 2024. All in 98% of our capacity is renewable. Net deduction in the first quarter reached 8.7-terawatt hour, a decrease of 3%, mainly explained by a decrease in Colombia due to lower hydro resource and to a lesser extreme extends Brazil due to lower wind speeds with the capacity -- not capacity, but this plannability, partially offset by higher highs of production in El Chocón and Panama. From our total production, 97% is emission-free, reflecting our commitment towards decarbonization in the countries we operating. Energy sales increased by 26%, reaching 18.6-terawatt hour, mainly due to higher sales in Brazil, especially in Enel trading, partially offset by lower sales in Colombia due to the unfavorable hydro conditions we have faced in the country. On Slide 7, we'll focus on development of renewable capacity. During the first quarter, we built 200 megawatts of new renewable capacity located in Brazil and Colombia. And our investments in new projects amounted to $0.2 billion. We are currently building an additional 1.1 gigawatts of capacity located in Brazil and Colombia. As you can see on the right side, we are working on 2 projects in Brazil, at Arinos and Pedra Pintada, and 2 in Colombia, Guayepo II and Guayepo III. Pedra Pintada is a wind farm of 194 megawatts and the other 3 are solar plants, totalizing more than 900 megawatts. And most of this new capacity will be built -- would be entering operations in 2024. Let's continue with grids operational highlights on Slide 8. Electricity distributed reached 27.3 terawatt hours in the first quarter, which represents an increase of 4%, explained by higher sales in Brazil and Colombia. Regarding number of customers, we had an increase of around 420,000 in the last 12 months, reaching 22.3 million customers. Smart meters increased around 2.3x, reaching 824,000 in this period, mainly due to the deployment in Sao Paulo. Our net RAB has increased by 15% in the last 12 months, reflecting the significant investment that we have done in our grids. The ratio, net RAB per customer also reflects an important growth of 13%. In terms of quality indicators, we can see that general terms we have started against difficult weather conditions that affected our metrics. We are working hard in order to have a more resilient grid system. And as already mentioned in the last days, we have reinforced our investment commitments in Brazil, and have defined a set of actions to improve quality. In addition to this, in Colombia, the regulator changed the criteria used to calculate the indicators, which implied an increase in both SAIDI and SAIFI. Now, Rafael will comment on the financial results in the coming slides. Please, Rafael.
Thank you, Jorge. Thank you, Aurelio. First of all, let me remind you that all the numbers that I'm going to mention here are in U.S. dollars, are expressed in U.S. dollars. EBITDA in the first quarter reached 1,077 million, an increase mainly explained by better results in Argentina and Colombia and Greece, both, due to tariff adjustments and positive FX effect in Colombia and Brazil due to currency appreciation. If we exclude from 2023 results of solar assets, Costanera, Dock Sud, NLCN and Cartagena and also exclude FX impact in this period, we get to an adjusted EBITDA of USD 1,010 billion, 11% higher than last year. Net financial result was a net expense of 181 million, which is slightly lower than last year. This is mainly explained by higher impact of hyperinflation in Argentina, partially offset by lower financial income in Brazil due to lower cash position. Group net income in the first quarter reached USD 359 million, an increase of 16.8%. This is mainly explained by higher EBITDA and better results in our Peruvian assets considered -- already considered as discontinued operations. In terms of net debt, we see an increase of 2.9% compared to December 2023. We will analyze in detail our depth later on. Finally, let me highlight that our shareholders meeting held on Tuesday, approved a final dividend payment of 142 million, which will be paid on May 30, 2024, and with the interim dividend of $170 million paid in January 2024, adds to a total dividend for 2023 of $259 million for this period. On Slide 11, we will see EBITDA evolution and breakdown. Starting from $945 million of EBITDA in the first quarter of 2023, we have to exclude EUR 35 million coming from sole assets, reaching $910 million and 10 million in homogeneous perimeter. Then we see that generation decreased mainly explained by Colombia while grid had a significant improvement due to better results in Argentina and Colombia. Customers improved mainly in Colombia and others decreased mainly due to higher expenses in Argentina due to, as you probably know, inflation effect, the inflation effect that we saw in the previous months. With this, we get to an EBITDA of 1010 million, which is higher, 11% higher than last year considering the same perimeter. FX had a positive impact of 78 million, resulting in a reported EBITDA for this quarter of $1,077 million as I mentioned at the beginning of the presentation. From our reported EBITDA, 59% came from Brazil, 36% from Colombia, and 5% from Central America. In terms of business line, grids represent 53% of our total EBITDA, generation 35% and customers contribute with 11%. On Slide #12, we will have a focus on the cash flow of our company. Starting from an EBITDA of 1,077 million, we see that net working capital amounted to 281 million, mainly explained by higher accounts payable related to energy purchases in Colombia and Central America, but substantially mainly in Colombia, along with capital recycling effect in Colombia, partially compensated by lower investment payments in generation in Brazil. Taxes paid during the period, you see the relevant difference compared with the same period of the previous year, amounted to USD 185 million. This is a significant increase compared to last year. And the explanation here is that in the previous year, we completed the merger between Enel Colombia and Enel Green Power, our renewables activities within Enel Green Power so the taxable base is higher to the one that we saw in the previous year. With this, the taxes paid during this period amounts to USD 185 million. Net financial expenses amounted to 170 million higher than first quarter 2023 due to higher financial expenses in Colombia and at Enel Americas stand-alone, Enel Americas Holding due to higher debt and lower financial income in Brazil related to lower cash position explained by the sale of Enel Goiás at the end of 2022 and Fortaleza in March 2023. So, just to be clear, we are not increasing the level of net financial expenses paid. This is a temporary effect due to the not remunerated cash that we saw in the previous period in 2023 due to the sale of, as I mentioned before, Enel Goiás and Fortaleza in March 2023. With these funds from operations amounted to 441 million, a decrease of 111 million compared to the same period of last year. After investments for 556 million, including 282 million of growth CapEx, we get to a free cash flow of USD 116 million. Now, let me analyze the debt of our company in the following slide. Gross debt amounted to 8.4 billion, an increase of 3% compared to December 2023, mainly explained, as I anticipated before, by higher debt at Enel Americas stand-alone and Enel Americas Holding related to dividend payments and a capital injection to Brazil, which allowed us to avoid new debt in that country, but as you know, is very expensive -- still very expensive. Net debt reached 6.7 billion, an increase of 3% compared to the end of 2023. This includes free cash flow for minus 0.1 billion, net dividends paid for minus 0.1 billion, and extraordinary operations also for minus 0.1, mainly related to the parcel amortization of Enel Sao Paulo's Pension Fund. As you know, this is not a financial passive. It's an operational passive, but we concluded recently an amortization, a parcel amortization of dispense registered in our balance sheet. FX impacted in our balance in USD 0.1 billion positive 0.1 billion due to the revaluation of the local currencies in Colombia and Brazil. In terms of currency and country, we see that Brazil remains the largest contributor, while the debt at holding level represents around 20% of the total. This is a temporary effect, while we finalized the sale of our Peruvian assets, which will result in a relevant cash in for the company, around USD 3.8 billion net of taxes. Finally, regarding the cost of debt, we can see a decrease for this period going from 12.2% to 11%, mainly explained by lower debt in Brazil. The stock of the debt in Brazil is lower when compared to the same period of the previous year due to the liability management actions that we mentioned before, and lower interest rates in Brazil and Colombia. With this, I finalize the financial part of this presentation. And on the next slide, Aurelio will conclude this presentation with some closing remarks. Aurelio, please proceed.
Can you hear me?
Yes. Now, we can hear you.
Yes. Thank you. We are reinforcing our commitment in Brazil by implementing a clear and strong investment planning grids aimed at improving our quality. This is our priority. We had a solid operational result and maintained a sound financial position, which allows us to execute our CapEx plan. Regarding our corporate simplification process, we have the authorization of Peruvian authorities and are facing the final steps of selling process in Peru. Finally, let me highlight that we had our shareholders meeting on Tuesday. And among other things, we have elected our new Board of Directors and approved a final dividend payment of USD 142 million to be paid on May 30, totalizing this -- the payment -- a total payment of $259 million for 2023 period. Please, Jorge.
Thank you, Aurelio. Thank you, Rafael. Now, we will begin the Q&A session. And the first question comes from Fernan Gonzalez from BTG. Two questions regarding Brazil. First, local authorities in Sao Paulo have been advocating to terminate in Sao Paolo concession due to an alleged quality of service issue and insufficient investments. You have mentioned before that these were forced major events due to weather, big demand and strong winds damaging infrastructure that led to the blackouts. What are the chances that politicians succeed in early termination of your concession? And the second question regarding Brazil is the decree containing the terms of the renewal of the concessions in Brazil will soon be revealed according to the Energy Ministry. The minister has flagged that he is considering excluding these costs that have an ongoing concession relocation process from participating in the renewal. And he's even analyzing to prevent companies within the same economic group from seeking contract renewal if one of them is undergoing relocation process. What are your thoughts on these measures potentially being included in the terms? Please, Aurelio.
Thank you, Jorge. Thank you, Fernan. Let me say that this is a technical process. And technically, if you see the indicator test, absolutely, no risk of technical -- not that technically that in Sao Paulo is accomplishing all KPIs, all the quality KPIs, all educators, and it's not a discretionary process. This is a technical process. And then as Sao Paulo, it's meeting all the requirements of the indicators to be new. So, these allegations or this political interference or speech, it doesn't make sense. We are confident that the concession will be renewed. We'll have the -- of course, as you all know, the decree -- it's not issued or it's not public yet. But we are confident that the technical aspect that -- and the institutionality and that this process is embedded. And it will be respected. So, this concession of Enel Sao Paulo, we have no doubt that it will be renewed. As was declared, we also know the details of the conditions, but we are confident that it will be renewal.
Thank you, Aurelio. And next question is about Argentina. What are your plans for Edesur? There's been some news suggesting that you are no longer planning to sell the asset? Is there any truth to this? What about El Chocon? Will you seek to renew the concession?
Well, for Argentina, we started this process in the previous year. But we stopped the process since we are seeing and following improvement in terms of the expectations of the country. So, for now, we stopped this process, and following the progress, the political and economic progress that we are seeing in this country to reanalyze this process. I'm talking about the -- of course, the distribution, the Edesur asset. So, for now, we are maintaining the distribution. Let's see. Let's see the evolution of all these improvements in terms of economic and regulatory conditions. Regarding El Chocón, El Chocón is a hydro plant, the concession finalized last year, but we've been attending to a request from the current government to operate these assets until they prepare or define a new auction to, let's say, to renew this concession to another operator. Of course, we are totally available to support the government in this process. We are operating this asset, these new renewables small period for the plant. It cannot be more than 1 year, which means that in August 2024, it should be redefined. Our approach on this is to support the government, the Enel need that they need in order to maintain the operations and to maintain the asset in a good quality serving the Argentinian population in the country. And let's see, it's not defined. It depends on the government, and since you have a new clear situation, we will analyze. But for now, we are total available and operating the asset in order for the government to prepare the next -- let's say, the next phase of El Chocón.
Thank you, Aurelio. Next question is for our CFO. Your leverage is low. CapEx, mostly funded and you are still distributing the legal minimum 30% in dividends. Could we expect an extraordinary dividend after you receive the cash from the sale of Peruvian assets or perhaps launch a share buyback?
Well, thank you, Jorge. As you probably know, yes, the situation in terms of net debt to EBITDA is close to 1.7x without including the pension fund in Sao Paulo. So, we are comfortable with this situation. We have a very strict discipline in terms of financial terms, and we expect to continue in this path. The company is not contemplating an increase in terms of dividend payout, at least for 2024, are not a distribution of extraordinary dividend. Let me remind you that when we -- the distribution operations or distribution processes and generation process in Peru will be concluded. This will entail a registration of a relevant capital gain in our balance sheet. So, there will be an implicit, let me say, extraordinary dividend due to the base of the amount to be distributed in this period in 2024. So, we are not considering an additional extraordinary dividend because already the group net income for this year will be relevant due to these capital gains to be registered in our balance sheet with our balance sheet once the operations will be concluded. In relation to a potential sale buyback, et cetera, this is something any decision has been taken. So, this is not the moment to speak about this potential operation because this is something that is not -- has not been considered. The focus of the company at this moment is, as we mentioned before, is to use the cash proceeds to be obtained from the sales of generation and distribution assets in Peru for liability management substantially in Brazil. As you know, the cost of the debt in Brazil is really expensive for our company, and not only for our company, for all the companies operating there. So, the situation or the targeted strategy of the company of Enel Americas is to reduce the most expensive debt that we have in that country and to avoid new debt to finance the new CapEx, because, as you know, we continue with new projects there, as Aurelio mentioned before. So, part of this amount coming from Peru will be devoted to this to reduce the most expensive gap in that country, and also in Colombia, but substantially in Brazil and to avoid the new debt to finance the new CapEx. So, that's it. About the potential buyback is not at the moment because any decision has been taken as repeat. And regarding a potential extraordinary dividend, the answer is no, we are not considering an extraordinary dividend. We are not considering an increase in terms of dividend payout for this period. Thank you, Jorge.
Thank you, Rafa. Next 2 questions from Francisco Paz from Santander. The first one, the company's divestment process has made progress during 2023, 2024, and also undergone some changes in different context. For example, Enel Ceará and Argentina distribution assets are no longer being sold as a result of which the plant is almost complete. Given this, what should be the next step in Enel Americas strategy? Aurelio, please.
Thank you, Jorge. Thank you, Francisco. Well, yes, this is a very dynamic process. In Ceará, we analyzed that it was not feasible to advancing this project having a renewable -- sorry, a renewal of concessions discussion in the middle. And I mean, we are seeing some improvement, some better conditions. And the same for Argentina. So, which makes sense to stop these projects for us during this period. Priority in the short-term, of course, we have action that we are moving from these selling assets in the room. We need to complete this process. We are closing in a very short time frame, but we need to finish. We need to conclude this. And as Rafael was explaining, to use these funds to reduce and to improve our financial condition with our debt. And also, with this movement support our priority right now that is totally focused to improve quality of our distribution assets, mainly in Brazil. So, our focus, we need to improve. It's not only CapEx, it is also OpEx. I mean, there are also activities that we were explaining to attend the customers in appropriate way, to improve our call centers. I mean, there are lots of operational activities, but it should be done in a cost. So, our focus right now is to support these operations and assure, of course, these conditions in the concession renewal. We want to renew our concession. We want to keep on operating and keep on improving the quality of attendance to our customers. Having them in the center of our business. So, this is especially the special, the priorities. Let's see what comes in the following years. We are seeing -- if you see the generation business, we are seeing that the hydrological conditions can bring another possibility in terms of pricing. We are seeing some possibilities, of course, to reduce the cost of capital. So, we can activate some projects in the future renewable projects. But let's see, it's not in our plan, but the main direction should go -- should move to this way. But for now, as I repeat, that is to rebalance this financial position in order to support this priority, which means that to improve the quality of our distribution assets, and improving this situation. Improving development, pricing, cost of capital. All the efforts that we are doing, improving our financial position, we can see better and other alternatives for the coming years. The main thing here is that as Hava was explaining, we are improving our financial position. We have a sound financial position different to other competitors. I mean, especially in a tire that we have higher interest rates and so on. So, we are entering in this space in a very good shape in order to meet our -- and having our strategic options for the coming years.
Thank you, Aurelio. And the second question from Francisco Paz regarding Colombia. Given the water crisis that Colombia has experienced in recent months, which reached its peak in the first weeks of April. What should we expect to be the impact on the company's results in the Colombian operations in the next quarter?
Yes. You are referring to the -- I didn't understand the question. Referring to the spot prices or to the -- or related to changes in regulatory changes?
The situation of the drought in Colombia, a potential situation of drought in Colombia for the second quarter of this year. We expect any potential impact in terms of results for our activities in the country.
Okay.
Yes. That's the point. But if you want, I can start Aurelio by underlining that, of course, in Colombia Yes. Thank you. The situation in Colombia has improved during the last 2 weeks. As you know, the level of the reservoirs in the country are around 33%, which is a little bit better than the situation that we saw 1 month for a couple of weeks ago. The situation was around with the reservoirs around 25%, 27%. So, the situation is a little bit better. We hope the situation in terms of range improve in the second quarter, particularly in May. But let's see what happens. Of course, for us, the situation in terms of prices could impact in our activities, in our generation activities in Colombia because the spot prices will increase, good increase in that case. And of course, the reservoirs of our assets in Colombia, hydro assets in Colombia is still low. Let's see what happens. We hope the situation improves, particularly, I repeat during this month. But of course, we think that the government and the authorities are analyzing very close the situation. And it seems that the situation improves as most of us are awaiting. There will not see -- we will not see a rationalization measure announced some weeks ago. So, we are very confident with a potential new situation, a better situation in terms of range in the country, but we cannot anticipate any impact in terms of results in our activities there.
Thank you, Rafael.
Yes. I agree with Rafael, if I may. Yes, it's very important because this phenomenon there is -- of course, we see some improvements, but the situation of reservoir in Colombiathe is so bad. I mean, with the dry season that needs more to solve the situation and to increase the reservoirs. So, we are prepared. But as Hava said, it's too early to see that it's beginning of April will change completely in this situation. I think it's too early to see. But commercially, and especially the location that we have our plants, we are confident that we are well prepared to any situation.
Thank you, Aurelio. Next question comes from Jordan Lozano from Calpa in Peru. And it's regarding the sale of energy solution Peru. Peruvian antitrust regulator already approved the deal in this sense, in how much time do you expect the deal to be closed?
Yes, we expect the main issues, I mean, in the court authorization was, as you said, what's done. We are expecting, especially the authorization from the Chinese antitrust regulator. We are on time, consider our schedule. So, we expect in the first half, as we said, in the first half of this year, we will have this deal completed. I don't think we have any major issues to complete this operation, the deal. So, I mean, we expect to give you more information as soon as we have during this process. But everything is under the timeline that we established in the beginning.
Thank you, Aurelio. And we'll have a final question coming from Sebastian Gallego. What is your plan for the remaining 2 wind projects in Colombia following the impairment of wind perching? And the second question, following El Nino in Colombia, should we expect the divestment of the remaining thermal plant in Colombia?
Thank you for the question, Felipe. We are -- I mean, we maintain -- there's no new issues regarding our plant. We are trying to find another solution for this -- especially for the wind project that we have in Colombia. As you know, we have some -- I mean, it's not only for us, but in general, in Colombia, the permitting process is delaying substantially in terms of timing. So, we expect the government to be more proactive on this to accelerate this process. Of course, all together with communities and so on, but having the leadership of the government. So, we expect that improving this project probably, who knows we have a very good pipeline of projects. We can reactivate more projects. Until now, there is no new plan, but we are waiting for acceleration in terms of permitting that's affecting the new projects. I repeat, not only for us, but for all projects in Colombia. And all this very good position and capability that Colombia has in terms of renewable. This is something that Colombia should take more advantage to this, and also important for the country, important for the population, important for the community. So again, we are not do crazy things in terms of the projects that try to invest with any additional projects. And when you see that the conditions of permitting is not reliable -- and mainly reliable, it's not the word, but I mean, some effective approvals to move forward with this project. In terms of thermal plants, we follow -- we still follow this decarbonization process. This is a long-term view. This is a medium-term view. This is not something opportunistic. We still believe that renewable is the way, is the best way that we can contribute for the climate change, for the electrification of countries in our region, not only in our region, but worldwide. So, we follow the plan of the decarbonization. There's no new regarding this. Of course, we are proactive and pragmatic in terms of this approach and doing it in a proper way and in a fair way. So, we maintain our focus in decarbonization. We maintain our focus in renewable as we've been announced during these years. Thank you.
Thank you, Aurelio. Well, as there are no more questions, we conclude the results conference call. Let me remind you that the Investor Relations team is available for any doubt that you may have. Thanks for your attention.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.