Enel Américas S.A.
Q2 2021 Earnings Call Transcript

Published: 29 Jul 2021

[Operator:]

Good day ladies and gentlemen and welcome to Enel Americas' Second Quarter 2021 Results Conference Call. My name is Sadie and I will be your operator today. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press Star-1 on your telephone. 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 Americas and its management with respect to among things Enel Americas business plans, Enel Americas' cost reduction plans, trends affecting Enel Americas' financial condition or results of operations, including market trends in electricity sector in Chile or elsewhere.

[Rafael Haza:]

Thank you, Sadie. Good afternoon, ladies and gentlemen, and welcome to our second quarter 2021 results presentation. I am Rafael de la Haza, Head of Investor Relations of Enel Americas. In the coming two slides, Maurizio Bezzeccheri, CEO of Enel Americas; Aurelio Bustilho, our CFO; will be presenting the main figures of this period. Let me remind you that this presentation will follow the slides that have been already loaded into the company's website. Following the presentation, we will have the usual Q&A session. Please remember that questions can be made only through the telephone lines. Now, let me hand over the call to Maurizio, our CFO -- CEO, who will start by outlining the main highlights of the period in slide number 3.

[Maurizio Bezzeccheri:]

Thank you, Rafael. Good afternoon, everybody. Let me begin the presentation by highlighting the successful merger of EGP into Enel America concluded in April this year. I would like to thank all our shareholders for the strong confidence on our strategy once again. In this second quarter, we began to consolidate EGP assets after the merger approved by our shareholders last year. This is very important milestone and the beginning of a new sustainable growth phase for our company.

[Aurelio Bustilho:]

Thank you, Maurizio. Regarding the second quarter we reached $951 million, 52.7% higher than the same period of last year. It is mainly explained by the consolidation of EGP Americas and by the demand recovery distribution business. If we exclude the impact of EGP Americas and also the negative impact of $70 million coming from currency devaluation, we get to an EBITDA of $841 million, which is 35.1% higher than last year. In cumulative terms, EBITDA increased by 15% in nominal terms and 12.9% excluding EGP Americas and the negative impact of $97 million from FX. Group net income in the second quarter increased by 95.8%. While on a cumulative basis, it increased by 20.6%. In both cases, this is explained by the contribution of EGP Americas that result at EBITDA level and better financial results. Funds from operations, FFO, in the period reached $302 million, a decrease of 9.8% compared to the same period of last year while net debt increased by 27.9% reaching $5.7 billion. We will analyze in detail the cash flow and tax later in this presentation. On the coming slide, we'll see EBITDA evolution and breakdown. Starting from $623 million of EBITDA on the second quarter 2020, we see that all our businesses had positive results from operations improved by $101 million while large hydro increased by $44 million. Networks grew by $49 million and retail analytics increased by $7 and $10 million respectively. In addition to this, we have the positive impact of $127 million coming from EGP Americas. This devaluation had a negative impact of $70 million considering this plus after the impacts, we get to a final EBITDA of $951 million, 53% higher than the same period of last year. On a country basis, we see that the main contributor for consolidated EBITDA was Brazil with 40% while Colombia represents with 35%, Peru 40%, Central America 5%, and Argentina 5%.

[Maurizio Bezzeccheri:]

During this quarter, we saw a solid operational recovery across many regions. This allowed us to have an important improvement at EBITDA level, boosted by the consolidation of EGPA. We continue with our ESG focus and we are positioning our company as one of the best ESG players. Finally, we are already delivering in this new phase for our company after the full integration of EGPA. We are confident that this will continue bringing the benefits to all our stakeholders.

[Aurelio Bustilho:]

Thank you. I now call the operator for the Q&A session. Operator, please proceed.

[Operator:]

Yes, sir. For our first question we have Enrico Bartoli from Stifel. Enrico, your line is open.

[Enrico Bartoli:]

Yes, good morning. Thanks for taking my questions and congratulations for the results. The first one is related to the outlook for the second half after the strong quarter you reported in Q2. If you can elaborate on what you expect in terms of evolution on the demand? If you expect some additional tariff adjustments during the coming quarters? If I'm right, you provided the guidance in February of the $4.2 billion of EBITDA including the EGPA this is confirmed? Second question is related mainly to slide-6, when you show your pipeline for renewable projects, I was wondering if you can share the details on how the deposit are classified in the mature pipeline or the pipeline in terms of contract visibility, land, connections and if you can provide us some guidance on the IRR that you expect from the projects that are currently in execution? Thank you.

[Maurizio Bezzeccheri:]

You're welcome. Let me reply to the first question. We see in the second half of the year that we will continue growth of the demand. From the distribution business, we don't see any particular difficulties. Of course, now the possibility to binding in -- as well in Rio will allow us to reduce and keep under control that situation. So, no major change in distribution business. Regarding generation, of course, the dry season impact on Brazil that are put under pressure. Of course, the entire electric system in Brazil, we are maintaining a good generation in renewable segment and of course, you remember that we have as well for producing. Regarding the other countries in generation, we don't see particular criticalities. Regarding the other business, related to the we are facing an interesting growth in terms of product service, in terms of -- specially, in electric mobility, and we are negotiating that several interesting contracts, like the contract we did with the Volvo in Brazil for the charging station. We see the second half of the year that we continue the recovery from the pre-pandemic phase. Of course, countries, there is the conventional segment if the segment got the biggest impact of the pandemic but this is more than compensated by the growth of demand in domestic segment and in the industrial segment. Regarding the pipeline, you said mature compare with no mature, means that we have contract already in place. We have a good move in number of need in place. We have connection points already secured. The second piece is just optimization of the layout procurement terms. The more mature pipeline that you have some primary contract of well dried , we are starting the permitting phase. Of course, this pipeline normally unless there are some unexpected the influence we don't consider that our major problem developing guide this project. Of course as you know, pipeline is living creature, so you have some projects that will die in some other project that will enter in the demonstration is the fact that since our announcement of the merger in December 2020, we report that as already recorded; I said 22,000 megawatt of pipeline, now we are in 44,000 megawatt of pipeline. That means that there are going 22,000 plus 22,000 in the reality. You have, as I said, in our pipeline heading a consistent pipeline is just the indicator that you have a huge and solid growth opportunity. Even more beyond the actual growth strategy. We recall that one of the reason why we underline the importance of the merger was that possibility to have in-house one of the best development team in the region. Regarding IRR, I give Aurelio the floor.

[Aurelio Bustilho:]

Thank you, Maurizio. Hi, Enrico. Thank you for your question. It's important to mention just to complement the second semester, second half of the year, that we have a full semester with the tariff of Sao Paulo readjusted. We had the readjustment in the last October. We have more, around 6 to 700 megawatts of new capacity that will get the COD to make it is to enter in the second half of the year. So, which drives us too of course and the demand recover that we expected drives us to a better improvement semester for us. Just to mention that in the first quarter, I mentioned the designation of around the $4 billion of EBITDA this year. We maintain these estimations and we are comfortable with this figure. In terms of IRR, we use this depending on the technology, but 10% to 11%. We are confident that we are improving our capacity, as Mauricio explained in all the lessons learned increasing pipeline and so on, with that we could improve these returns, which is a reasonable return.

[Enrico Bartoli:]

Thank you very much. Just to clarify this, 10% to 11% is equity levered or unlevered? What kind of figure we are talking about?

[Aurelio Bustilho:]

Let's say, the walk plus some hurdle or the walk for the cattle .

[Enrico Bartoli:]

Okay, okay. Thank you very much, very clear.

[Operator:]

Our next question, we have Rodrigo Mora from Moneda. Rodrigo, your line is open.

[Rodrigo Mora:]

Hello, good afternoon. Thank you for taking my question. Congratulation also for the whose results. I have two question. The first one is related to the Enel Green Power Americas. I would like to understand the net financial debt that Enel Green Power Americas has, because I understood that the transaction, the merger transaction, consider that Enel Green Power Americas gain without financial debt or net financial debt equals zero. This is my first question. My second question is related to the drought condition in Brazil. I would like to ask Americas team, what is the risk that do you see that the next year we still good face potential electric rationing the system? Thank you.

[Maurizio Bezzeccheri:]

Rodrigo, I will just give some indication regarding the first question and then I will reply, just to recall as we said during an emerging this project was just coming with investment related that you see, of course these in the free cash flow increase coming that means assets with financing with cash because already related to the procurement but I will leave Aurelio just to reply regarding the situation of it. Regarding the situation in Brazil, I think that is the only indication will be announcement of the declaration of the Ministry of energy is that will have no rationing of the electric energy. In this respect, we are making some proposal for example demand response can be a solution to the type of rationing that will be casting the distribution. So in general, I think it's as well politically unpopular declaring the casting of the energy, by considering that situation today is quite different from the situation of 2021 that was the year in which decapping of energy reviewed why because there are much more wind farms and solar farms already in operation. So one, I don't think you will ease to find the situation of capping of energy, even though you can see there that we need that to see what will happen in October. October is the month of the beginning of raining season in Brazil and of course everybody is expecting that we get an improvement in this direction. If not, we'll see or will be the actions; we think that there are other possibility avoiding the capping of the electricity supply. Regarding EGP, I leave the floor to Aurelio.

[Aurelio Bustilho:]

Thank you Maurizio. Thank you Rodrigo for your question. The cash that came with EGP Americas is in at Enel Americas level right. That's why because we consolidated all the cash flow at holding level and we will use it as the projects needs the cash flow to conclude or to pay the construction right, the park that it's in company. So the company came with let's say the projects came with debt, the debt cash flow neutralizing this effect at Enel Americas level, okay, which has consolidated Enel Americas, it's in one safe .

[Rodrigo Mora:]

So, the company came without net financial debt. But Enel Americas had to use the cash to finance the capital expenditure of Enel Green Power America. I am correct.

[Aurelio Bustilho:]

Yes, you are correct. Rodrigo, we said during the merger operation that the project in construction was supposed to come into Enel Americas with already financing for the construction, okay, and this is exactly the funds we are talking about. The funds that needs jobs for the construction of -- you remember there was some megawatt in construction in 2021 and 2022. This is the cash we are talking about.

[Rodrigo Mora:]

Okay, thanks. Perfect.

[Aurelio Bustilho:]

In line, we explained during the merge operation.

[Maurizio Bezzeccheri:]

Just to add Rodrigo, net level which is zero, right, of course we didn't leave to optimize the flow, we didn't leave the cash in the company, in the operating companies because they are using, then in Enel Americas we can optimize this cash in a better situation, a better flow of resources Okay.

[Rodrigo Mora:]

Okay. Please let me ask last question is related to the agreement with Grupo Energia de Bogota. The merger of the operations and also Enel Green Power Colombia and Enel Green Power Central America, I would like to know if related to the dividends approved to make the transaction and what is the idea of the Group in terms of dues as proceed; because when I see at the level of Enel Americas holding maintain some financial debt and I would like to know if the use of the proceeds of this dividend will come to reduce these financial debt. Thank you.

[Aurelio Bustilho:]

Thank you, Rodrigo. Yes that's the idea. I anticipate that this strategy in the first quarter. If you remember Enel Americas anticipated dividends in the frequency as and know that's why Enel Americas has a batch today. Because, of course, we are in a growth phase in the Kansas. So now that we are seeing that the countries, especially in this case Brazil in Colombia as mentioned, so we can invert this trend. So what we'll do is to have let's say a deal even pay in higher than the dividend payout right in a progressive way. So that's the idea. The idea is to reduce as a little by little these debts in Enel Americas because with the debt is more efficient, if it stays in the country.

[Rodrigo Mora:]

At the operating companies, right.

[Aurelio Bustilho:]

Exactly, that's the idea.

[Rodrigo Mora:]

Okay. Thank you very much for taking my question.

[Aurelio Bustilho:]

You're welcome.

[Operator:]

For our next question we have Henrique Peretti from JPMorgan. Henrique your line is open.

[Henrique Peretti:]

Thank you. I have two follow-up questions, the first one would be on Enel Green Power EBITDA in the quarter was $127 million. The question would be can we analyze this EBITDA for the full year, or EBITDA for increase in different quarters because generally at least in Brazil, wind power generation is stronger in the third and fourth quarters. The second question would be regarding the GSF, so we know that GSF going to be very low in the third and fourth quarter. So, is there going to be an exposure for if there is an exposure to the spot market, if the company has already hedged the eventual position. So, those would it be the questions for now. Thank you.

[Aurelio Bustilho:]

Yes, I can take this one. Thank you Henrique. Well in terms of EGP, the new perimeter of EGP Americas; we can expect to maintain the this level, taking into consideration that will putting in COD 600 megawatts in the second semester, of course is not in the beginning, it will be spread by the months, but we will have these new capacity. So we are expecting something around $400 million dollars, not for the whole year, but for the nine months and let's say, right, because we are the only . So this is Enel Green Power. In terms of hydrology and all the impacts in our hydro generation in Brazil that we have today, we are perfectly matching in terms of contracts that we complement with our generation with energy that we bought previously. So we are long in terms of contracts purchase for to sell energy especially in the free market and some part in auction, 45% auction and 55% free market. So, we do not have concerns in terms of coverage in our generation assets. Since we have this position of contracted with planes, not with commercial planes, but we believe real generators, this energy to sell in the free market and complementing our own generation and also there is also I mean this risks and lots of opportunity also because we can do short-term business with some commercialization that or some agents that has may have problems or sounds like a bit, but in our case, we are in a comfortable position.

[Henrique Peretti:]

Thank you. So finally, if you could just explain very briefly, if you have any changes to the guidance, I know there is no official guidance at the moment, but if you can guide us for 2021 and 2022 in terms of consolidated EBITDA that it would be really helpful. Thank you.

[Aurelio Bustilho:]

Okay, thank you. For 2021, we are maintaining the 5.1 billion that I explained in the first quarter, we are confident with this number, with this figure. We are still calculating and analyzing these scenarios for next year. We are seeing different behaviors in terms of demand in the segmentation especially in distribution. So to anticipate now the situation, I think we are not let's say have a number to tell you, but we can talk about our expectations in terms of recall very and so on, of demand and so on. So, again, in terms of EGP, we are doing very well increasing our portfolio and take advantage of anticipating projects and take advantage of price if we can, will be, that's why we are improving our product line in a huge way, also take advantage of our commercialization and trading strategies, if you see the quantity of our energy that we generate in the quantity that we sold by for free customers, it's 2/3. We generated 2/3 the energy and 1/3 is just commercialization. So this is something that will capture with also with renewables and distribution. It depends on this debt recovery of the demand and that we are seeing that right now we are better than last year, but to have a solid position in terms of demand for next year, we need to see the development especially with the pandemic in the region. I don't know if Maurizio want to add some comments regarding this.

[Maurizio Bezzeccheri:]

Nothing else. Regarding the effectiveness, we have strategy that covered the contract of IRR. For the IRR, we are continuing growing in the sales in the free market and these of course will be even more boosted by our execution in renewable project that we are doing right now. We're going to be interested in inventory considering it. Regarding -- as you said, regarding our target, we are facing the foreseeing on the target we're pretty clear; considering the 2021, we are -- we think that we can in nine months meet as well the target of 2022. Of course, we are right now we are in the face of definition of the budget for 2022 depending pro demand. Let's say that I don't see any major change in regulation. I think we will for Brazil for example, I think that we will get even better results compared to 2021 in the reality.

[Henrique Peretti:]

Perfect. Thank you so much.

[Operator:]

Presenters, we don't have any further questions at this time you may continue.

[Rafael Haza:]

There are no more questions. So, I conclude the results conference call. And let me remind you that investor relations team as usual is available for any doubt that you may have. Thank you for your attention, and have a good day.

[Operator:]

And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.