Enel Américas S.A.
Q3 2021 Earnings Call Transcript

Published: 27 Oct 2021

[Operator:]

Good day, ladies and gentlemen, and welcome to Enel Américas' Third Quarter 2021 Results Conference Call. My name is Jessie and I will be your operator today. Please note that all lines will be open in listen-only mode until the question-and-answer session. 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 things Enel Américas business plans, Enel Américas' cost reduction plans, trends affecting Enel Américas' financial condition or results of operations, including market trends in electricity sector in Chile or elsewhere, supervision and regulation for the electricity sector in Chile or elsewhere and the future effect of any changes in the laws and regulations applicable on Enel Américas or its affiliates. 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. These factors include a decline in the equity capital markets of United States or Chile and increase in 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 Form 20-F, including under risk factor. You may access our 20-F on the SEC's website at www.sec.gov. Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of their dates. Enel Américas undertakes no obligations to update those forward-looking statements or disclose any development as a result of which these forward-looking statements become inaccurate. I will now turn the presentation over to Mr. Rafael de la Haza, Enel Américas' Head Investor Relations. Sir, you may now proceed.

[Rafael de la Haza:]

Thank you, Jessie, and good afternoon, ladies and gentlemen, and welcome to our third quarter 2021 results presentation. I am Rafael de la Haza, Head of Investor Relations of the company, Enel Américas. And in the coming slides, our CFO, Aurelio Bustilho, will be presenting the main figures of this period. 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. Please remember that questions can be made only through the telephone lines. Now, let me hand over the call to Aurelio, who will start by outlining the main highlights of the period in Slide number 2. Please, Aurelio.

[Aurelio Bustilho:]

Thank you, Rafael. Good afternoon everybody. In this third quarter, we have seen an important recovery in terms of demand in all countries compared to last year. We also conclude that the installation of 100,000 smart meters in meters in São Paulo, which are part of a project that aims to install 300,000 smart meters in São Paulo. In terms of tariff adjustments last week in Goiás, tariff was adjusted in 16.5%. The increase in demand and the consolidation of EGP Americas, the main reasons that explain the important improvement in our results, EBITDA increased by 47% during the third quarter and net income for the first nine months of the year grew by 28%. Regarding ESG, we were scored CT-3 by Moody's in carbon transition assessment. At the same time, we reached the highest level of compliance in best practice of governance by PwC and Universidad de Los Andes. These recognitions reflect the relevance of ESG and our strategy. Finally, we are glad to announce the start of operations of more than 400 megawatts of new non-conventional renewable energy capacity. After the merger with EGPA Americas, we have added 3.6 gigawatts of solar and wind capacity. At the same time, we're continually working on another 2.7 gigawatts under construction. Let's move to the following slide to see the evolution of currencies, demand and collection. As shown on the left chart, Brazilian real was the only currency that appreciated against the U.S. dollar during this third quarter, while other currencies suffered depreciations. Regarding electricity distributed, we are glad to see recovery, seeing in the last quarter. That recovery has continued during this period. Demand compared to last year is significantly higher. And even if we look the pre-pandemic period in 2019, before the COVID, we are in a better position now recovering the levels pre-pandemic. In terms of collection, we have an important recovery in the region, especially Peru, which increased 8.3 percentage points compared to last year. In the four countries, we are now around 100% of collection, slightly better than pre-pandemic levels. On the other hand, regarding bad debt, we can see deterioration or an increase in the bad debt of 38.5% reaching US$248 million. This is mainly explained by an increase in Enel Rio and to a lesser extent in Enel Sao Paulo and Enel Goias. We expect for the coming months to reduce this level of bad debt improving our operations in the short-term, especially in the distributions that we are showing an increase in this figure, in this line. Now let's have a look at our investments for the period. During the third quarter of this year, our CapEx increased by 114% compared to the same period of last year, reaching US$815 million. This is mainly explained by the consolidation of EGP Americas, which contributed with a CapEx of $316 million, which represents 39% of total CapEx of the period. Without considering this, CapEx would have increased by 31% mainly explained by higher investment in the distribution business in Brazil. In cumulative terms, our investments increased by 84% reaching US$1.8 billion. Without the contribution of EGP Americas, CapEx would have increased by 32%. With incorporation of EGP Americas, we see that Brazil has become the most important country in terms of investments with 65% of the total. Let's now analyze our operation – operating highlights in the following slide. Generation business, our installed capacity increased by 39% due to the incorporation of EGP Americas reaching 15.6 gigawatts from which 68% is renewable. Net production in the third quarter reached 13.8 terawatt hours, an increase of 35% compared to the same period of last year explained by EGP Americas and a higher production in Peru. In cumulative terms, production increased by 21%. Energy sales increased by 56% and 21% during the third quarter and nine months period reaching 19.4 terawatt-hour and 52.7 terawatt-hours respectively, mainly explained by the consolidation of EGP Americas and the demand recovery in the region. Let's analyze in network's business in the next slide. Electricity distribution reached 30.2 terawatt-hours in the third quarter and 89.5 terawatt-hours in the cumulative nine months period, which represents increases of 4% and 5% respectively. This is explained by and important recovery in demand in the four countries where we operate. Regarding number of customers, we had an increase of around 450,000 in the last 12 months. It's suppressing the level of $26 million declines among all distribution companies. In terms of quality indicators, SAIDI and SAIFI improved in the four countries during the period while energy losses basically remained flat with the exception of Peru, which had an important reduction. On the following slide, we'll see Enel X and retail businesses. In Enel X business, we had a solid growth in charging stations, portable bike fannings, public lighting. Credit card business was basically in line, while the microinsurance decreased by 29%, due to restrictions over the pandemic period. Regarding retail business, the number of delivery points increased by 32% reaching 4,366 in terms of the delivery points. And the energy sold amounted to 15.1 terawatt hours in the first nine months of the year, which means a 35% increase for the energy sold in retail business. Let's now have a look at our ESG highlights in the next slide. The merger of EGP Américas puts the Enel Américas company in an excellent position to lead the energy transition and reduce our exposure to co-generation and our CO2 emissions even more, which is a focus of our strategy. The integration was well deceived by the credit agency, which is reflected in the carbon transition assessment or CTA carried by Moody's for the company. The company obtained a score of three free being one of the best score and then for this rating, the company strategy is strong regarding the energy transition. Finally, we are glad to announce that the company obtained the first place in a study made by Pricewaterhouse and that measures the level of compliance regarding best practice in corporate governance in Chile. These reflects our – the boosts corporate governance system and transparency in our reporting system that is aligned with the best practice at the international level. Now I will comment about the financial results for the period in the coming slide. Regarding the third quarter reached US$1,066 million, 47.1% higher than the same period of last year. This is mainly explained by the consolidation of EGP Américas and the demand recovery in distribution business. If we exclude the impact of EGP Américas and the negative impact of US$39 million coming from currency devaluation, we get to an EBITDA of US$961 million, which is 32.6% higher than last year. In cumulative terms, EBITDA increases by 25.6% in nominal terms and 19.4% excluding EGP Américas, and the negative impact of US$126 million from FX. Despite the inflation increase that we have seen during this period, we have been able to control the increase of OpEx, which increased 13.6% during the quarter and 5.3% on a cumulative basis. Group net income in the third quarter increased by 39.2%, while on a cumulative basis, it increases by 27.8%. In both cases, this is explained by the contribution of EGP Américas better result in EBITDA level and better net financial result. Funds from operation in the period reached US$683 million, a decrease of last year, while net debt increased by reaching US$5.8 billion. We will analyze it in detail in terms of cash flow and net debt in the presentation. On the coming slide, let’s take a look in the EBITDA evolution and its breakdown. Starting from $735 million of EBITDA of third second quarter of 2020, we see that all business had a positive results, expect for Enel X, when you see thermal generation improved by $41 million, while renewable increased by $203 million from which $134 came in from EGP Américas. Network distribution grew by $170 million and retail increased by $27 million. Currency devaluation had a negative impact of $29 million. Consider this plus other impacts, we get to a final EBITDA of $1,066 million, 47% higher than the same period of 2020. On a country basis, we see that the main contributor for the consolidated EBITDA was Brazil with 42%, while Colombia represented 36%, Peru 40%, Central America 5% and Argentina 4%. Let's have a focus on generation and networks businesses in the coming slides. EBITDA generation business increased by 68%, mainly explained by the contribution of EGP Américas. Without this effect, EBITDA would have increased by 28%. And this is mainly explained by better results in Brazil and Colombia, mainly explained by higher sales price and higher energy sale in case of the thermo plant of Fortaleza. Currency devaluation had a negative impact of $20 million. On a cumulative basis EBITDA for the first nine months of the year reached $1,412 million being Colombia and Brazil the main contributors. These represent an increase of 42% compared to the same period of renewable business from EGP Américas in the coming slide. In soft capacity in operation during this period reached 4.4 gigawatts, from which 2 gigawatt are winds, 1.6 gigawatt mini hydro. This capacity includes a 0.4 gigawatt of new capacity added during the third quarter of this year, coming from six new projects in Brazil and Panama. We currently have 2.7 gigawatts of capacity under construction, from which 1.8 gigawatts are wind projects and 0.9 gigawatts are solar, most of them coming from Brazil and Colombia. From this 2.7 gigawatt, 0.3 gigawatts will begin operations next year or this year – until the end of this year, 0.6 gigawatts next year and 1.7 gigawatts in 2022. EBITDA during the third quarter was $184 million for EGP Américas. And from which 54% came from Brazil, 40% from Central America, 6% from Peru. In cumulative terms, EBITDA reached $261 million since the 1 of April, when we started to consolidate EGP Américas. Regarding CapEx, we totalled $260 million it is quietly mainly due to projects in Brazil and Columbia. CapEx for the first nine months reached $509 million. Now let's see networks business in the next slide. The networks business increased by 29% compared to the third quarter of 2020. We have better results in all countries, but the main growth came from the better result in Brazil. In Brazil, EBITDA improved by 39% mainly due to an increase of 2.3% in energy demand along with higher tariff due to the tariff adjustment in Ceará and Enel Sao Paulo. Important to highlight that the energy demand increases in four countries, reflecting a solid recovery after difficult times, we faced last year due to the pandemic. On cumulative terms, EBITDA in distribution business reached $1,433 million during these nine months of the year being Brazil in Columbia the main contributors. These represents an increase of 12% compared to the same period of last year. Let’s analyze our cash flow in the coming slide. Funds from operations amounted to $1,172 million on the period, starting from EBITDA of $2,759 million. This result includes a negative networking capital period for an amount of $840 million, mainly due to higher CDAs in Brazil that should be recovered tax paid during this period amounted to $600 million, while net financial expenses or financial payments amounted to $100 million – to less than $147 million, 15% lower than last year after investments of $1.8 billion including, $316 million coming from EGP Américas. We get to a free cash flow of minus $636 million. Let me now analyze the debt of our company in the coming slide. Gross debt amounted to almost $7.3 billion, an increase of 23% compared to December 2020. And this amount includes $1.1 billion coming from Enel Américas, which is offset with the cash injection made by an Enel S.p.A. before the merger and that is currently at Enel Américas holding level. The increase in the gross debt is explained by increase in our distribution subsidiaries in Brazil and in Columbia partially offset by a reduction in Enel Américas Holding. Looking at our net debt, starting with the $4.4 billion of last year, we had minus $633 million of free cash flow that we’ve seen in the previous slide. Net dividends paid amounted to $767 million and financial received receivables minus $14 million. EGP Américas contributed with $688 million coming from the equity injection before mentioned. Again, the cash for this project is at the Enel Américas level. With this plus the effects or less the effects of $49 million, the total net debt reached US$5.8 billion. In terms of currency in country, we see that Brazil remains the major contributor, while debt at holding level at Enel Américas level represents only 10% of the total. Finally, regarding the cost of debt, we can see an increase for this period to go in from 4.9% to in the indexes associated with variable rates of debts in Brazil. This is partially offset by better rate conditions in refinancing debt in Colombia, and Peru and liability management at Enel Américas level. Let me conclude this presentation with some closing remarks. During the quarter, we saw a solid operational recovery across the region. This situation allowed us to have an important improvement in EBITDA level boosted by the consolidation of renewable assets. We continue with our ESG focus and we are positioning our company as one of the best ESG players in Latin America. Finally, we are strongly delivering and executing the new capacity coming from nonconventional, renewable sources, in line with our strategy. Raffaele?

[Rafael de la Haza:]

Well, thank you Aurelio. Thank you for your well thank you. I now pass the call to the operator for the QA. Fetch me an operator, please.

[Operator:]

Thank you, speakers. Participants we will now begin the question-and-answer session. Speakers our first question is from the line of Enrico Bartoli of Stifel. Your line is now open.

[Enrico Bartoli:]

Hi, good afternoon. And thanks for taking my question. I have three. The first one is on Brazil. You show this very strong increase in EBITDA from the distribution business. If you can provide us some days in addition to the comments you already made on the drivers particularly on a recovery of electricity demand from which sector you are seeing that and the tariff adjustments that you receive in the period. And if you can also give us outlook for the fourth quarter and the next quarters both in terms of additional recovery possibly of demand and you expect any more tariff adjustments in your companies over the next quarter? Second question is related to the renewable business. You show this 2.7 gigawatts of capacity and execution. If you can give us some hint on the pipeline that you have on top of this and the level of visibility and in which country, U.S. back to the most of the development renewable capacity over the next year? And the last one if you can remind us your guidance for EBITDA for the full year, I think, it's around $4 billion, but if you can confirm that or elaborate on this. Thank you.

[Aurelio Bustilho:]

Hi, Enrico. Thank you for your questions. Well, the increase in distribution is mainly explained by two factors, right. First one the tariff readjustments for the period, right? We have tariff readjustments in all distribution business in Brazil. Well, if it's been in it is already done, it is in October it's not in these results, but we have for the first nine months in Rio, in Sierra and in São Paulo, all of them well – Rio and Sierra around 6% and it's São Paulo 9.5%. So this is one of the reasons they are the secondly profit land. We are 5% better than the last year during the period. And I mean not only Brazil, but in all regions and there are 2% of 2019, the same period. So, this shows recovery in this line. If you ask me if this will maintain for the fourth quarter I think the only thing – there are two things that will balance this situation. First of all, the recovery and the countries are more let's say recovering the economy from one side but there's also temperature issues that can get effect. And we cannot estimate how will be the temperature. But I mean, it's sustainable this recovery, it will not jump but we are not seeing a reduction of the demand level in terms for the last quarter. And one important thing is that we got to the of recognizing the 16% of their tariff adjustment that is not in the first month, that will support let's say to maintain this recovery in terms of results. In terms of capacity for the distribution business, and sorry for the renewable business we are constantly improving the pipeline of this business because it is key to deploy renewables and take advantage to improve the energy transition during this period. So we are constantly improving. We are now 55.6% of pipeline of which sorry, 55.6 gigawatts of which 36.7 gigawatts is in Brazil. And of which I mean, if 15 gigawatts are in mature stage. I mean, 55 gigawatts of pipeline, 23 mature stage of these 23, 15 gigawatts are in Brazil. And of course the difference in early stage. I mean when you see these figures, of course, it doesn't mean that in the following day, you will enter with 15 gigawatts, but to really deploy projects we need development of – constant develop and constantly improving the pipeline and improving the best practice to develop this pipeline in order to have better projects. Let me tell you that one demonstration of this is that exactly yesterday we were awarded with auction in Columbia with 100 gigawatts – sorry 100 megawatts with – of the auction promoted by the Columbian government. And it will start in operation in 2033. I mean, this is the evolution and that the way we do this in a very proactive and industrial way to produce that the project and to install the – if you take advantage of momentum and pricing in order to have an integrated portfolio to serve our clients with the best solution that we can. And the last but not least, we are seeing due to the – especially due to the effect that we are seeing right now, our estimation is $3.9 billion of EBITDA for this year. Again, it depends on the performance. I mean regarding the operation, we are very well positioned but the main issue here is related to effects. Let's see how it moves forward to confirm this number, but it's more to US$3.9 billion for the year.

[Enrico Bartoli:]

Thank you very much, very clear.

[Aurelio Bustilho:]

You're welcome.

[Operator:]

Next question is from the line of Henrique Peretti of JP Morgan. Your line is now open.

[Henrique Peretti:]

Thank you. Good morning, Aurelio. I have two questions. The first one is about the hydrologic crises. We are having better rainfall in October. So the question is, do you think this is a good segment for November, December the next month, and if the risk operation and declining for 2022, or if it's too early to tell. And the second question would be – we were reading in the local press about this new sector launch for distribution competence that could range between R$10 billion and R$15 billion. So the question would be how much would Enel withdrawal from this fund and when we should have it down. Thank you.

[Aurelio Bustilho:]

Thank you, Henrique. Very good, very good points. Very good questions. I mean, yes, we have seen improvement as well, the volume in Brazil are improving, but to require some attentions. I mean, even with the flags and so on that it's maintained the distribution companies, they have been affected by these working capital ratio, because as you know, part of this higher cost generation is paid by distribution and with the flags is paid by the demand. But again, we are still having these effect more related, not economically, but financially, either distribution business, right. So in terms of let's say financial, that's why we are discussing with regulation not only annual, but all distribution companies, regulator not only annual distribution companies in order to rebalance the situation in terms of financing, right. We expect, well, the amount, if you see is pretty much similar, it is a coincidence, but it's similar to other companies, if you see that the amount that we have last year, right. But that, of course the dynamics are completely different because it's not – the previous one depends on that on the over contracting or not – over contracted energy. And right now, it's a more related to the distribution of these amounts over the, let's say the dispassion and the quarters from distribution company. We are estimating something around US$400 million or let's say 400 is more or less R$3 billion, right, R$2.8 billion for our distribution companies. But I mean, it's a rough estimation because as you know, the difference from the other calculation here is to divide the quarters from the parts of the generation, the big hydrogeneration distributed to our distribution company. And these amounted for each company, but this is more or less the amount that we expect and if you see the fund for operation. This is very close to add. We have a negative impact because you see a very good, let's say economic situation, but a not so good financial situation. That's why we are discussing with a regulator in Brazil and it's moving in my opinion, in a good base in order to have this process concluded until the end of this year. But we are confident that we are reaching a very good position. I don’t if I answer all the questions, but if not, please remind me.

[Henrique Peretti:]

Yes, just one follow up regarding the hydro scarcity flag. So on the outside, it will remain in place until April. If we have a better rainy season, do you think the government quotes go back to red level one or red level two before April to kind of free deeds to final consumers, or the expectation is no matter what happens with hydrology, like it's going to remain in place until April to, you have the corporate diversifies and also the cash of the distribution companies. And then after April, then the system's going to be a more normalized hopefully. And then we can go back to the latter flag.

[Aurelio Bustilho:]

Good question. Depends on their – especially of the situation during the summer. Especially, it will start raining. We expect that by the month of November and December, but this is of course a perception in our opinion the government will be very conservative in that sense. And my first impression that they will maintain, unless they see a very good improvement in terms of hydrology, while we see also that the population, their consumers, they’re reacting positively with this demand, let's say demand response compensation, which means this combination of a good hydrologic. And then good demand response. So this one’s behavior, I mean, from the consumption, maybe they could reduce the level of tariffs, but I don't know exactly what the government, of course what the government will do, but I mean, the approach that I see that is that they will be, the government will be very conservative on these situation and any improvements in these both factors, but probably mainly the hydrological situation. They can alleviate a little bit to the flag, the issue let's see.

[Henrique Peretti:]

Thank you, Aurelio.

[Aurelio Bustilho:]

You’re welcome, Henrique.

[Operator:]

Next question is from the line of Flavia Sounis of Goldman Sachs. Your line is now open.

[Flavia Sounis:]

Thank you. Good morning. Hi, Aurelio, thank you for the call. My question is regarding the development of the renewable capacity in the pipeline, we have seen several headlines regarding supply chain concerns, increasing CapEx costs. I would say specifically in Brazil, we have been hearing a lot about it. I wanted you to hear a little bit from you if you're seeing something along those lines as well. If you could give us some hint of around what you're seeing in terms of costs of development here, and also if you could give us some detail or some information regarding the negotiation of contracts for this capacity, if you're seeing a good movement, a lot of interest from the market companies in the free market, or what are you thinking in terms of contracts for this pipeline not only in Brazil, but in the whole region. Thank you.

[Aurelio Bustilho:]

Thank you. Thank you, Flavia. It's an important question because it's exactly the big, let's say the big transformation of region is this movement from regulated to free market, right. Not only the market is asking for these for more cheaper, more reliable, more green energy but also the regulation is moving to these new – let’s say new scenario of liberalization is the Brazil. And this is also in Columbia, because Columbia is deployed growing their smart meters incentivize and this smart meeting magnificent. And with this – embedded with this smart meters deployment, the possibility for the clients to choose their own supplier in terms of energy. So the difference that Columbia, we have a revenue cap and system or model in terms of remuneration. In Brazil, as you know is working more on reducing the limits for the clients to be free. There’s a escalation of these limits. And the way they are doing is slightly different, but that this movement, I think it’s a challenge, but it’s a big opportunity. So from our perspective to face and to meet these business in a sustainable way is key to have let’s say the upstream – the green upstream of energy and to be know the value chain position. So that’s why we are positioned in new both in this chain. But most important to be with the customer, this is a very obvious, so what I’m saying, but to have the connection and to have a very solid and very proactive sales force and integrated sales force to discuss them or basis is key note that we have 20 million, 26 million clients in the region and the main distribution companies in the main quantity of clients in Brazil. So we are very well-positioned to this. And what is key here is to be with the customer selling the platter or the sorry, the portfolio of energy mixing wind solar and hydro and complimenting with the thermal plant, gas thermal plant, in order to provide what the customer – what this customer that wants to be free in that once more cheaper energy more flexibility, more green energy, more reliable energy, provide what they want and for the use that they want and embedded with these all the services related to the users of the energy like and then we be centered the lack of mobility, entered the smart lighting, entered the demand response, entered the distributed energy. So I mean, for us, the key here what you ask is key because to take advantage of what as is more an opportunity. And those that this is the market is very – it’s not consolidated and lots of conversation if you see Brazil, if you see even in countries like Colombia, but more in Brazil, but this big movement of chunk of energy that’s moving from regulated to free market, of course, the margins will reduce in terms of commodities, but it increased a lot of the value that will add to the clients, and we can charge them for these, related to it’s an important issue that you mentioned also the cost of development. Of course, we had all seen that the increasing in terms of especially due to the increasing the production in China, these – all these effects so in terms of that we’ve seen in the cost of inflation, the cost of materials and so on, will increase the cost for product, right. But I mean there are some studies for example from that I can tell you that saying that, that the cost will – would increase 20% in general, right, for wind to 20% in terms of winds, wind projects and solar another 10% to 15%, but again this is for everybody. And we are very well-positioned in terms of procurement and in terms of development of this project, because it take advantage of the capacity, the procurement capacity of the offender, which is our controller shareholders. And for us, with these, we can minimize let’s say, the impact of it using these procurement capacity to not be impacted, full impacted by the deployment, which I need, it will be more expensive, but for us, we expect less from comparing to other competitors. In terms of pricing, it’s public information, but yesterday in Columbia, a good demonstration of these in Columbia was – Columbia promoted an auction of a renewable energy yesterday. It was also 800 megawatts, solar and wind, we were awarded with 100 megawatts. The average price of this project, this auction was 155 Colombian basis per megawatt hour, which is in our opinion, is a very good price. In our project, of course it’s not a public, but we got a better price than this one, which means that more and more you should be have agility to have – to capture price and the better price in the best of a situation. And that’s why we probably, the practice we got yesterday was higher, or the highest price that we got, they even in Columbia for the previous year, which means that we captured the opportunity. So not only sell energy, but also purchase energy, because sometimes the energy, in some situations you see, for example, the same Columbia with the easy way to angle expectation, sometimes the short-term you see some the practical down go up, but then do you think influences a lot. So you need to take to capture these opportunities. And if not only sell, but also purchase when you see a cheaper energy like we did in Brazil with the pandemic period, we purchased some energy to for – to protect the company the short term. So that’s where we have a long in the short-term in Brazil. I mean very proactive way in terms of pricing and capturing the best opportunities. And last but not least also this hydrology situation, for example, the pricing in Brazil, we see prices in the same level of this Columbian prices, right then especially in different market showing that the best – our best remedy that we are producing in and pushing for the region is to deploy green and renewable energy to push the cheapest and the cleaner energy. And of course, they can advantage to providing the better and the fastest energy to the clients. Please note that these are options that we had yesterday in Columbia. The COD, this is we need to enter in operation in January of 2023. I mean it’s a very fast if you compare to develop another project and for example, with gas and the hydro and so on. So that’s our – I mean contribution in terms of environment, but also in terms of profitability and sustainability and economic situation to the clients and to the system.

[Flavia Sounis:]

That’s great. Thank you.

[Aurelio Bustilho:]

You’re welcome, Flavia.

[Operator:]

Next question is from the line of Javier Suarez of Mediobanca. Your line is now open.

[Javier Suarez:]

Hi, many things for the presentation. Good morning, Aurelio and Rafael. Three questions and excuse me, if I’m repeating some of these of the questions because my – I got caught during the conference, during the Q&A and maybe I have missed some of the questions from my colleagues. I’m repeating someone so apologies in advance. So the first one is on the working capital. Looking at my notes, I think that during the previous quarterly call, it was mentioned that the negative net working capital impacts would normalize up next year. If you see that the expectation of the company or have you seen worsening on the working capital of the company during the third quarter of the year? So a clarity on that would where you are expecting – when you are expecting debt normalization happening. And if there is a sentence, this was the guidance that people was during the second quarter call. That is the first question. The second question is on the energy losses of the company that remains high, particularly in Brazil. So I was wondering what managerial actions the company can take to reduce these energy losses, that the field that remains stable and despite the increase of our impact. So guidance there a managerial options to reduce any losses would be helpful as well. And the third one is on the growth that you are opposed to in following. I have seen that the projects in execution focusing in Brazil and Colombia. So would you consider a fair statement to say that Enel Américas, when it comes to developing renewable energy is likely to have a highly concentrated strategy, geographically concentrated strategy that focus first on Brazil and then Columbia and all the rest is likely to be negligible. Many thanks.

[Aurelio Bustilho:]

Thank you. Thank you so much, Javier, no problem. Look for the working capital, yes, we said in the second quarter that we expect that these balancing would be over the time with the recovery with demand and so on. But that the hydrological situation deteriorates that’s the negative impact. But on the other hand, we are moving in a very good and positive way with this rebalancing from the regulator for the financial situation. I mean, you can see we are deteriorated in terms of working capital, right, but the regulator – we expect that the regulator will compensate these effects, we expect until the end of this year, right. This is a new information. I mean, two new information, the hydrology deteriorated and second, the regulator is – it’s originating with all distribution companies. The rebalance of financial position and our rough estimation that was answering to in retail before is around US$500 million for this period. The total amount for the Brazilian distribution companies, it’s expected to total R$15 billion, I mean, this number moved to from R$10 billion to R$15 billion, it’s around these. So this is the new issue. In terms of losses, yes, you are right. We are still high specially in Argentina and Brazil, right? In Brazil, the main offender, no, it’s real, right. Our focus in losses, of course, this depends a lot in terms of discipline of market. So since we recovered the capacity to operate and to maintain the discipline of market, we will recover these losses level. But in we always do – it is too high, we’re talking about the 81% of losses in real, which is for regulator level is the thing. So, I mean, this is a very important issue. Of course, we balance these with the cash flow investing and capture what we losing margin we’ve invest. But anyway, there is – since we are recovering the capacity to operate, we are confident that we’ll recover the losses and again, improving the digitalization and especially to remote operated the delinquency only in terms of – not only in terms of loss, but also in terms of collection and we will recover – but we’ll recover, we are a focus to recover. But I mean, there is a regulation discussion here, regular product discussion on the other hand that we are also addressing. But this is an issue more related to real and Buenos in Argentina, this would also – Argentina is more related to the pandemic restriction to maintain the discipline in Argentina is 18% of the losses. So we expect that since we recovered the capacity to operate and maintain the discipline, we’ll recover these levels. And I forgot the last or I think – for one point that you mentioned, have you…

[Javier Suarez:]

Yes, I was mentioning on the – I was asking on the growth strategy of the company, I have seen that most of the capacity in execute and concentrate in Brazil and Columbia.

[Aurelio Bustilho:]

It is a fair statement to say that Brazil is going to be a first priority then Columbia and all the rest is going to be. It’s a very good point. Yes. It’s a very good point. You see that our capacity strategy, Javier, answer should the demand requests, right? As we are seeing demand requests, I mean, there are more possibilities, and there are more, let’s say, mature situation in Brazil, then in Colombia, right. And these pipelines, they are answering to this, but what you mentioned, this is something that we are analyzing. We are analyzing also, because if you see our – it’s a very good point, because this climate issues, especially hydrologist, so one is more frequently, you see more frequent. And one interesting thing is that what happens in terms of hydrology in Peru and Colombia is exactly the opposite in the great part of the time, we’re seeing that are different from Brazil and also Chile if you want, right. So Peru and Colombia in that complimentary with Brazil, right, in our perimeter. So we had a very – this is a very good point to balance the situation in terms of generation and especially in the hydrology, because we are very well balanced it. So it means that your question is why are you investing more and more, are you analyzing this situation? Yes, we are analyzing and we are also seeing the positive. That’s why we increase it our – Brazil was still high, because the demand in Brazil requires more capacity, right. But we are analyzing also the possibility, of course, to work as a portfolio, but to work in a possibility to compensate this to balance it, exposure if I may say. And again, we are very good well-positioned in terms, because we are – we have complimentary hydrology systems. If I may say, in terms of in Brazil and compare it to Columbia and Peru. So we are analyzing the process, that’s why we are increasing and take advantage of this model, let’s say, improving conditions in terms of regulation, in terms of demand, in terms of push of the Colombian government to increase in Colombia, but it’s still – it is more in Brazil, because Brazil is more mature in these technologies is not that the metrics of the generation in Brazil at a renewable energy, solar and wind are higher, much higher than Peru and Columbia. No, you’re talking about the 13% of both energy. So that’s why. But your question, it’s a very good point. We are analyzing also, of course, we analyzing, we see the push of the demand, but we also see the risk analysis in order to be positioned in a balanced way in terms of hydrology. I repeat, you all know it’s more frequent that this kind of climate situation what’s happened in the past seems that’s will not happen in the same way in the future, so more and more decisions very, very, very important.

[Javier Suarez:]

Very helpful. Thanks.

[Aurelio Bustilho:]

You’re welcome, Javier. Thank you.

[Operator:]

Next question is from the line of Nicolas Langlois of Cuprum. Your line is now open.

[Nicolas Langlois:]

Hey, Aurelio. Many thanks for the conference call. I like there’s some questions that you’re going to help me. The first one, I like to understand and increasing the average cost the Enel 68 basis points year-to-date that has increased. How much has explained and maybe from viable right debt or debt renegotiation you might have done, on the corporation of the EGPA, that the $1 billion incorporate there is – that with your holding company as understanding the financial costs of this last one. I couldn’t see in the third quarter earnings report, the financial costs of this debt, but in the second quarter one, I saw that it was $29 million for a $1 billion that sort of just understand how are the coupons or the interest payments of debt understand the annual rates and that you’re thinking about liability management to take advantage of the low rates with ups in discrete rating spectrum. My second question is Maurizio, I’d like to come back a bit on the working capital investment of the $480 million year-to-date there is an important amount 80% of the deterioration in the period. I would like to understand how do you think the government could compensate the company, because an important portion of this investment is because the company can’t increase final customer target, as much as, it’d be service right. In terms of the other company. So, how do you see the mechanism to be recovered this working capital? And how do you see the chance of continuing question tariff seen Brazilian real double-digits for the next couple of years? And my third question is, how possible that the distribution of the Eletropaulo operation for management and what is the current imbalance on our balance sheet basis? Many thanks.

[Aurelio Bustilho:]

Yes. Nicola, thank you for your question. Well, financial situation, right? Well, the interest rates at increasing, especially in Brazil, right, so it moved from a four point – I mean, not the average cost in 2020 is moved from 4.9% to 5.6%. Right. So, but if you see the cash flow of the company, we paid less financial costs, right, from one hand the increase of the interest rates, of course, we pay more, around special in Brazil, we pay less costs, right? If you see the cash flow, we pay less $22 million, right, compared to the previous period. But this is if you consider there is an increase in the financial cost of $60 million, right. But we can – but maximizing the cost, remember that we increase the pay in to Enel Américas and maintain the payout for Enel Américas. So, with balance, or we do the exchange effects variation in Enel Américas and reduce the financial costs in Enel Américas. So this – with this will reduce $9 million, right? So keeping this calculation $60 million in Brazil, the worse, then we prove Enel Américas with $9 million. Then we prove with the liability management special in Columbia with $8 million capturing opportunities in the right moment, reducing the cost, and also intergroup. So I mean, $80 million for intergroup. And then we have $60 million positive effect of market-to-market, especially taking advantage of two things. First of all, the situation of, of course, we have, that’s why we maintain our debts more connected with the revenues. So with the devaluation, we got an improvement in this way. And also the taking advantage of liability management refinancing, the – our debts, our expensive debts, especially by the end of last year. And when you see opportunities to reduce the spread. What’s happening right now, is that different from last year, Nicola is the spread that we are seeing is reducing. So the key here is to refinance and get a lower spread compared to last year. So, I mean, despite the increase of the day interest rates, of course, we were impacted, because we are exposed to CDI for example, not to liquid CDIs very much growth in Brazil. And but we take advantage of reducing the U.S. dollar exposure and refinancing, reducing the spread. And if you’ve seen that in the nine months in the cash flow the company paid less financial costs, financial services, right, interest cost, sorry, better speaking, better saying. In terms of working capital, it’s important Nicola just think in July last year, remembered that we received in Brazil, the Contaco of each $500 million, right? So, when you see the comparison of networking capital, we see a negative impact because last year injected the contact of we’ve injected $500 million in the company. Second effect this year we deteriorated the situation, remember that I explained that the situation of – let’s say hydrology, and especially in Brazil, right? Because it’s submission Brazil different from Colombia, which recognizes the negative effects two months after in Brazil, you will – you need to expect to wait one year to recover the bad hydrology, let’s say or the thermal dispatch imports from Argentina and so on. You need to expect for the next year. So, we had a huge impact by these effects in terms of hydrology, which we expected around $400 million that we are discussing with the regulator to be compensated. We expect by the end of this year. Right? So with this, the main reason for the deterioration of our debts is two factor; first, because we count with that extraordinary cash. Let’s say for last year, for the Contaco of each, which is a situation related to the reduction of demand. And this year we didn’t have a – we have a worse situation in terms of FFO of networking, capital, purchase, energy anticipating cash for these energy, which will be recovered in the next period, but the regulator will compensate it before by the end of this year, or we expect that we are discussing with them and moving a very good way to be compensated by this effect, similarly factor that we have in the Contaco, but with other another other let’s say reason or origin. Okay. Regarding Enel Green Power, there won’t be on cash that came from any of the public, this cash indeed Enel Américas to their hope right? Did still missing projects by the end of this year, but mainly in the next year that we, of course, as we agreed and as we discussed it in the previous quarter, the cash is at the Enel Américas level to also support the reduction of Enel Américas cost, right. So with these, we are not using credit lines. We can reduce our credit line costs and inject money with capital increase and use these as long as the project require. We expect by the end of this year and the next year, if everything comes well, we expect, so with the development of the project in Colombia and in Brazil to inject these money there is a still $600 million today to be injected in the project for this $1 billion that you said pretty much well that came with the merger to inject in the countries. One important thing is that we protect this cash in the US. dollars, I mean that it is protected and not enough to devalue to suffer impact of effects evaluation, which means, it's a very good strategy also to better manage the financial costs and consolidated costs. And this help us, helping us also with this reduction of course, I mean not only liability managed, but also reducing the exposure to U.S. dollars. And I mean, linking that's with the currency in other countries. I don't remember the last question, federal funds. I don't know if the last but yes, sorry. Go ahead.

[Nicolas Langlois:]

And regarding the EGPA that there is Enel S.p.A. Can you please talk about what do you plan to do with it? And what's the financing cost?

[Aurelio Bustilho:]

With the financing cost with the Enel S.p.A, what do you mean? Okay, of course, we there is a clear situation of arm's length here. Right? If we are looking for better conditions in terms of finance, if we have a better condition for the financial arm of Enel S.p.A, why not? Okay, but it should be competitive, as we always do. And very transparent to our financial issues and arm's length total. Arm's length, there's no, absolutely no way to be out of market any costs of these. We are pursuing reduction of costs of financial costs constantly. Okay. And in a very.

[Nicolas Langlois:]

So what's the right journal Right?

[Aurelio Bustilho:]

This is a index, the Nicolas will be also in local currency, right? Always in local currency or in the same currency of the revenues. Right? If it will be Reis, of course we are looking for financial instruments in IPCA, which is the IPCA, which is the local inflation or in CDI, okay and the spread of these costs. We are able, Nicolas with our financial strength to work with the spreads with 100 to 150 basis points over this especially over the CDI. Right.

[Nicolas Langlois:]

So but I mean, that is the current that what what's the current rate and efficient U.S. dollar right?

[Aurelio Bustilho:]

Yes, it’s not U.S. dollars. In Brazil, for example, we have financing with asset for distribution companies, right. If you're in the…

[Nicolas Langlois:]

The EGPA I mean, EGPA that with an – EGPA.

[Aurelio Bustilho:]

Yes, but it's pretty much the same. Yes, I mean, the financing is not long-term refinancing with Enel S.p.A. We are constantly working on reduction of these of the spreads of these. I mean difference right? So I can tell you that it is clearly half I don't know if you have here the No, it's not. But I can tell you right now. This is Nicolas, this is the cost of that of, can you open the financial – just one second here because it's important to show this on discuss right now. And just one second, look for the equity financing. We are talking about 1.3 total cost, okay. 1.3% total costs. I mean, this is the total debt that we have with 1.3. especially with what we consolidated Enel Américas level which comes with EGP level, if you see isolated EGPs level for the projects that we have nowadays, we are talking about, I don't know what – we're talking about 3.9% Right, total cost I mean, spread plus the interest cost, right? We are projecting? Yes, we are projecting that. Again, Nicolas, there's no mystery here, we are always looking better alternatives in order to reduce these costs. If you see for example, of course, if the longer the project, the depth, the higher will be the cost. But again, it doesn't matter if you do this with FP or with infrastructure bonds or debentures in Brazil. We look for the better or subsidized financing with for example, with Banco Dona in Brazil, or rather be in there, we’ll look for the better situation and there's no difference here. Nowadays, pension fund is $1 3 billion or what dependent on the US dollar, but what we have today is 1 billion, because it’s in Reis, nominated in reis, right R$1.1 billion, what we did remember that we promoted the migration from defined contribution, sorry, defined benefit to defined contribution, we got a migration for 21%. So in terms of money of amount of money, we announced it that will, let's say, remove the sponsorship for this plan, giving a period, of course to the managers of the fund to let's say, to prepare the let's say the pension, fund and all the pension system in order to in more one year, or at the end of 22. Starting from 23 to remove this sponsorship, which means that by the beginning of 2023, we're expected to transform these because it is a liability, right. Nowadays, it is a pension liability, and we'll transform this into a financial depth. I mean, with a more profitable more predictability in terms of costs, in terms of, I mean, mortality table in terms of discount rate. So it's a more profitability is important because it's not our business. So by the beginning of 2023, we expect it is 1 billion or let's say the amount that will be will transform it into the fix a debt. And with this, we have a lower risk, with the risk with this situation.

[Nicolas Langlois:]

Thank you very much. That's pretty clear.

[Aurelio Bustilho:]

Thank you, Nicolas.

[Operator:]

No further questions at this time speakers.

[Rafael de la Haza:]

Well, there are no more questions. So I conclude the results conference call. And let me remind you as usual, that investor relation team is available for any doubt that you may have from these results. Thank you very much. Have a nice evening.

[Operator:]

Thank you, speakers. And that concludes today's conference call. Thank you all for joining. You may now disconnect.