Enel Américas S.A.
Q1 2021 Earnings Call Transcript

Published: 3 May 2021

[Operator:]

Good day, ladies and gentlemen and welcome to Enel Americas' First Quarter 2021 Results Conference Call. My name is Celine and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. 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 our current expectations of Enel Americas and its management with respect to, among other things, Enel Americas' business plan, Enel Americas' cost-reduction plans, trends affecting Enel Americas' financial condition, our 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 affiliates. Such forward-looking statements reflect only our current expectations are not guarantee of future performance and involve risks and uncertainties. Actual results may differ materially from those anticipated in the forward-looking statements as a result of various factors.

[Rafael de la Haza:]

Thank you, Celine. Good afternoon, ladies and gentlemen. Buenas tardes a todos and welcome to our first 2021 results presentation. I'm Rafael de la Haza, Head of Investor Relations of the Company of Enel Americas. And in the coming slides, Aurelio Bustilho, who is our CFO will be presenting the main figures of this period, the first quarter 2021. Let me remind you that this presentation will follow the slides that have been already uploaded into the company's website. Following the presentation, we will have the usual Q&A session. And please remember that these questions can be made only through the telephone line. Now, let me hand over the call to Aurelio, who will start by outlining the main highlights of the period in the slide number 2. Please, Aurelio?

[Aurelio Bustilho:]

Thank you, Rafael. Good afternoon, everybody. During the first quarter of 2021 we have seen a recovery in terms of energy sales and distribution business in Brazil. I would like to remind you that on the first quarter of 2020, only March was impacted by COVID, while on the first quarter of 2021, it affected the full quarter. At the same time, was -- we have seen the type of adjustment had been positive for us and are really pleased that it starts by 6.02% on average in March and Enel Ceara increased 8.95% on average a few days ago just affecting April onwards in case of Ceara. In terms of EBITDA we had reduction of 12.7% but most of this decrease is explained by currency devaluation. Without considering the effect, our EBITDA decreased by 3.3% mainly explained by lower results in the generation business. We also want to highlight that our consolidated revenues were in line with last year, the positive sign of recovery from the effects of COVID on our results. At the same time, we were able to improve our FFO mainly due to lower net working capital and lower financial expense. As you all know, last week we had our annual shareholders meeting and we are glad to see that we are moving ahead in terms of gender equality as two women were appointed as Directors of the company. During the period, we had an upgrade on our credit rates from Telerate, which consider that the merger with EGP Americas is a credit positive and will strengthen our business profile, the risk of our operations and give us higher growth capacity.

[Rafael de la Haza:]

Hi, Aurelio. Aurelio, please continue.

[Aurelio Bustilho:]

Hello. Okay, thank you so much. Sorry for the interruption. Well, I am explain slide 12. Again, we are glad to see a recovery in terms of demand in Brazil, mainly in Rio and Goias, which increased compared to first quarter 2020. In addition, as we mentioned before, tariffs adjustments in Rio and Enel Ceara implied an increase in our tariffs, as mentioned before. EBITDA in Networks business came mainly from Brazil and Colombia with 53% and 32%, respectively. Peru contributed with a 14% and Argentina 1%.

[Rafael de la Haza:]

Yes. Well thank you, Aurelio for the explanation, very clear. I now pass the call to the operator for the Q&A session. Operator, please proceed.

[Operator:]

We have our first question coming from the line of Javier Suarez with Mediobanca. Your line is open.

[Javier Suarez:]

Hi, good morning and thank you for the presentation. I have three questions. The first one is on the FFO improvement that we have seen during the first quarter. So, if you can elaborate for that, the reasons for the improvement in the FFO in the net working capital during the first quarter and if that is sustainable by the year end? So the question is related to the impact improvement in net working capital has had on free cash flow generation during the first quarter. That would be the first question. The second question is on slide number 3, talking about collection. We have seen some significant recovery in Peru and a slight worsening in Brazil. So you can help us to understand the reasons behind that improvement in Peru and worsening in Brazil. And then the third question is on the energy losses on the slide number 6. There has been quite a significant deterioration in energy losses level in all geographies. So you can help us to understand dynamics here, what we may expect as managerial decision to improve from the situation? Many thanks.

[Aurelio Bustilho:]

Thank you, Javier. Thank you for your questions. Well, let me tell you that FFO, we have the following impacts. Let me tell you that the first one is not , right? On 2020, we postponed payments from -- for suppliers from 2019 to -- more postponement of payments from 2019 to 2020. So part of this improvement is because on 2020 was very affected, let's say, with the payments from 2019 especially for the CapEx that we made that we executed in the end in the last quarter of 2019, right? So this effect is more or less 30% of the improvement in terms of FFO during this period. But the positive thing is that these improvements that we have in collection seems to move in a very good way especially in Colombia and Peru and also in Brazil despite it's a little bit lower in Brazil but seems that the recovery is consistent. Let me tell you that especially in some regions like Rio and in Argentina we are not allowed yet to disconnect clients that didn't pay. So our vision is that since the situation is becoming and we are estimating becoming more, let's say, normal in terms of the pandemic we are able to recovery and accelerate the collection recovery. And the third issue is the lower payments in terms of financial expenses So these three things; the collection is the one that is recurrent and we are confident that we're moving this way for the next quarter the payments in terms of suppliers, of course, it's more an issue for the first quarter of 2020. And the financial costs, we are actively working in the liability management in order to improve the situation, okay? In terms of collection, jumping into your second question, that's more or less what I explain it to you. Argentina, basically Argentina and Rio, not all the distribution but Rio and Real since we have, we have more restrictions to not disconnect people and that do not pay, we are of course operating in giving facilitating payments and so on in installments in order to recover. But we are not fully deployed our full potential in terms of market discipline. Yes, but again in Colombia and Peru we are recovering and this is more or less compensating these effects and the other distributions in Brazil that we are improving like Sao Paulo for example. In terms of losses, this is an important issue regarding the pandemic that we observe in the market. Regarding this -- especially regarding the normalization what we call, we have our systems to detect the commercial losses, right? But we are not fully operating in these -- especially in this -- in our distribution due to the COVID restrictions. So, we know exactly where it is happening. But again, since the operation is normalized, we'll recover this with our operations and normalize and put discipline in the market like we did in the past. But most of it -- well, the main concern is of course Argentina, right? Is the highest increase, but it's related to the impossibility to do normalization of the losses. The other distribution companies, again, Brazil is a little bit higher, but it's all concentrated in Rio and in some parts in Sao Paulo, but most of them in Rio due to the restrictions for the pandemic. So which means that as soon as you can -- we can operate, normally operate, it will recover these losses.

[Javier Suarez:]

Okay. Many thank you .

[Aurelio Bustilho:]

You're welcome.

[Operator:]

We have our next question coming from the line of Andrew McCarthy with Credicorp. Your line is open.

[Andrew McCarthy:]

Many thanks. Good afternoon, Aurelio, Rafael. Thanks very much for the call. My first question, I remember from the last quarterly call we had, there was a question on the EBITDA outlook for this year. I think there, Aurelio, you were talking about maybe a range of close to $4.2 billion depending on when the EGP Americas deal finally closed. I'm just wondering if you could maybe, in light of -- having advanced a bit further on the year now, if you could give any sort of update on that at all? And then in terms of my second question, just going back to the -- obviously, the future of the business in Colombia and -- obviously, you've got negotiations with GEB. I'm just wondering if you can maybe provide any color update on how that's going and whether you have any idea of timing of when that should likely complete.

[Aurelio Bustilho:]

Thank you, Andrew, for your questions. Well, we maintain our -- this range of EBITDA that we told you -- we told to the market in the last quarter. Of course, we need to see the evolution of currencies. We are in this -- in economic view exposed to this effect. But, again, in terms of cash flow it is almost neutral because our debt is mostly in local currency. Our CapEx mostly 50% is services -- in local services in local currency, which means that in terms of cash flow we have a balance in terms of cash flow -- very well balanced. But we maintained $4.2 billion worth estimation in terms of EBITDA for this year. Let's see the -- how it -- evolution. In terms of Colombia, well, Colombia is facing a difficult -- let's say some situation regarding their tax reform and so on and the -- eventually, a downgrade or some effect. But we are confident. We operate in Colombia more than 20 years. We are confident that the country have -- the country has all the fundamentals to pass through this situation and keep a very good place for investments, a very good solid revelation, a very solid institution. So, we maintain our confidence in the country. And that's why we are advancing. You said you mentioned our discussions with the Grupo Energia de Bogota, which is a defense in a very good and positive and very constructive way. And we hope as soon as possible we can we can reach a deal that -- lots of details going on as we explained it in the -- in our relevant facts in the beginning of the year. But we are defensing a very good positive and constructive mood. And we are confident that as soon as possible, we will get a very good agreement to Grupo Energia de Bogota and to Enel Americas and to our shareholders. And again, the company -- it is very important to us to keep on growing in this country, which is -- has an important and very good potential despite the situation the country is facing right now. But we believe and still bet a lot in this country.

[Andrew McCarthy:]

Fantastic. Thanks very much, Aurelio. And maybe just one follow-up question if I may, just on the on the CapEx. Obviously with the pandemic, I guess it's not always easy to advance with all the, the plans based on the network business and expanding the renewables business. I'm just wondering -- from the ground up, what you're seeing there, if there are any sort of particular delays on that side that might be worth remarking on?

[Aurelio Bustilho:]

Andrew, no we are not seeing delays. We are confident in our plan. We have a vision -- we have a very strong vision and a long term vision of the people's vision in the value chain of this industry. That's why we made the merger. So, we want to move forward with a renewable plan and also modernization with our distribution grid. So, we maintain our plans. And of course the COVID -- we have some restrictions in terms of field operations but we train our teams and we are very prepared to move forward because it's important to be successful in our vision of these success utility for the next year. So, we maintain our projects and our deadlines and our guidance in terms of CapEx.

[Andrew McCarthy:]

Wonderful. Thanks very much, Aurelio.

[Aurelio Bustilho:]

You're welcome.

[Rafael de la Haza:]

Aurelio, sorry. We have received another question from Tomas Gonzalez with Scotiabank. He's having some problems with the connection and the question is related to the Conta-COVID in Brazil. And the question is if Enel Americas considers that also in 2021 will be necessary a new Conta-COVID also for this year for our distribution companies to ensure a good situation of how distribution companies in the country.

[Aurelio Bustilho:]

Gracias, Tomas. Thank you, Tomas. Well, first of all the Conta-COVID, you know that we got the financial Conta-COVID and it is still pending the discussion for the economic recognition of Conta-COVID, right? So the first one that we -- the disbursement that we received in July more or less $500 million in debt in that period and we didn't have yet the economic recognition update, so we are discussing with regulator this issue. And also we are discussing because it is a reality. Our countries, in Brazil in this case, we are still facing the situation of COVID, of the pandemic. So we are probably -- the demand we are recovering but on the same hand this -- specially this situation to not be possible to disconnect clients and increasing losses and increasing -- affecting the collection. This is something that we are discussing with the regulator. But this is in the same package of the economic recognition, right in order to have a final -- let's say a final figure, a final number. And we are confident that at the end, the regulator is being sensible to this of course, taking consideration the situation of the country, the country and the inflation effect and so on. But as I told you, the readjustments are being begun. We see the readjustment above Rio for example of Ceara. And we are addressing this discussion of COVID, let's say, higher impact in the discussion of economic equilibrium that is moving forward with the regulator as it was the plan before, okay?

[Rafael de la Haza:]

Okay, perfect. As far as I can see on the screen, we do not have more questions from the audience. So I conclude the results conference call. And thank you very much for everybody. And let me remind you that investor relations team is available for any doubt that you may have. Thank you very much.

[Operator:]

This concludes today's conference call. Thank you for participating. You may all disconnect.