Enel Américas S.A.
Q2 2020 Earnings Call Transcript

Published: 28 Jul 2020

[Operator:]

Good day, ladies and gentlemen, and welcome to Enel Américas' First Half 2020 Results Conference Call. My name is Gigi and I will be your operator for today. The only possibility to receive questions is via chat through the webcast. During this conference call, we may make statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements could include statements regarding the intent, belief or current expectations of Enel Américas and its management with respect to, among other things, Enel Américas' business plans, Enel Américas' cost reduction plans, trends affecting Enel Américas' financial condition, or results of operations, including market trends in the electricity sector in Chile or elsewhere, supervision and regulation of the electricity sector in Chile or elsewhere, and the future effect of any changes in the laws and regulations applicable to Enel Américas or its affiliates. Such forward-looking statements, reflect only our current expectations, are not 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 the United States or Chile 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 Américas' Annual Report on Form 20-F, including under Risk Factors. 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 date. Enel Américas undertakes no obligation to update these forward-looking statements or to disclose any development as a result of which these forward-looking statements become inaccurate. I would now like to turn the presentation over to Mr. Rafael de la Haza, Enel Américas' Head of Investor Relations. Please proceed.

[Rafael de la Haza:]

Good afternoon, Gigi. Good afternoon ladies and gentlemen. [Foreign Language] And welcome to our first half 2020 results presentation. I'm Rafael de la Haza, Head of Investor Relations. And here with me connected to this call, we have our CEO, Maurizio Bezzeccheri; and our CFO, Aurelio Bustilho. First of all, I hope that all of you are doing well and in good health. In the presentation, we will start with Maurizio, who will take us through the highlights of the period and will sum up the main milestones achieved. After that, Aurelio will guide you through the operational and financial performance of Enel Américas. Let me remind you that this presentation will follow the slides that have been already uploaded into the company website. Following the presentation, we will have the usual Q&A session. In this opportunity, as we did in the first quarter 2020, questions will be only received only through the chat of the webcast. Now let me hand over the call to Maurizio, who will start by outlining the main highlights of the period for Enel Américas in slide number two. Maurizio, the floor is yours.

[Maurizio Bezzeccheri:]

Thank you, Rafael. Good afternoon, everybody. During this quarter we have continued facing difficult times in the world and especially in our region. COVID-19 has increased its impact in Latin America reaching its peak in the second quarter. We are committed to give our best to face this situation. And as we will see later on this presentation, we are helping with multiple initiatives. In this context, it is important to mention that the Brazilian authorities have created the COVID account, which aims to inject liquidity to the sector and will help us mitigate financial impacts in our distribution company in Brazil. EBITDA for the first six months of the year reached US$ 1,471 million a reduction of 29% compared to the same period of 2019. In terms of quarter, EBITDA reached US$ 623 million, 46% lower than second quarter 2019. This significant reduction is mainly explained by the positive one-off effect registered last year in connection with the agreement reached by Edesur with the government for past liabilities, which had a positive impact of US$ 279 million. The negative impact coming from the devaluation of the currencies in the four countries of presence and the negative impact of COVID-19 in our businesses, which reached US$ 187 million. Without considering the one-off tax impact and COVID-19 impact, EBITDA would have increased by 11.5% in the first half and decrease 13.6% in the second quarter. Our company is well prepared to face the financial impacts coming from the pandemic. We currently have US$ 2.3 billion of liquidity and the net debt-to-EBITDA ratio of 1.4 times, which gives us ample room to increase debt in case if needed. On the following slide, we will see a summary of COVID-19 main impact. As I mentioned before, the macro context has deteriorated due to the pandemic effect. The impact of COVID-19 in our business has been particularly visible in the second quarter 2020. Local currencies have suffered significant devaluation against U.S. dollar during the year. Brazilian reais has decreased 35%, while Argentinian peso, Colombian peso and Peruvian sol dropped by 17%, 15% and 7% respectively. As we will see more in detail later on, we consider that there will be no recovery in effects or if it will fashioned. This becomes the full necessary to adjust our guidance accordingly. Regarding electricity distributed, we had reductions in the four countries where we operate. Comparing first half 2020 in the first half 2019, you can see that Peru was the most affected with a decrease of 12% mainly due to a relevant slowdown of the mining sector, while Brazil, Colombia and Argentina decreased by 7%, 5% and 2%, respectively. Finally in terms of collection and despite the digital initiatives implemented by the company, we see again that Peru was the most affected country with a drop of 17 percentage point, then we have Argentina with 9.2, Colombia with 3.8 and Brazil with 3.7 percentage points. On the coming slide, we will look in detail the evolution of electricity sales and collection in distribution business. In this slide, you see the evolution on a monthly basis of electricity distributed and collection. In distribution business, the company has decreased by 6.4% in sales during the first half and by 11.9% in the second quarter. However, we can see in the chart that in the four countries we had the lowest sales level in April and then we see a recovery in May and June. In terms of collection, we saw a similar situation. We are in a worse position compared to 2019. But in general terms since May we can see a hopeful recovery trend. Now let's have a look at our main initiatives regarding COVID situation in slide number 5. Since the beginning of the pandemic, we have taken preventive measure to make sure our employees are safe during the COVID-19 emergency. Around 50% of the total workforce are working remotely. Those personnel that can work remotely is currently doing so. We've also taken steps to ensure the safety of our employees on the field providing them with protective equipment during work hours and revising our working process. As well everyone in Enel Américas is covered by the insurance policy, which was entered by Enel Group and was implemented worldwide, the first ever of its kind. In relation to our clients, we have placed our focus on increasing digitalization efforts. We have re-signed the website of our subsidiary to ease the client experience and to focus on communication and payment channels such as e-mails, text messages and payment app. Regarding operation, we have created local committee represented by colleagues from different areas of the company to ensure that our infrastructure is always fully operational, while in parallel safety and security protocols has been reinforced. We have also secured critical infrastructure as this is a key concern on these difficult times. Now on the next slide, we will explain how the COVID account in Brazil works. Decree 10.350 in Brazil aims to inject liquidity to distribution companies in order to help them face the working capital mix coming from COVID situation. The total amount available for the sector is BRL 16.1 billion with BRL 3.2 billion formalized with our companies. Plans can be used to cover over-contracting sector charges, CVA balance from April to December 2020 and Parcel B anticipation. This financial aid, which is offered through a pool of banks addresses the pressure coming from a revenue reduction as a consequence of global energy consumption and deferral of payment by large end users and postponement of tariff readjustments. The main target is to preserve the sector's chain of payments providing liquidity. Resources shall be paid back in 54 months starting in 2021 after 11 more grace period. The repayment of the financial aid and its financial costs will be passed through to consumers. Now on the next slide, let's see the main financial highlights of the period in slide number 7. As already mentioned, EBITDA reached US$1,471 million in the first half and US$623 million in the second quarter, a reduction of 29% compared to the first half of the previous year and 46% compared the second quarter of the previous year. Net income decreased by 42% in the first half compared to the first half 2019 and 67% in the second quarter compared to the second quarter 2019 reaching US$476 million and US$166 million, respectively. If we isolate the effect coming from currency devaluation and last year's one-off, we can see that EBITDA would have increased by 14% in the second quarter by 11% in the first half of the year while net income has increased 23% and 14%, respectively. Aurelio will go more in-depth when explaining the financial performance of the company. Now, let's have a look at our investment for the period in slide number 8. Total gross CapEx for the first half of the year amounted to US$600 million, a decrease of 15% compared to the same period of last year. This reduction, however, is explained by the devaluation of local currencies. Without considering the tax effect, our investments increased by 8% aligned with our commitment in terms of investments announced in our strategic plan. Looking at the second quarter of this year, our CapEx decreased by 22% but without FX impact it would have increase by 5%. Our investments were mainly devoted to maintenance CapEx and focus in the networks business. From a geographical point of view almost 60% of the investments in this quarter was made on our subsidiaries in Brazil with a significant increase on our core distribution company especially in Enel Goiás. Now let's analyze our main social initiatives during this pandemic. Following with our focus of contributing with the United Nation's sustainability development and goals, we have been supporting our communities. In the second quarter 2020, the company has concentrated its effort to deliver our support to communities and especially those who need our help the most in these difficult times as we will see in the following slide. During this period, Enel Américas has helped with more than 350 projects benefiting more than 940,000 people along the different countries of presence. We are doing our best efforts to be part of the solution and we are really proud of this. In this way, we have been very active in offering our help to people and institutions that need in this moment with around 100 charitable initiative loans. The areas in, which Enel Américas is focusing its activities to support the communities are health and social economic agencies. In relation to the first group of activities held, we have made several donation of basic materials as personal protection element to ensure supply for hospitals by providing electricity generators for donation of Enel's own resources to produce fast test to detect the coronavirus among other initiatives. In relation to the second group, social economic agencies, the company has made several donation of basic food baskets to family in the situation of social vulnerability. Family keep for personal, preventive cleaning, and handmade masks for people in risk group in communities among others. We will continue on this path as long as it takes hoping that we can collaborate to overcome this crisis. Now Aurelio will continue with our -- about the financial part of subsidiary. Aurelio, please go ahead [ph].

[Aurelio Bustilho:]

Thank you, Maurizio. Hi everybody. If we look at the second quarter, reported EBITDA reached US$623 million, a 46.4% decrease compared to the same period of last year. This is mainly explained by the fact that last year amount includes $279 million as a result of the agreement signed between Edesur and Argentina state for pending claims, regulatory claims. In addition, we have to consider the impact of currency devaluation and a reduction in demand as a result of the COVID-19 explained by Maurizio. However, if we exclude the impact coming from Edesur past liability resolution, currency devaluation and COVID effects, EBITDA would have increased by 13.6%. If you look at the first half of the year, cumulative EBITDA reached US$1,471 million, a 28.9% decrease compared to the same period last year, and mainly explained by the previously mentioned effects. Excluding Edesur liability resolution, the currency devaluation and COVID effects EBITDA would have increased by 11.5%. Group net income in the second quarter and on a stand-alone basis decreased by 73.7% reaching US$89 million, while on a cumulative basis it decreased by 45.4% reaching $297 million. In both cases this is explained by lower EBITDA partially offset by a better financial results related to a lower debt in Brazil and lower tax payments. Funds from operations in FFO in the first half reached US$462 million, an increase of 22.1% compared to last year, while net debt increased by 9.3% reaching $4.7 billion. We will analyze in detail cash flow and debt later in this presentation. On the coming slide, slide number 13, we'll see the impact of COVID-19 on our businesses. As you can see, we are opening for the first time the quarter and the first half for you to have a better idea. Here, we can see how COVID impacted our results for the period, considering that the full impact occurred during the second quarter of 2020. Reduction of electricity demand due to COVID had an impact of $187 million at EBITDA level, while bad debt's impacted by $52 million. At net income level, both impacts were US$55 million and US$14 million respectively. After deducting the FX impact, we get to an adjusted EBITDA of $1,997 million for the first half and $1 billion for the second – more or less $1 billion for the second quarter, while adjusted net income reached US$711 million, and $379 million respectively. We are implementing some actions in the company and actively working with the regulator to partially absorb this impact in the next coming months. Just to explain you that – Maurizio explained the Conta COVID effects. The Conta COVID effects will – starting to have effect in our company starting from July. On the coming slide, we will see the EBITDA evolution and breakdown. Considering the second quarter on a stand-alone basis, and starting from $1,161 million of EBITDA for the same period last year, we can see a decrease of $279 million as a consequence of the already mentioned best liability effects in Argentina booked in 2019. Generation businesses and retail business have a negative operational results, while networks and Enel X performed better. Finally, we had a negative impact derived from currency devaluation of about $200 million. Colombia represents 46% of total EBITDA pushed by a higher energy prices and higher income as a result of the recognition of investments of 2019 based on new tariff. Brazil represents 30% of EBITDA, followed by Peru 18% EBITDA, and Argentina 6%. In terms of business lines, networks represent 53% of our EBITDA, while generate contribute – generation contributes with 39%, from which 32% is large hydro. And the retail and Enel X represent 7% and 1% respectively. Regarding the cumulative EBITDA in the first half of the year, and starting from the $2,070 million from the same period last year, the main decrease comes from the currency devaluation for a total of $339 million. We also see the one-off impact of Edesur. And on an operational point of view, thermal generation and retail were impacted by lower sales, especially in Brazil, while renewables networks and Enel X improved their results compared to the same period last year. Colombia contributed to 40% of EBITDA, followed by Brazil 36%, Peru 17%, and Argentina 7%. In terms of business lines, networks represented 51% of EBITDA, while generation contributed to 41% from which 32% is large hydro. Retail and Enel X pretty much the same of the quarter figures 7% and 1% respectively. Let's now analyze our operating highlights in the following slides. In generation business, our installed capacity remains basically the same. The 11.3 gigawatts of installed capacity from which 55% is hydro. Net production in the second quarter reached 8.5 terawatt hour, a decrease of 4% compared to the same period last year. In cumulative terms net production reached 19.2 terawatt hours in the first half of the year, which means a 1% decrease. Peru suffered a reduction of 19% during the period, but was partially compensated by Argentina, which increased its production by 14%. Of the total production 62% corresponded to renewable hydro generation. Our energy sales decreased by 9% in the second quarter, especially in Brazil reaching a total of 15.2 terawatt hour. In cumulative terms, the decrease was also 9% mainly due to Brazil, where the decrease reached 22%; and to Peru where the decrease was 11%. The reason of this reduction was mainly due to a trading activity in Brazil substantially in Cachoeira Dourada. Let's now analyze network – networks business in the coming slides. In the second quarter, distributed energy reached 25.9 terawatt hour decreasing by 12%, mainly as a consequence of the pandemic and the related reduction in the economic activity in our countries – in our perimeter. In cumulative terms, distributed energy reached 56 terawatt hours, which means a 6% decrease compared to the same period last year. Regarding number of customers, we had an increase of around 200,000 customers, mainly explained by the increase in Enel São Paulo, Codensa and Enel Goiás. Quality indicators improved in all our subsidiaries due to the relevant amount of investment realized during last years with the only exception with a slight increase in the number of customers [ph] of – in Ceará, where we suffered a severe rainy season and also suffered that damage in our – on our networks costs but increased in the level of social violence during the second half of 2019. On the following slide, we'll see Enel X and retail businesses. Customers' positioning continues to strengthen the retail traditional operations, as well as on new services and infrastructure. In Enel X, you can see that regarding e-City public lighting points slightly decreased reaching 290,000 points. And in e-Home business, the level of contracts of micro insurance reached 1,300, which means a 3% increase. Regarding financial services we had a 4% increase in credit card business, which reached a total of 866,000 active credit cards. Photovoltaic panels installed during the first half of the year increased by 7% in terms of capacity reaching 1.5 megawatts. Finally in e-Mobility, the number of charging stations increased by 104 to 683 mainly explained by Colombia and Argentina. Regarding retail business, the number of delivery points increased by 23%, reaching 3,170 and the energy sold amounted to 7.2 terawatt hour, which means a 12% decrease as a consequence of the pandemic and related reduction of the demand. Let's move to a country-by-country analysis on the coming slides, becoming – beginning with Argentina. EBITDA in Argentina during the second quarter decreased by 89% or $295 million compared to second quarter 2019 reaching $36 million. This significant reduction is mainly explained by the positive one-off effect by $279 million that we booked last year in connection with the agreement between Edesur and the Argentinian regulator. In addition, we had a negative FX impact of $48 million in the quarter. The impact coming from COVID was a reduction of $10 million at EBITDA level. In generation business, EBITDA decreased by 56% reaching $21 million. If we don't consider FX effect, EBITDA would have decreased by $3 million or 1%, mainly explained by higher OpEx due to inflation effect. This was partially offset by higher electricity sales of 26% and higher capacity payments. In distribution business, EBITDA decreased by $269 million or 95%, mainly due to above-mentioned one-off effect in Edesur last year. In addition, we had a negative effect of $21 million. In operational terms, EBITDA decreased mainly due to tariff fees losses increase and lower sales. Demand in our concession area was 4.9% lower compared to the second quarter of 2019. CapEx in Argentina decreased by $71 million compared to last year. This is as a consequence of a negative FX impact and frozen tariffs pressuring investments. Let's continue with Brazil on the following slide. In Brazil, overall EBITDA in the period decreased by 48% or $174 million, including $86 million of negative impact coming from the FX effect. The impact coming from COVID was a reduction of $121 million at EBITDA level. EBITDA generation business decreased by 53% or $34 million, which is mainly explained by lower energy sales, especially in Cachoeira Dourada. EBITDA in distribution business decreased by 42% or $132 million. If we don't consider the FX effect, EBITDA decreased by; 35%. This reduction is mainly explained by lower electricity sales in the four subsidiaries – in the four distribution subsidiaries. CapEx in Brazil decreased by 5% compared to last year, reached $173 million. If we consider the FX effect, CapEx increased by $57 million, following our quality and improvement plans. Let's move to Colombia to the following slide. EBITDA in Colombia increased by $47 million or 14% compared to the second quarter of last year. Currency devaluation had a negative impact of 55 – sorry $54 million. In operational terms, EBITDA increased by 2%. The impact of – coming from the pandemic or the COVID-19 was a reduction of $26 million at EBITDA level. On the other hand, the generation business, EBITDA decreased by 15% or $29 million. If we don't consider the FX effect, we had a decrease of only 1%. This is mainly due to lower energy sales and higher energy purchase costs. In distribution business, EBITDA decreased by 12% or $17 million. Well currency devaluation had an impact of $54 million impacting this EBITDA. Without this EBITDA would have increased by 9%, mainly explained by the introduction of new tariff in April 2019 as you know. It is important to highlight that the new regulation scheme in Colombia has a revenue cap meaning that lower demand does not affect our economic impact on our revenues. In CapEx Colombia increased by 9% explained by investments in our distribution company Codensa. Excluding FX impact CapEx would have increased by 29% or $18 million. Let's now see Peru in -- on slide number 22. EBITDA in Peru reached $114 million which means, a decrease of 17% or $23 million compared to second quarter 2019. Currency devaluation had a negative impact of $4 million. In operational terms, EBITDA decreased by 14% or $19 million. The impact coming from COVID was a reduction of $30 million at EBITDA level and again in the second quarter of this year. In generation business, EBITDA decreased by 26% or $19 million. This was mainly due to a reduction of 19% in energy sales, partially offset by a higher sale price. In distribution business, EBITDA decreased by 5% or $4 million. And considering in operational terms, EBITDA increased by $3 million or 5%, mainly due to a higher margin, partially offset by lower energy sales of 19%. Total CapEx in Peru decreased by 29% compared to 2019, due to lockdowns implemented in the country that forced us to a delay in our programmed works to deploy the CapEx plan. Let me now analyze our profit loss indicators in the coming slides. Looking at the quarter figures, we started from $623 million EBITDA. Then we see a depreciation and amortization reaching $265 million, 16% lower than the second quarter 2019, mainly explained by Brazil due to FX impact. EBIT reached $358 million which is 58% lower than last year. Net financial results amounted to minus $61 million, which represents a lower cost of $55 million compared to the same period last year. This is mainly due to the payment of Enel Brazil's debt in connection with the purchase of Enel São Paulo. Income tax registered in the period was $132 million, which is 39% lower than last year, mainly as a consequence of a lower earnings before tax. Group net income amounted to $89 million, a 74% decrease compared to the previous year results. With these elements, let's analyze the cash flow in slide number 24. FFO funds from operations for the first six months of the year amounted to $462 million starting from an EBITDA of $1,471 million. These results includes a negative net working capital in the period for an amount of $514 million, mainly explained by Brazil and impacted by COVID-19 effects and lower financial expenses compared to the same period of the previous year. Tax paid during the period amounted to $353 million, while net financial expense amounted to $142 million. CapEx amounted to $600 million as indicated in previous slides and net dividends paid this year in 2020 was $935 million. With these -- with all these figures we get to a net free cash flow of $1,073 million. After financial receivables for $93 million extraordinary operation were minus $9 million, an FX effect of $590 million. Total net debt increased $399 million compared with December 2019 related to dividend payments in May paid this year. Let me emphasize that I told you the net free cash flow of course it's a negative free cash flow after dividends, okay? Let me now analyze the debt of the company in the following -- in the next slide. Gross debt amounted to $6.1 billion, a decrease of 2.4% versus December 2019. The FX effect accounts for a debt reduction of more than $1 billion to the fact that most of our debt is in local currency. This was partially offset by our debt increase mainly in Enel Américas holding level and also in Codensa and São Paulo and Enel Peru. In terms of currency our debt in U.S. dollars at the holding company increased due to the debt issued in Enel Américas in this period. And on the other hand our exposure to Brazilian reals made a decrease in this debt in reals, of course. Finally regarding the cost of debt, we can see a reduction for this period going from 7.1% in 2019 to 5.1% in the second quarter of 2020. This is mainly explained by decrease in the weight of the debt coming from the acquisition of São Paulo better condition to refinance debt in Brazil Colombia and holding company and lower variable rates in Brazil -- observed in Brazil. Let me show you how our position -- or how our company is well prepared for any potential liquidity needs thanks to this solid financial position. Our liquidity position remains very solid as you can see. In 30th of June, we stood at $2.3 billion in available liquidity from which 64% were cash and cash equivalents. In terms of debt maturities for the coming years, we do not see any difficulties. This year, we have to face maturities of $1.2 billion which is completely manageable. Our net debt-to-EBITDA ratio increased a little bit due to the debt issued by the company and a lower debt -- at a lower EBITDA level. However, we remain in a solid 1.4x net debt to EBITDA which gives confidence to support our financial strategy during this difficult period. The strength of our credit metrics is reflected in our current rating levels and outlooks of the company. Rating agencies confirmed the ratings and outlook even in this current challenging scenario. Now Maurizio will explain how COVID situation will impact our guidance for 2020. Maurizio?

[Operator:]

Ladies and gentlemen please remain on the line [Technical Difficulty] shortly.

[Aurelio Bustilho:]

Maurizio Bezzeccheri? Well, I don't know if Maurizio had some difficulties. I can follow with the presentation. Yes. Well this is live. Just to emphasize the -- what Maurizio explained in the beginning that we are presenting a change in our guidance for this year. As we have commented over the presentation, many extraordinary circumstances are affecting the normal performance of the business initially foreseen for this year. Most of these extraordinary impacts are probably going to remain until the end of this year in particular the impact the local currency have suffered with significant devaluation against U.S. dollars. Managerial actions and commitment of regulations in different countries of presence -- that we are present could help to mitigate the extraordinary impacts not related to effects, for example with the economic effects that we are discussing in Brazil and in other countries. Having said the above, I remind you that the EBITDA guidance for 2020 announced on our strategic plan for the last year was $4.7 billion. With this currency devaluation and potential impacts coming from COVID, we'll expect to reach an EBITDA in the range between $3.7 billion and $3.9 billion by the end of 2020. And for our closing remarks within the difficult times that we are facing we are...

[Maurizio Bezzeccheri:]

Aurelio? Aurelio? Aurelio?

[Aurelio Bustilho:]

Yes?

[Maurizio Bezzeccheri:]

Aurelio I am back. I am back.

[Aurelio Bustilho:]

Okay. Thank you. Go ahead Maurizio. Thank you.

[Maurizio Bezzeccheri:]

You're welcome. Within the difficult times that we are facing we are [Technical Difficulty] into our communities. Results of the period were significantly affected by currency devaluation and COVID. However the new recovery was seen in the last month. Guidance as announced for 2020 has been affected by current situation. We expect to have a reduction in EBITDA between 17% and 22%, mainly due to a worsening of local currency versus U.S. dollar. We are in a solid financial position that allows us to attend the financial and operational needs in the short term without major issues and also to have room to potential inorganic growth.

[Rafael de la Haza:]

Well thank you, Maurizio. Thank you, Aurelio. Very clear. Now let's move to the Q&A session.

[Rafael de la Haza:]

Okay. We have received so many questions, so I'm going to try to consolidate to answer all the questions because some of them are repeated. We are going to start with José Prieto [ph] from FEMSA. And the question is the following one. Can you explain us the distribution Brazil delinquency situation and the company guidance in this matter? Thank you, José.

[Maurizio Bezzeccheri:]

Okay. Let's see. We are facing right now, I will define the delinquency is the situation of our -- the unknown situation generated by COVID. You can see that in Latin America you have the majority of the country. They have a large chunk of informal jobs. So in a lockdown situation of course the situation, the economic situation is worsening and as a consequence where you have let's say a split between the sanitarian situation and the economic situation. In the reality, if we look at the situation in most of the countries July is showing a growing trend as we said during the presentation and we don't see any major worsening of the bad debt situation for example in the next months. And we will start -- let's say in Brazil starting from October with more bandwidth in such a way we can re-establish the market discipline. So in the reality already, we are observing and improving in the situation of the demand. And when we start action on bandwidth, we will see as a consequence in improving a reduction on losses. And however, in Brazil Conta COVID is working on the financial side. Now we are discussing as well with the regulator some similar adjustment on the economic side thus recover the demand decrease and increase in losses. So as well we are working with the regulators not only doing our job, one that it will be possible to be cut for the people that's gotten their pay. As well we are negotiating with the government for further measures like the one has been done for financial on the economic side covering demand decrease and increase in losses.

[Rafael de la Haza:]

Okay. Maurizio, we have received from Tomás González, Scotiabank. Three questions. The first one is the following. Main impacts on distribution business. How many quarters could take to recover historical growth at key distribution companies? This is the first question. So the time to recover the current -- the previous growth in Enel Américas for the distribution business taking into account the current situation. The second question is the following. In Brazil you have the Conta COVID to cover working capital issues. The question is if in Argentina, Colombia and Peru where we do not have a similar initiative is going to entail an increase in financial costs. And we are going to -- we are seeing we are foreseeing a higher financial cost due to this situation which is different to the one that we are seeing in Brazil due to Conta COVID. And the third question is related to the concession in Edesur and the intentions of Argentinian government to early terminate this concession in the country. Can this success on its intentions place more visibility on this?

[Maurizio Bezzeccheri:]

Okay. I will reply to the first and the third and I will leave the last one to Aurelio. Regarding timing to recover as I said, we will -- on the losses side in the country, we'll restart our man reductions as we recover the market discipline in October and as a consequence let's say in the last quarter. Regarding the other countries, let's say that Colombia is not very much affected. In reality, we expect just to reach the budget target in Colombia. So really in Colombia, we have no similar situation like in Brazil Argentina and Peru. Regarding Peru, recently by the government has been approved an intervention on the more vulnerable client on which the government will pay the electricity for this customer. But for us it's worth 400,000, 500,000 people over the 10,00,400 people we serve or at least that we serve. And for the other one we will be able to do installment payments without interest and the government will pay for the interest of this installments. Regarding Argentina on the other side, we are in ways from the financial point of view. We are working just to compensate more increase in terms of types with the debt that we have with CAMMESA, that is the seller of electricity to Edesur. As we have said during the presentation in the reality, we sold more energy in Argentina. Regarding the rumors of the concession of Edesur, let me, before say that really in terms of quality performance in terms of investment, we have done all the activity requested by the present revision of tariffs of 2017. Of course, we know that Argentina [Technical Difficulty] property has already happened a few months ago with the same team. That is the agriculture operator. So for this reason, I think it's a normal dynamic in the Argentina -- in the present Argentinian context. We don't see any substantial reason for -- just to take out the compression from Edesur. And of course, we will do our democracy plan. I suppose you have seen, as well, the reaction of the economic community to this announcement. They may buy the municipality in the south part of Argentina. And as well, looking at the press and on the social media, you see, of course, the reaction or another part of the Argentinian population. So, I think this is a normal dynamic in the specific -- in the present specific context of Argentina. We don't see any reason -- any solid reason just to make an action against Edesur's compression. The more we take this in the context of the present critical situation, economic situation in Argentina and a normal dynamic [Technical Difficulty]. Aurelio, I don't know if you want to add some something [Technical Difficulty]. We have substantially reduced the financial cost, because we have renegotiated our debt with a low interest rate, for example. Aurelio, I don't know [Technical Difficulty].

[Aurelio Bustilho:]

Thank you, Maurizio. Thank you so much for the question. Yes, you answered pretty much very well, because what we are seeing right now, when we are -- this net working capital necessities, especially, for example, in Peru, we have seen for a company like ours in a very low cost -- lower than what we estimated in our guidance, which means that we are doing a very good [Technical Difficulty]. But in any case, we are not assuming increasing our net working capital in the countries, right? Well, Brazil, you said, Conta Covid. We have the Conta Covid. Conta Covid will be paid by the demand in 50 months, okay? So, this is solved. But, when we look at, for example, the simplest one Argentina, we'll not increase debt in Argentina. If we don't receive the money, we’ll not put money perform and anticipate cash. So, we are dealing, as also Maurizio used to say like, that corralito, the cash flow in Argentina. That's the way we deal. In Colombia, we're not seeing difficulties in terms of cash flow, because -- well, the solution of Brazil is a different solution, but the countries -- the regulation of the countries are implementing different ways, but solving the issues -- the impact is the same. For example, Maurizio has explained the impact from Peru, for example, which the government pays the bills for the lower-income customers. So, what we are seeing is that we are not seeing increasing our debt during this period, okay? We are seeing -- we are working in regulatory actions. But, in any case, if we need, we have very low cost capabilities to credit lines and bilateral debts if we want, and a very good balance sheet position. We don't see increasing this debt, but in any case, we are very, very strong in terms of financial position.

[Maurizio Bezzeccheri:]

Let me add just one thing. In the four countries where you have different regulation schemes, for example, in Colombia, you have a revenue cap regulation scheme. And this means that the demand is always covered in the tariffs to the end customers. So, even though there is a reduction of demand, we will recover an increasing tariff.

[Aurelio Bustilho:]

Exactly.

[Rafael de la Haza:]

Well, thank you Maurizio and Aurelio. We continue to the following question that comes from Banco Santander, Murilo Riccini.

[Murilo Riccini:]

Two questions. The first one is the cash position and balance sheet remains strong. Could you provide us an update on the company's plan for the liquidity management by the end of the year? This is the first question. The second question is, could we expect the guidance review be applied also to the next years, I mean 2021 and 2022? Thank you.

[Maurizio Bezzeccheri:]

I will reply to the second question. Let's say that, of course, as we are observing worldwide, the COVID is like following rates. In general, of course, you can have some impact on 2021 that we will consider in our budget in 2021, but you will have as well a positive effect. For example, the recovery of the bad debt will be done for example in the first quarter of 2021. So of course, it will depend by the dynamic of the pandemic. But in the reality, right now we do see already a recovery in 2020. We will continue the recovery of credit in 2021. And regarding the demand, we will see how it will be the electricity demand. Of course, we have said that of the countries' needs just to speed up the economic recovery. In the reality, we know that for example in Brazil will be put in place a specific amount of money, almost €4 billion for the economic recovery. In Peru, they are doing the same and this is the fact that the mining industry is almost 100% of production. Regarding Colombia, I repeat we have seen a reduction demand, but then we have seen a quick recovery of the demand, considering on the other side that in Colombia we have some dry season. And for this reason, the price was just going up with the advantages as we said during the presentation for our generation company. The other -- the first question to Aurelio.

[Aurelio Bustilho:]

Thank you, Murilo for your questions. Rafael, what is missing from this question? Sorry, I didn't get.

[Rafael de la Haza:]

Yes Aurelio. The second question is regarding [Technical Difficulty] guidance for 2021 and 2022.

[Aurelio Bustilho:]

Murilo, it's -- well what we are seeing is consumed to our effect, right? Because we are -- we give services more than essential which is like the energy. And of course, it's cyclical. It depends on the economy. And what we are foreseeing is that this effect will recover -- since the economy will recover at some point, right? So, it's very difficult to estimate right now -- to make estimations as Maurizio said on how it will be in the -- let's say in the next year what will be the effect. What we are seeing from the government is that this effect from 2020 will start to recover the level of 2019 by the end of 2021. But again this is a guessing. And nobody knows right especially in Latin America. But again, we are very well prepared for the situation.

[Rafael de la Haza:]

Okay. Thank you, Maurizio. Thank you, Aurelio. [Technical Difficulty] which is the period of time that you forecast is needed for the collection of the full compensation related to the COVID decree in your distribution companies?

[Maurizio Bezzeccheri:]

Of course [Technical Difficulty] right now the tariff is in place. The real problem is demand reduction on one side and losses. Once we will start just to recover losses because we will start to do [Indiscernible] we will recover the full tariffs. As we said in Brazil, we will start maybe banning activities starting from October. So, we consider that the end of the year, we can be back at steady accreditation situation even though we expect to recover even before the situation.

[Rafael de la Haza:]

Thank you, Maurizio. Let's move to Enrico Bartoli from MainFirst.

[Enrico Bartoli:]

We have some questions on Brazil. The first one is related to the negative impact from our contract in Brazil. And the question is, if this contraction -- or contracting will be covered or recovered through tariff increases. This is the first question. We have a second question on Brazil, which is related to the impact of Conta COVID. And the question is will we account it in revenues as of July? The third question is related to the assumptions in terms of a recovery demand over the next quarters in the perimeter of Enel Américas. The fourth question is if we -- if it is possible to split the guidance variation in Enel Américas of US$0.81 billion in terms of guidance on a country basis. And the last one is related to Argentina the possibility to recover the effects of COVID in the distribution business.

[Maurizio Bezzeccheri:]

Okay. Regarding the first question, yes, part of the €680 million, we will receive for Conta COVID. We expect to receive almost US$500 million at the end of July, and the second improvement one, two months later. Delay and impact from bad debt in Brazil, it will be possible to recover this impact in the future through tariffs, yes. This is exactly the mechanism of Conta COVID, because the Conta COVID is not a financial debt. It's a commercial debt. That means, it's an anticipation of a tariff recovery in the next future paid as we said by the end customers. Third question is that new guidance, which are the assumption in terms of a recovery of demand in the next quarter. As we said, we will -- we expect that the recovery is globally -- globally recover. It will be no -- will be a little bit lower in terms of recovery. Of course, if you consider Peru, the major consumption is by mining industry that as I told you now is 100% in operation. If you look at the segmentation of the customer in -- during this pandemic, you will see that in general you will have the domestic customer that will increase -- is increasing their consumption. Industrial will continue to grow. They need to recover past production. The most affected segment is the commercial one. That means shops, cinema, restaurants, and this will be the more affected segment and will be characterized by lower recovery. Then the impact of the impact of tax effect on EBITDA guidance by country, I'll leave this reply to Aurelio. That means just give a rounding number regarding the impact of sales and EBITDA. Regarding Argentina, in terms of Argentina possibility to recover the effect of COVID in distribution. Of course, the demand is the same point I said before between domestic commercial and industrial. Regarding the liquidity of Edesur, regarding the decrease in demand, let's say, that the more strong impact on liquidity of Edesur is the tariff frozen. But in any case, we are managing CapEx and we are producing already a huge OpEx reduction in such a way, we will maintain the liquidity for the entire year. Aurelio?

[Aurelio Bustilho:]

Yes. Yes. Well regarding the effects, basically the main countries were Brazil, okay? As you know, the fluctuation of the reals during the pandemic was very strong and it was very different to what we consider. We are considering by the year-end around 5.1 to 5.2 across the year, okay? Then we have Colombia. As you know regarding Colombia has -- is dependent on the commercial balance from oil prices, and since there is a variation in these prices Colombia is pretty much affected with the exchange variation. So Colombia the second country, I would say of this number of this 800 number, the 70% is Brazil and Colombia, okay. And the remaining part is Peru and Argentina. But the main part is Brazil, Colombia then Argentina and Peru.

[Rafael de la Haza:]

Well, thank you Aurelio. Thank you Maurizio. Let's follow with the following questions, Patricia Perez from Westwood.

[Patricia Perez:]

Two questions, the first one is related to the trend in collections in the second half -- in the second -- first half second quarter for the four countries, in which we operate. Second half, sorry. But in particular in Peru, given the trend of making payments in person versus digitally and given the negative news media reports locally, what are your next strategically initiatives to improve collections and CapEx associated with these initiatives, focus in Peru? How is the relationship with regulators, at present? And the second question is regards to potential asset acquisitions. What is the opportunity set at the present? Could we see potential new acquisitions in the next six, eight months? What is the M&A budget for the next 12 months and what valuations, financial firepower? Those are the questions.

[Maurizio Bezzeccheri:]

Okay. I really need to hear very well on the person. But let's say, in the -- regarding the last one, if I understood correctly is, we will look at inorganic growth in the region during this period, correct, Rafael?

[Rafael de la Haza:]

Correct.

[Aurelio Bustilho:]

Yeah.

[Maurizio Bezzeccheri:]

Okay.

[Rafael de la Haza:]

Correct.

[Maurizio Bezzeccheri:]

Let's say, always what we do, we look at all business opportunities that are moving in the four countries. As we have said always in Enel Américas we are observing potential growth in distribution business and of course in, analytics business. And we are monitoring possible inorganic growth opportunity in the region. Yes. We are looking actively. As you remember, the 1.4 times net debt EBITDA will allow us in case there would be a profitable opportunity just to get that to push this opportunity. Of course yes. The first question -- Rafael, can you repeat the first question because, I -- Rafael? The first question...

[Rafael de la Haza:]

Regarding the following the...

[Maurizio Bezzeccheri:]

The trend of collections in the second half 2020 for the quarter in which we operate, regarding collection – yes, regarding the including in collection in the reality for example in Peru, we observed in April a very low collection percentage in the order of 52%. Right now we are in a collection percentage of almost 90%. So in the reality, in Peru we are already recovering a substantial collection. In Brazil as I said before, we will start doing action -- substantial doing action starting from August and with the top in the last three, four months of the year. And we are confident that we will recover substantially collection over there. Regarding Colombia, even though there was an initial increase in losses and for this reason in collection we see that the situation is already stabilized. In Argentina, of course, we will do the usual action in terms of tariff recover collection. So we expect as well in Argentina to recover by the end of the year the 100% the collection met by losses of the pre-COVID period. The second and the third?

[Aurelio Bustilho:]

Let me add you something, because I think Patricia -- thank you for the question, Patricia. You also asked about our strategy in terms of CapEx to improve the digitalization the payments not physical and so on. Yes. We are -- this is an opportunity, because what we are seeing is the timing compressing. And we are accelerating our digitalization process, in terms of CapEx. So we are anticipating our plan in order to improve the remote payments, the remote operation and the safety operation of the grid. In terms of relationship with the regulators, I think, I can say or tell you are regarding Brazil, regarding Peru and Colombia, this is -- this situation is proving that we have very good regulation models, very resilient regulation models. Of course, the solution cannot be the same. As Maurizio was explaining, there are different models. So the solution must be -- must apply to each model. So what we are seeing is that we are having a very mature and very good level of discussions, not only in Brazil but also in Peru and also in Colombia, understanding that everybody's learning with this process, right? We -- as you know, you mentioned also the -- some effects in the media regarding the payments. This is a learning process. We are investing a lot in the social media communication, in order to pass through this period. And leave this period in a better shape, in terms of relationship with our customers. We are very confident in our capabilities and in our strategic plan.

[Maurizio Bezzeccheri:]

Yeah. Let me already Aurelio add something. And thus share the experience of this month, regarding digitalization. As you know, considering the efforts made by Enel in terms of digitalization, you consider that starting from May 2019 we have all our system in cloud. The fact that we have the system in cloud for example this allowed us just to duplicate our control room because it's not more related to physical ARPU. And this allowed us to guarantee the continuity in terms of performance. Regarding the commercial side it was for us a digital trend. When we start just to implement our digital tools because you can imagine that we closed all our commercial offices in all countries. We started just to make a strong promotion of our digital items. And in a country like Argentina where I spent three years of my life, usually the percentage of people paying through digital items was very low. It was a question of trust. But during COVID we have done a lot of induction regarding the digital system and we get a certain moment in time very quickly I have to say in the situation of the pandemic in Argentina possibility of collection. And we got collection through digital media in the order of 70%, 80%. So, a substantial improvement. I think that there will be something that COVID will leave us in the way -- of course, we will run all type of business but as well in terms of contactless safe relationship with our customers. And so right now the only country in which we reopened our commercial office is Peru. Of course we are doing this with a lot of safety attitude but we are taking the opportunity that people are in the queue to continue the diffusion of digitalization a way of think. And we are getting quite good success. So, I think this is a positive let's say lesson during COVID period.

[Rafael de la Haza:]

Thank you. Thank you, Patricia. Let's take two additional questions and the remaining ones will be answered via e-mail. The following one is Alexander Varschavsky from LarrainVial and the question is the following.

[Alexander Varschavsky:]

Do you expect that 2020 lower revenues in Brazil due to lower demand will be fully compensated by higher tariffs in 2021 annual tariff review? Thank you, Alex.

[Maurizio Bezzeccheri:]

Of course this is the mechanism which works the regulation in Brazil. Usually, after one year, they review the level of demand, the level of inflation, the level of tax and they do a revision of the tariff. For example right now that was the time of revision of the tariffs -- the annual revision of the tariffs in São Paulo. By the calculation regarding demand and tax effect and CPI, we were supposed to increase the tariff of 12%. Of course this was not feasible during this period. And we used part of the Conta COVID just to reduce the impact of tariff increase in São Paulo and the 12% of tariff increase in São Paulo now is in the range of 4.2%. So, for this reason I have to say that the ANEEL is a regulator that is supervising the stability of the energy market and they are let's say supervising that the customer can continue to have continuity of the service that will be not strong increase in tariffs as normal. And of course meanwhile the government is putting in place action just for an economic recovery. The same thing has begun in Peru and in Colombia. So, we see even doing a productive dialogue with the regulators and governments. We are getting results in terms of sustainable tariff for end customer and continuity of the service and the Conta COVID in Brazil being made just to avoid the disruption of the value chain in the energy sector. That means the risk that distribution company due to lower demand were not paying the energy that they buy from generator. The contract between generator and distributor is a take-or-pay contract. And this is the reason why Conta COVID recover this gap between demand and energy contracted the famous contracted energy.

[Rafael de la Haza:]

Thank you, Maurizio. And the last question Javier Suarez from Mediobanca. The question is the following.

[Javier Suarez:]

How the guidance tax is going to affect your dividend policy in 2020?

[Aurelio Bustilho:]

Thank you, Javier. We are until now maintaining our dividend policy. Of course we need to see the development in the second half. But until now there's no change in our dividend policy, which is 50% by the way.

[Rafael de la Haza:]

Okay. Well, thank you. As I said before the remaining questions will be completed -- will be answered by the Investor Relations team. We have some other questions. With this question from Javier, we conclude the results conference call for Enel Américas' first half. Let me remind you that the Investor Relations team as usual is available for any doubt that you may have. Thank you for your attention and stay safe.

[Operator:]

Ladies and gentlemen this concludes today's conference call. Thank you for participating. You may now disconnect.