Enel Américas S.A.
Q4 2020 Earnings Call Transcript

Published: 27 Feb 2021

[Operator:]

Good day, ladies and gentlemen, and welcome to the Enel Américas Full Year 2020 Results Conference Call. My name is Michelle, and I will be your operator for today. Please be advised that today’s conference is being recorded. During this conference call, we may make statements that constitute forward-looking statements within the meaning of the Private Security 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 conditions or results of operations, including market trends in the electricity sector in Chile or elsewhere, supervision and regulations of the electricity sector in Chile or elsewhere and the future effects 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 risk 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, an 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, www.sec.gov. Readers are cautioned not to place undue reliance on 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 developments as a result of which forward-looking statements become inaccurate.

[Rafael de la Haza:]

Thank you very much. Good afternoon, ladies and gentlemen. , and welcome to our full year 2020 results presentation. I’m Rafael de la Haza, Head of Investor Relations of Enel Américas. In the coming slides, Maurizio Bezzeccheri, our CEO; and Aurelio Bustilho, our CFO, will be presenting the many 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. Now, let me hand over the call to Maurizio, who will start by outlining the main highlights of the period in slide number 3.

[Maurizio Bezzeccheri:]

Thank you, Rafael. Good afternoon, everybody. During last quarter, we have continued seeing a recovery in terms of energy demand, while collection in the last months of 2020 was in line with the normal year. Quality indicators have also shown an improvement compared to last quarter. We are optimistic for 2021 and hope we can leave behind most of the negative impacts that we had last year. In this context, EBITDA for the fourth quarter reached $957 million, a decrease of 6.4% compared to fourth quarter of 2019 but 32% higher than the third quarter of this year. The reduction compared to 2019 is mainly explained by the currency devaluation, which had an impact -- a negative impact of $250 million. Without considering FX impact, EBITDA would have increased by 18% in the quarter. Looking at our sustainability commitment. We are the glad that we were included once again in the Sustainability Yearbook of S&P, and we were the only utility to be considered in S&P IPSA ESG title index in Chile. Finally, as you all know, on December, our shareholders approved the merger with Enel Green Power Americas with more than 80% of total votes. At the end of this presentation, we will discuss this operation in more detail. On the following slide, we will see a breakdown of our 2020 EBITDA compared to the one announced as guidance in the past. On our strategic plan of 2019, we announced an EBITDA guidance of $4.7 billion for 2020 and net income of $1.6 billion. At that moment of time, nobody knew what was coming ahead with COVID-19 virus, which, as we all know, have had a deep impact in our lives and our economy. Currencies in Latin America suffered an important devaluation, and lockdowns had a significant impact in energy consumption. Considering an impact of $0.8 billion due to FX and $0.2 billion due to lower demand, on July, we updated the guidance for 2020 EBITDA, announcing $3.7 billion.

[Aurelio Bustilho:]

Thank you, Maurizio. In the fourth quarter, EBITDA reached US$957 million, 6.4% lower than the same period of last year. This is explained by the negative impact of currency devaluation in the 4 countries where we operate, especially in Brazil. Without considering this effect and also isolating the negative impact coming from COVID of US$400 million and the positive impact recorded in this year in connection with Enel Sao Paulo pension fund migration plan of plus US$89 million, EBITDA would have increased by 19.2%. If we look at the full year, cumulative EBITDA reached US$3.2 billion, a 21% decrease compared to last year, mainly explained by the negative effects and also by the positive one-off that we registered in Argentina of $200 million due to Edesur liability resolution. COVID represented a negative impact of $483 million for the full year. Without these effects and the one-off in Enel Sao Paulo as explained before, EBITDA would have increased in the year to 15.6%. On the other hand, group net income in the fourth quarter decreased by 13%, 13.2%, reaching US$339 million. While on a cumulative basis, it decreased by 48.9%, reaching $825 million. In both case, this is mainly explained by a positive one-off effect registered last year in connection with the merger between Enel Sao Paulo and Enel Sudeste related to the purchase of Eletropaulo, which reached $553 million. This was partially offset by a better financial result and lower tax payments during this year.

[Maurizio Bezzeccheri:]

Thank you, Aurelio. On this slide, we can see a pro forma of Enel Américas for 2020, including EGP Américas’ assets. Installed capacity would have been 24% higher, reaching 14.8 gigawatt, of which most of the new capacity comes from Brazil. This includes 0.3 gigawatt of wind capacity from Lagoa dos Ventos in December 2020, which has increased an additional 0.1 gigawatt of solar capacity from SeoGonealo as of February 2021, showcasing the fast delivery of capacity and growth from EGP Americas with close to 0.5 gigawatts since December 2020. Energy sales of EGP Americas assets were 11.1 terawatt hours. If added to Enel Americas, sales would have represented a total of 78.1 terawatt hour, an increase of 17%. In terms of EBITDA, EGP Americas would have represented 10% of our total EBITDA, which is $3.5 billion in a pro forma basis. And renewable sources, including large hydro and nonconventional renewable, contributed with 37% of the total. Finally, regarding CapEx, we can see that 38% of our investments would have come from EGP Americas. This is due to the fact that several plants were under construction during last year. Let’s see in the coming slides what we are foreseeing for the coming years. As we just saw EBITDA for 2020 was $0.4 billion for EGP Americas, and we expect to see significant growth in the coming years as new capacity will enter into operation. We expect to get an EBITDA of $0.8 billion by 2023. This is supported by the solid pipeline that EGP Americas has. Currently, there are 3.6 gigawatt in operation and 4.3 gigawatt in execution and advanced development stage. This, along with the current capacity of Enel Americas, will leave us with a total installed capacity of 19.1 gigawatt. In addition, we have more than 22 gigawatt in long-term pipeline. In terms of the timing for this operation to be concluded, we are waiting for a final administrative step from the Peruvian tax authority, SUNAT. And then we could conclude the merger and register the new share in the Chilean regulator. We expect to have this done during the second quarter of this year. Finally, let me highlight that recently, we have initialized and signed an investment agreement with our partners in Colombia, GEB, which will allow us to integrate non-conventional renewable assets into our perimeter and will put an end to the legal claims that were pending. We are glad that this situation was solved in the best possible way. Of course, it’s, now we will ongoing the relevant approvals, and we expect to finalize this agreement in the first half of this year. Now let me conclude this presentation with some closing remarks. Within the difficult times that we are facing, we are actively working to mitigate any potential impact and doing our best to help our community. This last 2 quarters, we saw a recovery in terms of demand and collection, but we are still suffering the impact of currency devaluation. Despite this difficult environment, we have been able to improve our cash flow in a significant way. Finally, regarding the EGP merger proposal, we are glad that our shareholders approved the operation, and we expect it will be concluded during the second quarter this year. Rafa, the floor is yours.

[Rafael de la Haza:]

Thank you, Maurizio, Aurelio, very clear. I now pass the call to the operator for the Q&A session. Operator, please proceed.

[Operator:]

Our first question comes from the line of Javier Suarez with Mediobanca.

[Javier Suarez:]

I have 3 or 4 questions. The first one is on the Slide number 18, when you are showing the growth expected for the company after integrating the Enel Green Power Americas asset, and the growth is quite significant by 2023. So I was wondering if you can just give us some more granularity on the assumption behind that growth, what is driving that growth? And which is the underlying assumption on ForEx that you are including on those numbers? That would be the first question. Then the second question is on the cash flow statement in one of the slides, I think it’s Slide number 15. This year, we have seen a significant improvement in net working capital as a consequence of the positive impact of Conta COVID in Brazil. So the question here is what you are expecting for that net working capital evolution in 2020 and ‘21. What is a reasonable expectation for that net working capital trend this year? And the third question is on the fourth quarter, the company has some significant improvements. So you can help us to understand the key underlying dynamics that are supporting that growth that we have seen or improvement in the fourth quarter. And do you believe that, that trend should consolidate into 2021 as well?

[Maurizio Bezzeccheri:]

Okay. Let’s see that I reply to your question regarding the growth on Enel Americas after the merging with EGP Americas. Actually, recall during the presentation, we said that we were expecting to have, to complete 2.4, let’s say, adding 5 gigawatt, of which 3.1 are expected to be finalized in 2024. Why? Because they are already under construction. So we are following with the construction phase, and then you will add the other 2.4 gigawatt of project that are already in an advanced stage of development in ‘23, ‘24. So the major implementation comes from this almost 5 gigawatt of project, some, more than half already in construction, and the other will start construction, let’s say, in, this year and in 2022. The project we are phasing for ‘23, ‘24 are mostly project that are fully permitted. And for this reason, we have already committed procurement of the equipment. We expect that this will continue, as we have done, we have seen that it could be built during 2021. Regarding the second, net working capital, I will let Aurelio reply. The third one, regarding the improvement on fourth quarter, let’s say, it’s mostly related to increase of demand. If you do a segmentation of the energy demand, you can just reconcile three major categories that are the residential customer and the commercial customer, commercial activity and the industrial customer. If you see the evolution in 2020, you can observe an increase. Of course, the pandemic, staying home, increased the demand, the energy demand of the residential customers. And this is a trend that still continued in, for example, in January 2021. Regarding the industrial customer, we observed a drop, a tremendous drop in April, that was the first month of full impact of COVID. But after that, we see a continuous increase in industrial demand. And if you consider that, for example, the price of some commodities going up, you can expect an increase as well of energy consumption in the industrial customer, for example, the mining industry in Peru. The only sector that are suffering the condition of the COVID, of course, is the commercial sector, supermarket, small shops, et cetera. And if you look at the January, we’re still observing this segment of customer a recovery, but a slower recovery compared with the residential customer and industrial customer that now we are, for both category, last two categories, we are in the projected energy demand recovery, let me say, with an improvement in the residential customer. Then I will let Aurelio to reply to your question regarding net working capital evolution.

[Aurelio Bustilho:]

Javier, yes, exactly, the Conta COVID was important financial support of $600 million in Brazil, as you all know, although we are still discussing the economic recognition of part of decreasing of this amount in our EBITDA. The discussion is still going on. It’s still moving. But the good thing is that the first need was the financial, and it was done in 2020. If we consider, Javier, let’s see, our FFO conversion, our net working capital compared to EBITDA, we are talking more or less about 25% of EBITDA, right, in terms of -- just for you to have an idea, of course, $94 million is the number with this one-off with the Conta COVID. But if I consider this level, normal level is more or less 25% of our EBITDA, the working capital over the EBITDA. What could, let’s say, affect this situation? We have some positive issues in the countries. Probably, we’ll have more compensation regarding Conta COVID, which is another one-off. But on the other hand, as you know, we see higher prices in the spot price, especially in Brazil. We may have some effect. But again, this is something that we recover in the following year with the interest rates and without causing much problem. But we are talking about, more or less, for you to have an idea, to $400 million to $500 million of net working capital, I mean, with all this effect. Of course, we need to -- I’m talking about the Enel Américas stand-alone because we do not have the consolidated company yet. We need to -- as Maurizio has explained in the calendar of merger. But in general terms, it is more or less around this.

[Operator:]

And our next question comes from the line of Andrew McCarthy with CrediCorp.

[Andrew McCarthy:]

I have 3 questions. The first one, thanks to the update on the merger and the timing. I was wondering if you could also update us, therefore, on the likely timing of the offer that would come from Enel to the minority shareholders. Would that effectively come after the close of the merger? And if so, if you could give a bit more of an idea of the timing there? And the second question is regarding the integration of EGP Américas into Emgesa. I was wondering if you could provide some more color about what that more specifically would mean and what mechanisms you might be looking out there to achieve that. And then my third question, just following on from Javier’s question on the fourth quarter results. We saw that the Brazilian generation business seemed to perform particularly well. I was wondering if you could maybe provide some more color specifically there as to what went well and how sort of sustainable that is going forward.

[Maurizio Bezzeccheri:]

Okay. Regarding the Enel offer, you need really to ask Enel when they want to launch the offer. But let me say talking about, let’s say, rationality, of course, I suppose that Enel will launch the offer. We will be sure, let me say, regarding the condition precedent. The first condition precedent is right of refusal that was already overcome. Now there is the SUNAT, as we said before. Just to give you a flavor, we are working just to get this finalized in the first half of March. If everything will go well, we expect that the full condition precedent for the merging would be satisfied on this date. Starting from this date, I -- and of course, we will communicate to the market this through hecho esencial, as we did with the right of refusal, and of course, starting from this date, I expect that Enel can launch the offer. Regarding Enel EGP Américas and Emgesa, if you recall, during the process of merging EGP Américas with Enel Américas, of course, we were not authorized, just to mention, anything regarding this agreement. In the reality, we started to work with the new management of GEB, that means July, August last year. We were, of course, under confidentiality. We started to work. We redefined what is the AMI, the acuerdo marco de inversión, that is the bylaws of the company that are bylaws related or have been defined in the 1970s, something like that, ‘80s. And for this reason, we revised, we established the -- some point that was not update with the condition of the market. And of course, the question related to the renewable into the matrix was there and the perspective of -- to speed up the growth in Colombia. And of course, we have finalized this new agreement that needs to go, of course, through further step that depends, of course, as well because we need to present this to the arbitration tribunal, because if you recall that the judgment on Enel Americas versus GEB is ongoing. So once this would be finalized, of course, we are facing or we are looking at the possibility to have an entity that will include all the business, as we have done in EGP, in Enel Americas, let’s say, with the same type of process. This means a merge, a corporation by a merge, with the same process we have done in Enel Americas. So the precedent would be the same, of course, needs to be -- define an exchange ratio valuation for Enel Americas is already there because, let’s say, the same process we have done for the definition of the exchange rate between shares of EGP Americas and Enel Americas. So the process will start once that we will do the full clearance with the Superintendencia. And of course, we will proceed in a shareholder meeting that we hope to held in the first half of this year, in such a way that we can start the new process. Results of this new, let’s say, driver for the group is the fact that we won a tender for electric buses in Bogota. Not only we won the electric buses tender for 401 electric bus, we won as well the station for the charger of the buses. There are some new efforts and plans regarding the digitalization of the city of Bogota. So all type of activities that have been frozen due to this situation now see a new possibility just to go ahead and build up new opportunity for the people in Bogota. Regarding the fourth quarter, I will let Aurelio -- just to tell you that we expect that, yes, because if you consider that we will have, once again, in 2021, we expect that we’ll continue to grow the demand in the segment of residential. But mostly, we are expecting a substantial growth in free market. The free market means the big energy consumption industries like mining industry and those kinds of -- in Peru, I am thinking Peru. But as well in Brazil, we will observe an increase. So just to reply -- first quick reply regarding is it sustainable in time, the generation and the consumption, we believe that, yes, especially for the growth in residential and in free market. Because the process of free market, as you know, from the regulation point of view, Peru, there are proposal in the Congress regarding pushing the free market, reducing the threshold to enter in the market. Brazil is continuing its growth, and we expect a growth of free market as well in Colombia. But Aurelio, please, if you want to add something.

[Aurelio Bustilho:]

Sure, Maurizio. Just to add, Andrew, thank you for your question. Let me remind you that in the fourth quarter, we registered $70 million in Cachoeira due to the solution of the GSF issue related in Brazil, right? So there were some sort of one-offs, positive one-offs. But as Maurizio said, even if I remove all these one-offs, the fourth quarter was clearly the best quarter that we had in last year, right, over the recovery in the pandemic. We are confident that this trend will follow this trend. We are seeing this improvement in the first months of the year. But again, just to let you know that we had some one-offs here in the fourth quarter. But if we remove all these one-offs, it was, we had an increase, well, even in the, with the effects, we had an improvement in the fourth quarter, significantly especially due to the recovery of the demand. If we consider the fourth quarter, we are talking about reaching 16% higher without all this effect, which is, shows, again, the best recovery. Again, when I talk about one-off, remember, the GSF for $70 million in Cachoeira Dourada, the $90 million of the pension fund migration, remember that we are advancing in the migration from defined contribution, from defined benefit to defined contribution. So we are advanced. So we could appoint this positive impact. Also in 2019, we have a positive impact of Argentina of US$200 million. But removing all this effect, we had an increase of the 16%, which is mainly explained by the demand, right? And as Maurizio said, with this free market strategy, incorporating new technology in our portfolio, we will be pretty much or much more competitive in this front, that we will have probably a huge increase in the following years.

[Operator:]

Our next question comes from the line of Enrico Bartoli with Stifel.

[Enrico Bartoli:]

The first one is related to Slide 4. If you can provide us some details on the additional $0.3 billion impact that you had in the second half compared to your previous guidance. I understand that partly is due to the, of course, the evolution of demand. But if there are additional factors that contributed to it. And regarding the right-hand side of the slide, this the minus $2.5 billion total impact in 2020 from COVID, would you expect that could be reasonably recovered in 2021? A second question is related to the -- again, to the outlook for ‘21. So I understand that you expect that the trend in recovery in demand that you experienced in the fourth quarter will continue mainly on residential and industrial customers. If there are other factors that you expect to drive the performance over 2021? And if you have any kind of guidance that you can share with us? And the last one is related to the -- this migration of the pension fund into Enel Sao Paulo. I understand that there was a positive one-off in Q4, but if you can share with us the possible -- positive impact from this migration that can be structural from the EBITDA contribution from Enel Sao Paulo starting ‘21.

[Maurizio Bezzeccheri:]

Okay. You’re welcome. Let me just give you the first flavor, and then I will let Aurelio just to reply to the numbers. Regarding the second one, 2021 drivers, as we said, we see just a sustainable and continuous demand growth that will sustain the growth in this sector. But let’s say -- let’s recall, why -- what is the COVID impact? The COVID impact, if you separate from FX, is essentially two driver. On one side, you have the demand that we are observing in the first month of 2021. And the second month, we see that our projection internal budget is there. What is the second effect? You will observe, for example, in Brazil, a redefinition of tariffs related to the inflation. Of course, here, the last declaration was that President Bolsonaro, a tremendous impact on the market. But looking from our side, we see that, of course, you will get an increase in tariffs. So you not only have volume effect but as well a price effect, and the majority of this increase will be absorbed through different mechanisms so if I have to say just an estimation, if the average increase of tariffs is up 13%, we expect that 4%, 5% of this increase will be absorbed through funds coming from the government. So we will get at the end a 7%, 8% of increase in tariffs. What is the impact? The other impact, for example, let’s see, is the impact on bad debt, okay? One of the major effect that we observed, due to the fact that we were unable, for a reason, asked from the authority to avoid damning -- let me quote this, the news, that this would be in the perspective of bad debt increase. But due to the fact that we are phasing, now we are -- we can do our cut and reconnection activity with the exclusion of Argentina and -- exclusion of Argentina, mostly, Argentina, let’s say, in the perimeter of Enel Américas and in the Rio -- in the city of Rio. But in the rest of the countries, the area, we can do, we can do cut and reconnect. So we are expecting to keep under control the bad debt, the evolution of the debt, the evolution, in general, impacting, of course, on the net income. So we see, in terms of summarizing, in terms of volume, a recovery, almost total recovery of the demand, we see some price increase due to our actualization of the tariff with inflation in the biggest market that we have, that is Brazil. And we consider the other impact of COVID. That is bad debt can be kept under control. Regarding the last one, the migration of the pension fund, in the reality, just to be -- as we are transparent with the market, we plan to have a migration of 60% of the people that were under the condition of that defined benefit. And we had a migration of 20%, only 20%. So of course, we need now to reconsider what will be our function regarding the sustainability of this pension fund. So we will take action in this direction. So we expect that the topic of pension fund would be a topic as well of 2021 and 2022, just to be clear. And so we can expect that we solve definitely the issues in 2022. More or less, this is the inflows. I don’t know -- Aurelio, I don’t know if you want just to add specifically regarding Chart 4 and et cetera.

[Aurelio Bustilho:]

That’s perfect. Thank you, Enrico. As Maurizio said, beginning to the final question, of course, the pandemic was, let’s say, a barrier for our implementation plan, right? But we are waiting for the final, let’s say, the final figures and approval from the regulatory authorities right now to close the, let’s say, the final position of the plan, as Maurizio said, 20% migrated. But we will analyze and see the next steps, what we’ll do in order to follow and to keep on mitigating this plan because that’s our objective, and we’ll pursue this situation. In terms of -- related to your question regarding the impacts, especially in Brazil in the fourth quarter, again, the issue here is that we recognized $70 million in -- as the GSF for the extension of the concession of Cachoeira Dourada, right, from one side. And from the other side is the pension fund effect because when we migrate and we eliminate, let’s say, the present value of this plan, because you have certainty for the people that migrates to the defined contribution, so this impact, of course, is positive regarding the difference of discount rates. So we got $90 million. So Brazil, with both, let’s say, one-off or these impacts were $70 million from Cachoeira and $90 million from São Paulo, which is $160 million positive. Again, if we can improve the pension fund, and we’ll pursue this in ‘21 or ‘22, of course, we’ll defer and have more, let’s say, positive effect. But the main issue here is the risk, is mitigated risk, okay? I don’t know if there is another issue, I think, Enrico. I -- we answered all your points. So please feel free.

[Enrico Bartoli:]

Yes. I know it’s very, very clear. Just -- sorry, on the guidance, you can spend some number for ‘21 or it’s too early to do it?

[Aurelio Bustilho:]

Yes. No. Of course, so as I was explaining, we are, of course, expecting the formal merger to be concluded. But I can give you an idea of -- we are expecting something around the $4 billion, $4.2 billion of EBITDA, considering the $500 million expected for EGP. But again, it’s -- I cannot say that it’s a guidance. We need to see the, let’s say, the final position and merger. Because as you know, formally, the company consolidates only the proportional part of EGP of the year. If -- it will not have the full year consolidated. But as soon as we can approve the merger, the most we can consolidate from EGP Américas’ result. But this is more or less the figure that we are expecting.

[Operator:]

And our next question comes from the line of Elchin Mammadov with Bloomberg Intelligence. Your line is open. Please go ahead.

[Elchin Mammadov:]

Hi, there. A very quick question on the -- on your CapEx. The customers represented about 20% of 2020 CapEx. This seems a bit of a high number, at least to me. Can you give a bit more color on what that was spent on? And the other question, it was not more of a question but a comment. Every single quarter, there is a ForEx headwind that you are having. Do you regret switching to U.S. dollar reporting from Chilean peso or not? Because your underlying business, I mean, excluding COVID, is growing pretty nicely, and there’s all this growth opportunity. But the headline figures are showing the negative trends. So just wanted to hear your thoughts on that. And the last question is on Enel X. Can you give us a bit more color on, again, what do you expect going forward? You mentioned some projects in Bogota and whatnot. Is there anything beyond that? Thanks a lot.

[Maurizio Bezzeccheri:]

I will take the last part just to say that, yes, and that this is not a project. It’s a tender that we won. So for this reason, the 401 buses, electric buses is already something that we are building on. In the reality, we are delivering as well the charging station of a previous tender on electric buses in Bogota. Regarding Enel X, it’s continuing its growth and offering of financial services. For example, we got the authorization from the authority that recognize the joint venture between Emgesa, Enel Colombia and Scotiabank. And this will -- means that this joint venture structure, we will continue to grow the business of credit card. We have already 800,000 credit cards in Bogota, and we will continue to grow in this direction. So the financial services is continuing to grow. If then you consider Enel X platform business, through this platform, we are continuing to sell linked services regarding insurance, for example. That was a sector that was a little bit impacted by COVID, but we will continue in the reality. We expect that will continue to grow. We are continuing regarding the evolution of services for building. So the e-Home business is there. The e-Mobility is not just e-Mobility regarding electric buses because in Brazil, we signed an agreement with Volvo for 700 charging point. And we signed an agreement with a bigger parking area owner in Brazil just to start to put our charging point in the parking in Brazil. So the business of Enel X, even though, for the time being, is a business with a lower impact on EBITDA, is continuing to grow, is continuing to push through our strategy. What is our strategy? In the reality, we will not sell the commodity electricity. We want to sell the customer service. We want to sell service, and Enel X will be a key element for our strategy in offering full service at our customers. So the integration of the market unit, the possibility just through intelligence with Enel X and our energy management that sell to the industrial customer, is building up opportunity for growth in this customer service. For example, in some country, we are selling mobility, electric mobility, to some mining industry. But then the buses can be utilized as a battery on wheel in peak hours for the mining industry. So there is a world of new offer of services to our customers. So the business of Enel X is there. The project of buses is not a project. It’s a tender won. We will start to deliver the electric buses. And regarding the CapEx, I will let Aurelio reply what means 20% of CapEx in customers. Aurelio?

[Aurelio Bustilho:]

Well, thank you for your question. One thing that’s very, very important here, we, net of FX, we increased the CapEx at 8% compared to last year. And the major part of this was in distribution business, okay, networking, networks business. Why is that? Despite the pandemic, we maintained our CapEx deployment because it’s very important that you keep the lights on in other to keep the people without problems, in order to connect that, as we said, we connected 400 new clients during this year. So not invest, stop investing and not connect, it implies in worse quality, penalty fees. But more than that, we want to improve, of course, the trust and reliability of the grid and our relationship with the customers. So that’s why we improve it, and we keep on investing, reinforcing the maintenance, the grids, the, increasing our customer base, connecting more people and in asset development, which is improving the remote operation of the grid and so on. So it’s a mix between these categories. But again, the main message here is that we invested more, 8% without FX compared to last year, in order to prioritize the quality, prioritize the customers.

[Maurizio Bezzeccheri:]

Yes. Let me add something. Looking at the chart, you see 20%, and you can consider this a little bit excessive. But, of course, it’s a question of taxonomy. We include in these customers. For example, in this customer investment are included the smart meter. As you know, we got green light to install 300,000 smart meter in Sao Paulo. And this investment comes into customers. So in customer, we consider investment like the smart meter. I think Aurelio, it’s worthwhile just to define what category comes under asset management, asset development and customers.

[Aurelio Bustilho:]

Exactly. Yes, we have this big deployment in terms of smart meter, which will give us more and more the possibility of improvement and efficiency there in the grid. So, but the main message is this

[Operator:]

And our next question comes from the line of Charles Fishman with Morningstar.

[Charles Fishman:]

First, just to follow on that question on the debt. We had a significant slide in your cost of debt last year. I guess my first question would be, is there any more opportunity to drive that even down lower after the merger from, what, 4.9% at the end of the year? And I guess, my next question would be, on the merger, you show 26 gigawatts of development pipeline. I know at the time of the merger, you made a presentation, and the majority of that was in Brazil. Now that you’re further along, is -- do you think in the future, that’s where the development opportunities are going to be with respect -- following the merger? And is it more solar, more wind, more hydro? If you could give a little more color on the future of that development pipeline, that would be helpful.

[Maurizio Bezzeccheri:]

Okay. I will reply to the second one, and I will let, regarding the debt, to reply -- Aurelio to reply. Regarding the driver of renewable growth, of course, the merger is not the driver. The driver is the growth of renewable energy. As we said during the -- not during, but the show]we did for the merge, we explained why it was -- how the rationale of renewable energy. The rationale of renewable energy is to have competitive energy. And having competitive energy, you can catch more share of free market that is building on in Brazil, like, for example, outside with Enel Chile in Chile. That is growing as well and will grow as well in Peru. So renewable is one of the key asset that will allow you to face the liberalization of the market with a competitive and quality offer to the customers. So this is the real driver of renewable energy. Then correctly, you mentioned that 22 gigawatt pipeline is mostly is in Brazil, but we see as well a quite good growth in Colombia as well. And we expect that once you will get a more liberalized cost and discussion regarding the increase of the cost of the gas in Peru, as well, Peru will keep growth in renewable energy. So the renewable, the only driver of renewable energy is the driver that always was there, offering a competitive energy in terms of price. And then, of course, there are the environmental impacts like decarbonization and better consideration from the financial market, but the driver is there. So we expect that this trend will continue to grow not only in Latin America but, in general, in the world, as is demonstrated by the numbers. All the years that we do a projection, in terms of growth of future renewable plan, we are wrong. We commit -- we always make a mistake in terms of short-term prediction because the reality goes up. Because as well, you will observe the other phenomenon of electrification. We are mentioning the electric mobility. The electric mobility will imply, of course, additional consumption of electricity with the needs to make more resilient network. This is the reason why we do investments in digitalization of the grid. What we are doing right now moves in an overall vision of future development of the market. So, the reply to your question, will it continue to grow? Yes. Only Brazil? No, Brazil will be an important chunk of this development, but as well as Colombia and Peru, we believe, will continue to offer opportunity. And please, we have to keep in mind that in the merging of EGP Américas, we will get as well the asset in Central America. So starting from the final decision of the merger, Enel Américas will open up to another geographical area that is represented by Central America. As you can imagine, for example, the perspective, the strategic perspective, in the case, will be finalized with the interconnection between Colombia and Central America. So we are doing each moves in this general strategic perspective. And I will let Aurelio just to talk about the cost of debt, the other question. Please, Aurelio, the floor is yours.

[Aurelio Bustilho:]

Sure, Maurizio. Thank you, Charles, for your question. Yes, we -- of course, we had a decrease in the interest rates during last year. It was in all our countries, almost all countries. And this is related or indexed at local interest rates. We had this reduction. Naturally, we reduced the debt. But not only this, there was a -- we got a very good -- since we entered in 2020, we’ve had a good financial position. We’ve got a very, very interesting refinancing possibilities in order to reduce from the 7.1% in average, from the 7.1% to 4.9% in 2010. If you -- of course, also, I mean, very good position because, as you know, we got the -- we did the capital increase in 2019. So it was, let’s say, a very good position to enter in the pandemic without knowing that we would enter this -- or nobody knows that we would enter in this situation. But -- so it helped us. If you asked me in 2021, what will move -- what direction it will take, of course, in our vision, the inflation pressure will force some countries -- or I think almost all the countries to increase the reference of interest rate. It is something that -- it is a consensus. But on the other hand, we see lots of liquidity in the market, especially for companies in a better situation in order to do very interesting, very good liability management and reduce the cost. For example, to have an idea, this 4.9%, of course, is the all-in cost with the local rates, with more the margin from the banks. If I consider an approximation of this number, by 2021, we’ll reach around 4%, 4.1%, okay, which means that even with the increase in the reference interest rate, we will get a very good opportunity to reduce the all-in costs, doing liability management efficiencies like in our debt and financial structure. And also, with this initiative that we are moving forward, which is optimizing the different flows between countries and Enel X, it’s not a huge effect. But this also helped us to better optimize not only financially but also in tax purposes, the debts in the countries. So end of the -- just in a nutshell, an increase in interest rates but a better shape to do liability management will end up to a reduction to the all-in costs from the 4.9% to 4%, 4.1%, more or less. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Murilo Riccini with Banco Santander. Your line is open. Please go ahead.

[Murilo Riccini:]

This is Murilo Riccini from Santander. Thanks for the call. Actually, I have two questions. Sorry if you have already answered some of them. Regarding the agreement with Grupo Energ’a de Bogota, should we expect the new renewable projects being consolidated into Emgesa subsidiary? Or should we expect any significant change in the corporate structure in Colombia, meaning in terms of sharing the ownership of the future projects? My second question, is there any news about the purchase of minority stake in Enel Ceara or any other minority stake purchase events that you could share with us? And my last question is with regards to the last news to come from Brazil and specifically with Electrobras. How do you see energy prices evolution in Brazil in the free market? And do you expect more downward pressure in terms of price?

[Maurizio Bezzeccheri:]

Okay. Regarding GEB, of course, we are -- as I told before, we expect this just to create an entity that will have the -- all the businesses inside like Enel Americas. And we said as well that the process that we are phasing to incorporate renewable is more or less the same process that we are following for Enel Americas. That means a merge, okay? That, and this reply to your first question. Regarding minority share of Ceara, as we already always say is, we see, we are observing always this type of opportunity. You remember that we say that all the times we are observing what is moving in distribution company, in free market and in the possibility of buyback of minority shareholders. In the case of Ceara, as you know, there was some limits related to the pledge of the share of Electrobras. And on the other hand, there are some limits, regulatory limits, let me say, from the company loans in Brazil. You know that in the case of Ceara, you have normal share. You have then, the last time, Class B shares. You need just to collect a defined number just to go ahead. Otherwise, you need to launch . So we are keeping under observation the evolution, of course, as well in Ceara, just to look at what are the conditions. There are some, I repeat you, there are some limits that comes from the previous operation. But to reply, I think, to your question is, yes, we are observing Ceara, too, as we are observing other opportunity, if this will materialize for economic condition. For regulatory condition, we will analyze deeply this opportunity. Regarding Electrobras, as you know that if one of the rules in the privatization of Electrobras is just to let free Electrobras to sell the hydro generation that right now is compensated at cost in market condition. And of course, this will make energy available in the market. And here, you can observe 2 phenomena. On one side, you see a price reduction. On the other side, you will observe a further speed up of the free market group. In both cases, we need to keep in mind that the end customer, if residential, commercial or industrial, they want to pay the minimum possible, the commodities. And they want to have a service of quality. And this is exactly what we are clear in mind. The, why? Because we have this in mind, we are observing in the old world that means in Europe, we are already observing this phenomenon since many years. And this know-how has allowed us just to anticipate what will be the trend. I think in this utility market, in this energy market in Latin America, we arrived later compared with Europe, for example, in the use of renewable energy. But once this have been settled, the process is growing in a dramatic way. And the same stuff will be for the free market. What we will observe as well, a pressure on the price in the market. The Electrobras is one of the accelerator. Maybe for this trend that is already there, something comes just to accelerate the process. The only thing that’s important, you will be ready to catch the opportunity. And exactly, due to the fact that we have this knowledge or previous knowledge, we are already working since, here in preparing to be ready when as well, in Latin America, free market will be there. And there would be a pressure on price. As Aurelio, for example, we observed that it is happening, for example, in the Chilean market. And this is the reason why we want to move from a simple commodity sales to a suite of services. Aurelio, I don’t know if you want to add something to...

[Aurelio Bustilho:]

No. I think it’s perfectly well, and there’s no major issues to add. Thank you, Murilo.

[Murilo Riccini:]

So just a follow-up. So yes, I understood. Yes, there were some events in order to increase the stake in Enel Ceará, is that right?

[Maurizio Bezzeccheri:]

We are observing a possibility. We are analyzing always continuously this type of opportunity, among others, Ceara. We are observing. We are analyzing, yes.

[Operator:]

And our next question comes from the line of Yev Neginsky with Springdale Capital.

[Yev Neginsky:]

I have a quick clarification question. Can you remind us, please, how much cash and debt EGP Américas will have at the merger?

[Maurizio Bezzeccheri:]

Regarding that, we said more or less $1 billion. Regarding cash, I will let Aurelio just to reply in more detail, yes. So Enel Americas will come to us with very, very little debt.

[Aurelio Bustilho:]

Exactly. Yes, thank you for the question. Exactly, what we are seeing in the company, and this was considered in the process of defining the valuation and everything, Enel EGP Americas has already capitalized the following, the next investment. So the company will come with a net debt, $1 billion cash, okay? $1 billion cash, less the investments that they are -- of course, they are -- Maurizio was explaining, that their plan is moving forward, they put in function assets in Brazil during February, right, in February and, of course, this CapEx, this $1 billion being used. But anyway, the debts, there will be no debt. There will be a lower cash, depending on the usage of this cash during this project. But we are talking about $1 billion less the CapEx, which means that we are talking about around $600 million, $500 million positive of cash, okay? So because they are advancing in the COD, especially in the project in Brazil and also in Colombia, Colombia is also advancing in these projects, okay? But that’s the idea. I don’t know if it was clear for you, Yev.

[Operator:]

And I’m showing no further questions at this time. And I would like to turn the conference back over to Rafael de la Haza with -- for any further remarks.

[Rafael de la Haza:]

Well, as there are no further questions, we conclude this conference, the results conference call for 2020. And let me remind you that as usual, the Investor Relations team will be available for any doubt that you may have. Thank you, and stay safe.

[Maurizio Bezzeccheri:]

Bye.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.