Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Enel Americas SA (NYSE:ENIA)
Q2 2020 Earnings Call
Jul 28, 2020, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to Enel Americas 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 Americas and its management with respect to, among other things, Enel Americas' business plans, Enel Americas' cost reduction plans, trends affecting Enel Americas' 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 Americas 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 Americas' 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 Americas 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 Americas' Head of Investor Relations. Please proceed.

Rafael de la Haza -- Head of Investor Relations

Good afternoon, Gigi. Good afternoon, ladies and gentlemen. Buenas tardes a todos. 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 Americas.

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 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 Americas in slide number 2. Maurizio, the floor is yours.

Maurizio Bezzeccheri -- Chief Executive Officer

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 approved 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 $1,471 million, a reduction of 29% compared to the same period of 2019. In terms of quarter, EBITDA reached $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 $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 $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 decreased 13.6% in the second quarter.

Our company is well prepared to face the financial impacts coming from the pandemic. We currently have $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 we need it.

On the following slide, we will see a summary of COVID-19's 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 US 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 the FX or it will [indecipherable]. It becomes therefore necessary to adjust our guidance accordingly.

Regarding electricity distributed, we had reductions in the four countries where we operate. Comparing first half 2020 with 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 points. Then we have Argentina with 9.2 percentage points, Colombia with 3.8 percentage points 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 measures 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 have 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 Americas 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 put our focus on increasing digitalization efforts. We have redesigned the website of our subsidiary to ease the client experience and to focus on communication and payment channels, such as emails, 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 needs coming from COVID situation. The total amount available for the sector is BRL16.1 billion, with BRL3.2 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 revenue reduction as a consequence of lower 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 an 11-month 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 $1,471 million in the first half and $623 million in the second quarter, a reduction of 29% compared to the first half of the previous year and 46% compared to 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 second quarter 2019, reaching $476 million and $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 would have 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 $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 increased by 5%. Our investments were mainly devoted to maintenance capex and focused in 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 Goias.

Now, let's analyze our main social initiatives during this pandemic. Following with our focus of contributing to the United Nation's sustainability development 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 Americas has helped with more than 350 projects, benefiting more than 940,000 people along the different countries of presence. We are doing our best effort 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 it in this moment with around 100 charitable initiative loans. The areas in which Enel Americas is focusing its activities to support the communities are health and social economic urgencies.

In relation to the first group of activities helped, we have made several donation of basic materials as personal protection elements in short supply for hospitals by providing electricity generators or donation of Enel's own resources to produce fast tests to detect coronavirus, among other initiatives.

In relation to the second group, social economic urgencies, the company has made several donation of basic food baskets to family in situation of social vulnerability. Family kits 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 comment about the financial (Technical Issues). Aurelio, please proceed.

Aurelio Bustilho -- Chief Financial Officer

Thank you, Maurizio. Hi, everybody. If we look at the second quarter, reported EBITDA reached $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 we look at the first half of the year, cumulative EBITDA reached $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 $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 better financial results related to a lower debt in Brazil and lower tax payments.

Funds from operations, FFO, in the first half reached $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 impacted by $52 million.

At net income level, both impacts were $55 million and $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 $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 start 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 past liability effects in Argentina booked in 2019. Generation businesses and retail business had 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 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 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 11.2, 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 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 Sao Paulo, Codensa and Enel Goias. 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 [indecipherable] in Ceara where we suffered a severe rainy season and also suffered that damage on our networks caused by the increase 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 continued 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 microinsurance 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, 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 in 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 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 $54 million. In operational terms, EBITDA increased by 2%. The impact 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, the 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 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 main 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 Sao 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 were $935 million. With all these figures, we get to a net free cash flow of $1,073 million.

After financial receivables for $93 million, extraordinary operation for 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, OK?

Let me now analyze the debt of the company 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 Americas holding level and also in Codensa and Sao Paulo and Enel Peru.

In terms of currency, our debt in US dollars at the holding company increased due to the debt issued in Enel Americas in this period. And on the other hand, our exposure to Brazilian reais made a decrease in this debt in reais, 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 Sao Paulo, better condition to refinance debt in Brazil, Colombia and holding company and lower variable rates observed in Brazil.

Let me show you 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 EBITDA level. However, we remain in a solid 1.4 times 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

[Technical Issues]

Aurelio Bustilho -- Chief Financial Officer

Well, I don't know if Maurizio has some difficulties. I can follow with the presentation. Well, this is live. Just to emphasize 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 of the local currency have suffered with significant devaluation against US 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 FX. For example, 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 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...

Maurizio Bezzeccheri -- Chief Executive Officer

Aurelio, I am back. I am back.

Aurelio Bustilho -- Chief Financial Officer

Okay. Go ahead, Maurizio. Thank you.

Maurizio Bezzeccheri -- Chief Executive Officer

Within the difficult times that we are facing, we are [Technical Issues] and doing our best to help our communities. Results of the period were significantly affected by currency devaluation and COVID. However, a muted 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 US 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 -- Head of Investor Relations

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

Questions and Answers:

Rafael de la Haza -- Head of Investor Relations

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 Jose Prieto [Phonetic] from FINSA. The question is the following one. Can you explain us the distribution Brazil delinquency situation and the company guidance in this matter? Thank you, Jose.

Maurizio Bezzeccheri -- Chief Executive Officer

Okay. Let's see. What we are facing right now, I will define, the delinquency is the situation of our -- the economic 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, 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 banning in such a way we can reestablish the market discipline. So, in the reality, already we are observing an improving in the situation of the demand. And when we start action on banning, we will see as a consequence an improving, a reduction on losses.

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 just to cover the demand decrease and increase in losses. So, as well, we are working with the regulators, not only doing our job, once that it will be possible to be cut for the people that hasn't paid, as well we are negotiating with the government further measures like the one that has been done for financial on the economic side covering demand decrease and increase in losses.

Rafael de la Haza -- Head of Investor Relations

Okay, Maurizio. We have received from Tomas Gonzalez, Scotiabank, three questions. The first one is the following. Main impacts on distribution business. How many quarters could it 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 Americas 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, if we are going to -- 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 the success on its intentions place more visibility on this?

Maurizio Bezzeccheri -- Chief Executive Officer

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 countries, we will restart our banning action 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 the reality, we expect just to reach the budget target in Colombia. So, really, in Colombia, we have not 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 that, for us, it's worth 400,000, 500,000 people over the 1,000,400 people we serve -- or end user 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 installment.

Regarding Argentina, on the other side, we are always -- from the financial point of view, we are working just to compensate the 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 in Argentina [Technical Issues] property has already happened a few months ago with the same team. That is the agriculture -- some 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 concession from Edesur. And of course, we will do our advocacy plan. I suppose you have seen as well the reaction of the economic community to this announcement being made by 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 of 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 concession. We take this in the context of the present critical situation, economic situation of Argentina and that is a normal dynamic [Technical Issues].

Aurelio, I don't know if you want to add some something [Technical Issues] 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 if you [Technical Issues].

Aurelio Bustilho -- Chief Financial Officer

Thank you, Maurizio. Thank you so much for the question. Yes, you answered pretty much it 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 Issues]. 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, OK? 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 [Indecipherable] 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, OK? 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 -- Chief Executive Officer

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 tariff to the end customers. So, even though there is a reduction of demand, we will recover an increasing tariff.

Aurelio Bustilho -- Chief Financial Officer

Exactly.

Rafael de la Haza -- Head of Investor Relations

Well, thank you, Maurizio, Aurelio. We continue to the following question that comes from Banco Santander, Murilo Riccini. Two questions. The first one is, the cash position and balance sheet remain 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 -- Chief Executive Officer

I will reply to the second question. Let's say that, of course, as we are observing worldwide, the COVID is like following rates [Phonetic]. 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 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 all 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 EUR4 billion, for the economic recovery.

In Peru, they are doing the same, and this is the fact that the mining industry is almost at 100% of production. Regarding Colombia, I repeat, we have seen a reduction in demand, but then we have seen a quick recovery of the demand. Consider that on the other side that in Colombia, we have some dry system [Phonetic]. 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 -- Chief Financial Officer

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

Rafael de la Haza -- Head of Investor Relations

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

Aurelio Bustilho -- Chief Financial Officer

Murilo, well, what we are seeing is [Indecipherable] 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 -- Head of Investor Relations

Okay. [Technical Issues] 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 -- Chief Executive Officer

Of course, [Technical Issues]. 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 banning, 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 situation, even though we expect to recover even before the situation.

Rafael de la Haza -- Head of Investor Relations

Thank you, Maurizio. Let's move to Enrico Bartoli from MainFirst. 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 -- our 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 Americas?

The fourth question is, if it is possible to split the guidance variation in Enel Americas of $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 -- Chief Executive Officer

Okay. Regarding the first question, yes, part of the EUR680 million we will receive for Conta COVID, we expect to receive almost $500 million at the end of July in the second installment one, two months later.

July 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 in anticipation of the tariff recovery in the next future paid, as we said, by the end customers.

Third question, new guidance which are the assumption in terms of recovery of demand in the next quarter. As we said, we will -- we expect 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 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 a slower recovery. Then the impact of the impact of tax effect on EBITDA guidance by country, I will leave this reply to Aurelio. That means just give a rounding number regarding the impact of tax on EBITDA.

Regarding 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 -- Chief Financial Officer

Yes. Well, regarding the effects, basically, the main countries were Brazil, OK? As you know, the fluctuation of the reais during the pandemic was very strong, and it was very different to what we consider. We are considering by the year-end around BRL5.1 to BRL5.2 across the year, OK?

Then we have Colombia. As you know, regarding Colombia, it's 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, OK? And the remaining part is Peru and Argentina. But the main part is Brazil, Colombia, then Argentina and Peru.

Rafael de la Haza -- Head of Investor Relations

Well, thank you, Aurelio. Thank you, Maurizio. Let's follow with the following questions. Patricia Perez from Westwood. 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 strategical 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 assets acquisitions. What is the opportunity set at the present? Could we see a potential new acquisitions in the next six to eight months? What is the M&A budget for the next 12 months and what valuations, financial firepower? Those are the questions.

Maurizio Bezzeccheri -- Chief Executive Officer

Okay. I really didn't hear very well all the questions. But let's say, regarding the last one, if I understood correctly is, we will look at inorganic growth in the region during this period. Correct, Rafa?

Rafael de la Haza -- Head of Investor Relations

Correct.

Maurizio Bezzeccheri -- Chief Executive Officer

Okay. Let's say, always, we look at all business opportunities that is moving in the four countries. As we have said always, in Enel Americas, we are observing potential growth in distribution business and, of course, in [Indecipherable] 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 pursue this opportunity. Of course, yes.

The first question -- Rafa, can you repeat the first question because -- Rafa, the first question...

Rafael de la Haza -- Head of Investor Relations

The trend of collections in the second half 2020 for the quarter in which we operate.

Maurizio Bezzeccheri -- Chief Executive Officer

Regarding collection -- yes. Regarding the improving 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 banning action -- substantial banning 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 banning as we recover collection. So, we expect as well in Argentina to recover by the end of the year [Indecipherable] the collection met by losses of the pre-COVID period.

The second and the third...

Aurelio Bustilho -- Chief Financial Officer

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, the safety operation of the grid.

In terms of relationship with the regulators, I think I can say, tell you, regarding Brazil, regarding Peru and Colombia, 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 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?

As you know, you mentioned also 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 -- Chief Executive Officer

Let me, 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 hardware. And this allowed us to guarantee the continuity in terms of performance.

Regarding the commercial side, it was, for us, a real surprise. 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 -- made 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.

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 decision of digitalization a way of paying 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 -- Head of Investor Relations

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

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 Sao Paulo. By the calculation regarding demand and tax effect and CPI, we're 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 Sao Paulo. And the 12% of tariff increase in Sao 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, there 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 same as all the contracted energy.

Rafael de la Haza -- Head of Investor Relations

Thank you, Maurizio. And the last question, Javier Suarez from Mediobanca. The question is the following. How the guidance cap is going to affect your dividend policy in 2020?

Aurelio Bustilho -- Chief Financial Officer

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 -- Head of Investor Relations

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 Americas' 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

[Operator Closing Remarks]

Duration: 93 minutes

Call participants:

Rafael de la Haza -- Head of Investor Relations

Maurizio Bezzeccheri -- Chief Executive Officer

Aurelio Bustilho -- Chief Financial Officer

More ENIA analysis

All earnings call transcripts

AlphaStreet Logo