Enel Americas SA (ENIA) Q1 2021 Earnings Call Transcript

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Enel Americas SA (ENIA)
Q1 2021 Earnings Call
May 3, 2021, 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 Quarter 2021 Results Conference Call. My name is Celine and I will be your operator for today. [Operator Instructions] During this conference call, we may make statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements could include statements regarding the intent, belief, or our current expectations of Enel Americas and its management with respect to, among other things, Enel Americas' business plan, Enel Americas' cost-reduction plans, trends affecting Enel Americas' financial condition, our results of operations including market trends in the electricity sector in Chile or elsewhere, supervision and regulation of the electricity sector in Chile or elsewhere, and the future effect of any changes in the laws and regulations applicable to Enel Americas or its affiliates.

Such forward-looking statements reflect only our current expectations are not guarantee of future performance and involve risks and uncertainties. Actual results may differ materially from those anticipated in the forward-looking statements as a result of various factors. These factors includes 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 describing Enel Americas' Annual Report on the Form 20-F, including under risk factors. You may access our 20-F on the SEC website, www.sec.gov. Readers are cautioned not to place undue reliance on those forward-looking statements, which speaks 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

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

Now, let me hand over the call to Aurelio, who will start by outlining the main highlights of the period in the slide number 2. Please, Aurelio?

Aurelio Bustilho -- Chief Financial Officer

Thank you, Rafael. Good afternoon, everybody. During the first quarter of 2021 we have seen a recovery in terms of energy sales and distribution business in Brazil. I would like to remind you that on the first quarter of 2020, only March was impacted by COVID, while on the first quarter of 2021, it affected the full quarter. At the same time, was -- we have seen the type of adjustment had been positive for us and are really pleased that it starts by 6.02% on average in March and Enel Ceara increased 8.95% on average a few days ago just affecting April onwards in case of Ceara. In terms of EBITDA we had reduction of 12.7% but most of this decrease is explained by currency devaluation.

Without considering the effect, our EBITDA decreased by 3.3% mainly explained by lower results in the generation business. We also want to highlight that our consolidated revenues were in line with last year, the positive sign of recovery from the effects of COVID on our results. At the same time, we were able to improve our FFO mainly due to lower net working capital and lower financial expense. As you all know, last week we had our annual shareholders meeting and we are glad to see that we are moving ahead in terms of gender equality as two women were appointed as Directors of the company. During the period, we had an upgrade on our credit rates from Telerate, which consider that the merger with EGP Americas is a credit positive and will strengthen our business profile, the risk of our operations and give us higher growth capacity.

In this sense, the merger approved by our shareholders meeting in December was finally completed on April the 1st and the tender offer concluded on April 13 leaving our controller shareholders with an 82.3% ownership. Now, we are looking forward to all the challenges and opportunities that will have in this new space, starting the consolidation of EGP Americas from the quarter two -- the second quarter of 2021. Let's move to the following slide to see the evolution of currencies, demand and collection. Local currencies suffered significant devaluation against U.S. dollars during this quarter except for Colombian peso. Argentinean peso decreased 43% while Brazilian reals and Peruvian sol dropped by 23% and 8% respectively.

Regarding electricity distributed, we are glad to see a recovery in Brazil which increased by 1%. On the other hand, Argentina decreased by 6% while Colombia and Peru slightly decreased by 1%. Finally, in terms of collection, we have an important recovery in Peru, increased 10.1 percentage points and is lower recovery in Colombia with 1.1 percentage points. On the other hand, Brazil likely decreased by 0.7 percentage points and Argentina dropped by 4.9 percentage points. Now, let's have a look at our investments for the period in the next slide. During the first three months of this year, our capex decreased by 2.7% compared to the same period to last -- of last year reaching $291 million.

This includes a negative impact coming from currency devaluation of minus $52 million. Without this effect, capex would have increased by 15% showing our strong commitment with the countries in which we are present. Our investments were mainly devoted to maintenance capex and focus in distribution business, looking to improve service quality. From a geographical point of view, 54% of investments in this quarter were made on our subsidiaries in Brazil, from which most part came from distribution business. Finally, it's worth to highlight that almost 95% of our capex is SDG-related, confirm our focus in ESG. Now let us analyze our operating highlights on the following slides. Generation business, our installed capacity remain at the same as last year at 11.3 gigawatts from which 55% is hydro.

Net production in the first quarter reached 9.7 terawatt hours, a reduction of 9% compared to the same period as last year, explained by lower generation in Brazil, Argentina and Colombia. Our Generation sales decreased by 4% in the quarter, reaching 14.2 terawatt hours explained by reductions in Argentina, Brazil and Colombia, mostly affected by lower demand due to the pandemic. Now, let's analyze Network business in slide 6. Electricity distributed reached 30.1 terawatt hours in this period, the same level as this -- as in the same period last year. Regarding number of customers, we have an organic increase of around 360,000, mainly explained by an increase in Enel Sao Paulo, Enel Goias, and Codensa in Colombia.

In terms of quality indicators, SAIDI and SAIF improved or remain in flux in other countries except for SAIDI Brazil, mainly due to weather conditions in Sao Paulo. On the other hand, energy losses increased in the four countries as a consequence of the economic situation in the region due to COVID. On next slide we'll see Enel X and retail businesses. Enel X business, we had a solid growth in charging points, portable bike fannings and portable lightning. While the credit card business stayed in line with last year. This performance shows the strategic relevance of Enel X in the energy transition in Latin America. On the other hand, microinsurance decreased by 29% as a consequence of a decrease in door-to-door campaigns due to the COVID pandemic.

Regarding retail business, the number of delivery points increased by 28%, reaching 3,963 and the energy sold amounted to 5 terabyte hours, which means a 26% increase. Let's now have a look at our ESG highlights in the coming slides. Following our focus of contributed with the United Nations and sustainability developing and goals, we have been supporting our community with different projects, which in total had a positive impact in more than 6.7 million people. The recently completed merger with EGP Americas puts our company in an excellent position to lead energy transition and contribute to reducing our CO2 emissions, which is a focus in our strategy.

It is also perceived as a positive step for credit agencies, which is reflected in there [Indecipherable] given by Feller Rate some weeks ago. Finally, as mentioned before we did an important step in terms of gender equality as we now have two women as part of our board of directions voted by our shareholders in our recent -- in the recent general shareholders meeting. Now, let me comment about the financial results for the period starting from slide number 9. EBITDA reached $741 million, 12.7% lower than the same period last year. This is mainly explained by the negative impact of currency devaluation in the four counties where we operated, especially Brazil and to a lower result in Generation business due to a lower sales in Brazil and Argentina.

Without considering FX effect, EBITDA would have decreased by 2.3%. Group net income decreased by 11.8%, reached $183 million. This is mainly explained by the lower EBITDA above mentioned partially offset by better financial results. Without considering the negative impact from FX, net income would have decreased by 1.8%. Funds from Operation, FFO, in the period reached $186 million, an increase of 46.6% compared to the same period of last year, while net debt increased by 2% reaching $4.5 billion. We will analyze the [Indecipherable] cash flow and debt later in this presentation. On the coming slide, we'll see EBITDA evolution and its breakdown.

Starting from $848 million of EBITDA of the first quarter of 2020, we see that like driver represents the main explanation for EBITDA reduction with a decrease of $38 million. Thermal generation and networks businesses slightly decreased while Retail and Enel X showed a better results, reaching a total EBITDA excluding FX impact of $824 million, which is 3% compared to the first quarter of 2020. Currency devaluation had a negative impact of $79 million. Consider this plus that other impacts, we get to final EBITDA of $741 million, 13% lower than the same period of last year. On a currency basis, we see that the main contributor for the consolidated EBITDA was Colombia with 43% while Brazil represents 36% to 80%; and Argentina, 3%.

Let's have a focus on generation and networks businesses on slides 11 and 12. EBITDA generation business decreased by 16%, mainly explained by lower results in Argentina and Brazil. In Argentina, we had lower generation, mainly in Costanera, as a consequence of lower demand. We were also affected by lower prices and higher costs due to inflation. In the case of Brazil, we had a lower hydro generation and lower energy sales mainly in Cachoeira Dourada. Opex has increased in the case of Brazil. Currency devaluation had a negative impact of $25 million.

As shown on the pie chart, Colombia contributed with more than 50% of generation EBITDA. Let's see networks business in the next slide. EBITDA network's business dropped by 80% however both of this decrease is explained by the currency devaluation which had a negative impact of $60 million. Net of FX Brazil, Colombia and Peru improved their EBITDA compared to the past year. We are glad to see a recovery in terms of demand in Brazil mainly Brazil in Rio and Goias, which increased compared to the first quarter in 2020. In addition as we mentioned before tariff adjustments in mainly Rio and Enel Ceara implied an increase on our tariff as mentioned before. Again, Ceara will also [Technical Issues].

Hello?

Rafael de la Haza -- Head of Investor Relations

Hi, Aurelio. Aurelio, please continue.

Aurelio Bustilho -- Chief Financial Officer

Hello? Okay. Thank you so much. Sorry for the interruption. Well, I am explain slide 12. Again, we are glad to see a recovery in terms of demand in Brazil, mainly in Rio and Goias, which increased compared to first quarter 2020. In addition, as we mentioned before, tariffs adjustments in Rio and Enel Ceara implied an increase in our tariffs, as mentioned before. EBITDA in Networks business came mainly from Brazil and Colombia with 53% and 32%, respectively. Peru contributed with a 14% and Argentina 1%. Let's analyze our cash flow in the next slides. FFO of funds from operations amounted to $186 million on the period, starting from an EBITDA of $741 million.

And this result includes a negative net working capital in the period for an amount of $362 million, 27% lower than the same period last year. The improvement in net working capital is due to lower bad debt provisions and lower payments during the period. Tax paid during the period amounted to $185 million, while net financial expenses amount to minus $7 million. After investments for $291 million, as indicated in previous slides, we get a free cash flow of minus $105 million. Let me now analyze the debt of our company in the slide 14. Gross debt amounted to almost $5.7 billion, an increase of 4.3% compared to December 2020.

The FX effect accounts for a debt reduction of more than $0.4 billion due to the fact that most of our debts is in local currency. This was partially offset by that increase mainly in Enel Ceara, Enel Goias, Enel Rio, and Enel Americas Holding. Looking at our net debts starting with a $4.4 billion of last year, we had minus $105 million of free cash flow as mentioned in the previous slides. Net dividends paid amounted to $124 million and after financial receivables for minus $16 million and FX effect for minus $123 million. Total net debt reached $4.5 billion, an increase of $93 million. In terms of currency in country, we see that Brazil remains as the largest contributor while the debts at holding level represents 20%, despite an increase during this period.

Finally, regarding the cost of debt, we can see an increase for this period going from 4.9% to 5.1%, mainly explained by growing trend in the indices associated with the variable rates of debt in Brazil. This is partially offset by better rate conditions in the refinancing of debts in Brazil, Colombia, and holding. Now, on the following slides, let's see some indicators in connection with the merger with EGP Americas. On slide 15, we can see that after the integration of Enel Green Power Americas access into our company, our installed capacity increased or will increase now added from April onwards by 33%, moving from the previous 11.3 gigawatts to 15 gigawatts.

Our capacity now is compounded by 47% of hydro, 11% of wind, 9% of solar, and thermal represents only 33% -- sorry, 33%, an important reduction compared to the 45% represented before the merger. In addition, we have 3.1 gigawatts of capacity which is currently under construction. On the following slide, we'll see a pro forma of our results considering EGP Americas asset for the first quarter, again just for our pro forma purposes. Net production of EGP Americas' asset were 2.6 terawatt hours, which represent 21% of the production of Enel Americas. Considering the new capacity, we would have reached 12.3 terawatts hour in the period. Regarding sales, EGP Americas would have contributed the 3.9 terawatts hour, 21% of the energy sold by Enel Americas.

With this, we would have reached total sales of 18.1 terawatt hours, a 22% increase compared to the first quarter of 2020. EBITDA of EGP Americas in the first quarter was $95 million, meaning that we would have reached $836 million as total EBITDA in the first quarter instead of $741 million. Our net debt to EBITDA ratio would have remained the same as net debt of EGP Americas is currently very low. Finally, in terms of capex, considering the investment for EGP Americas for $187 million, we would have reached a total capex of $478 million, from which 42% corresponds to renewable generation.

Let me conclude this presentation with some closing remarks. Within the difficult times that we have -- that we are facing, we are actively working to mitigate any potential impact and doing our best to help our communities in the place that we operate. This quarter, we saw a recovery in terms of demand in Brazil and solid results in Network business. Despite this difficult environment, we have been able to improve our cash flow in a significant way while reducing our gross debt. Finally, we are beginning a new phase for our company after the completion of the merger with EGP Americas. We are confident that this will bring benefits to our shareholders.

Please, Rafael.

Rafael de la Haza -- Head of Investor Relations

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

Questions and Answers:

Operator

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

Javier Suarez -- Mediobanca Banca di Credito Finanziario SpA -- Analyst

Hi, good morning and thank you for the presentation. I have three questions. The first one is on the FFO improvement that we have seen during the first quarter. So, if you can elaborate for that, the reasons for the improvement in the FFO in the net working capital during the first quarter and if that is sustainable by the year end? So the question is related to the impact improvement in net working capital has had on free cash flow generation during the first quarter. That would be the first question.

The second question is on slide number 3, talking about collection. We have seen some significant recovery in Peru and a slight worsening in Brazil. So you can help us to understand the reasons behind that improvement in Peru and worsening in Brazil. And then the third question is on the energy losses on the slide number 6. There has been quite a significant deterioration in energy losses level in all geographies. So you can help us to understand dynamics here, what we may expect as managerial decision to improve from the situation? Many thanks.

Aurelio Bustilho -- Chief Financial Officer

Thank you, Javier. Thank you for your questions. Well, let me tell you that FFO, we have the following impacts. Let me tell you that the first one is not [Indecipherable], right? On 2020, we postponed payments from -- for suppliers from 2019 to -- more postponement of payments from 2019 to 2020. So part of this improvement is because on 2020 was very affected, let's say, with the payments from 2019 especially for the capex that we made that we executed in the end in the last quarter of 2019, right? So this effect is more or less 30% of the improvement in terms of FFO during this period.

But the positive thing is that these improvements that we have in collection seems to move in a very good way especially in Colombia and Peru and also in Brazil despite it's a little bit lower in Brazil but seems that the recovery is consistent. Let me tell you that especially in some regions like Rio and in Argentina we are not allowed yet to disconnect clients that didn't pay. So our vision is that since the situation is becoming and we are estimating becoming more, let's say, normal in terms of the pandemic we are able to recovery and accelerate the collection recovery. And the third issue is the lower payments in terms of financial expenses

So these three things, the collection is the one that is recurrent and we are confident that we're moving this way for the next quarter the payments in terms of suppliers, of course, it's more an issue for the first quarter of 2020. And the financial costs, we are actively working in the liability management in order to improve the situation, OK? In terms of collection, jumping into your second question, that's more or less what I explain it to you. Argentina, basically Argentina and Rio, not all the distribution but Rio and Real since we have, we have more restrictions to not disconnect people and that do not pay, we are of course operating in giving facilitating payments and so on in installments in order to recover.

But we are not fully deployed our full potential in terms of market discipline. Yes, but again in Colombia and Peru we are recovering and this is more or less compensating these effects and the other distributions in Brazil that we are improving like Sao Paulo for example. In terms of losses, this is an important issue regarding the pandemic that we observe in the market. Regarding this -- especially regarding the normalization what we call, we have our systems to detect the commercial losses, right? But we are not fully operating in these -- especially in this -- in our distribution due to the COVID restrictions.

So, we know exactly where it is happening. But again, since the operation is normalized, we'll recover this with our operations and normalize and put discipline in the market like we did in the past. But most of it -- well, the main concern is of course Argentina, right? Is the highest increase, but it's related to the impossibility to do normalization of the losses. The other distribution companies, again, Brazil is a little bit higher, but it's all concentrated in Rio and in some parts in Sao Paulo, but most of them in Rio due to the restrictions for the pandemic. So which means that as soon as you can -- we can operate, normally operate, it will recover these losses.

Javier Suarez -- Mediobanca Banca di Credito Finanziario SpA -- Analyst

Okay. Many thank you [Indecipherable].

Aurelio Bustilho -- Chief Financial Officer

You're welcome.

Operator

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

Andrew McCarthy -- Credicorp Capital -- Analyst

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

Aurelio Bustilho -- Chief Financial Officer

Thank you, Andrew, for your questions. Well, we maintain our -- this range of EBITDA that we told you -- we told to the market in the last quarter. Of course, we need to see the evolution of currencies. We are in this -- in economic view exposed to this effect. But, again, in terms of cash flow it is almost neutral because our debt is mostly in local currency. Our capex mostly 50% is services -- in local services in local currency, which means that in terms of cash flow we have a balance in terms of cash flow -- very well balanced. But we maintained $4.2 billion worth estimation in terms of EBITDA for this year.

Let's see the -- how it -- evolution. In terms of Colombia, well, Colombia is facing a difficult -- let's say some situation regarding their tax reform and so on and the -- eventually, a downgrade or some effect. But we are confident. We operate in Colombia more than 20 years. We are confident that the country have -- the country has all the fundamentals to pass through this situation and keep a very good place for investments, a very good solid revelation, a very solid institution. So, we maintain our confidence in the country. And that's why we are advancing. You said you mentioned our discussions with the Grupo Energia de Bogota, which is a defense in a very good and positive and very constructive way.

And we hope as soon as possible we can we can reach a deal that -- lots of details going on as we explained it in the -- in our relevant facts in the beginning of the year. But we are defensing a very good positive and constructive mood. And we are confident that as soon as possible, we will get a very good agreement to Grupo Energia de Bogota and to Enel Americas and to our shareholders. And again, the company -- it is very important to us to keep on growing in this country, which is -- has an important and very good potential despite the situation the country is facing right now. But we believe and still bet a lot in this country.

Andrew McCarthy -- Credicorp Capital -- Analyst

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

Aurelio Bustilho -- Chief Financial Officer

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

Andrew McCarthy -- Credicorp Capital -- Analyst

Wonderful. Thanks very much, Aurelio.

Aurelio Bustilho -- Chief Financial Officer

You're welcome.

Rafael de la Haza -- Head of Investor Relations

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

Aurelio Bustilho -- Chief Financial Officer

Gracias, Tomas. Thank you, Tomas. Well, first of all the Conta-COVID, you know that we got the financial Conta-COVID and it is still pending the discussion for the economic recognition of Conta-COVID, right? So the first one that we -- the disbursement that we received in July more or less $500 million in debt in that period and we didn't have yet the economic recognition update, so we are discussing with regulator this issue. And also we are discussing because it is a reality. Our countries, in Brazil in this case, we are still facing the situation of COVID, of the pandemic. So we are probably -- the demand we are recovering but on the same hand this -- specially this situation to not be possible to disconnect clients and increasing losses and increasing -- affecting the collection.

This is something that we are discussing with the regulator. But this is in the same package of the economic recognition, right in order to have a final -- let's say a final figure, a final number. And we are confident that at the end, the regulator is being sensible to this of course, taking consideration the situation of the country, the country and the inflation effect and so on. But as I told you, the readjustments are being begun. We see the readjustment above Rio for example of Ceara. And we are addressing this discussion of COVID, let's say, higher impact in the discussion of economic equilibrium that is moving forward with the regulator as it was the plan before, OK?

Rafael de la Haza -- Head of Investor Relations

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

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Rafael de la Haza -- Head of Investor Relations

Aurelio Bustilho -- Chief Financial Officer

Javier Suarez -- Mediobanca Banca di Credito Finanziario SpA -- Analyst

Andrew McCarthy -- Credicorp Capital -- Analyst

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