Enel Américas S.A. (ENELAM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to Enel Américas' Fourth Quarter 2024 Results Conference Call. My name is Gigi, and I'll be your operator for today. [Operator Instructions] This presentation contains statements that could constitute forward-looking statements. These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of Enel Américas and its management with respect to, among other things, Enel Américas' business plans, Enel Américas' cost reduction plans, trends affecting Enel Américas' financial condition or results of operations, including market trends in the electricity sector in Chile or elsewhere, supervision and regulation of the electricity sector in Chile or elsewhere and the future effect of any changes in the laws and regulations applicable to Enel Américas or its subsidiaries. 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 in the forward-looking statements as a result of various factors. These factors include a decline in the equity capital markets, 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 integrated annual report. Readers are cautioned not to place undue reliance on those forward-looking statements, which state only as of their dates. Enel Américas undertakes no obligation to release publicly the result of any revisions to these forward-looking statements, except as required by law. I would now like to turn the presentation over to Mr. Jorge Velis, Enel Américas' Head of Investor Relations. Please proceed.

Thank you, Gigi. Good afternoon, ladies and gentlemen, and welcome to our fourth quarter 2024 results presentation. I'm Jorge Velis, Head of Investor Relations of Enel Américas. In the coming slides, our CEO, Aurelio Bustilho; and our CFO, Rafael de la Haza, will be presenting the main figures of this period. Let me remind you that this presentation will follow the slides that have already been uploaded in the company's website. Following the presentation, we will have the Q&A session. If you want to make a question, please send it through the webcast or write us to our corporate e-mail [email protected]. Now let me hand over the call to Aurelio, who will start by outlining the main highlights of 2024.

Thank you, Jorge. During 2024, we had a relevant 16% increase in investments in grids, in line with our strategy of having a more resilient network and improving service quality for our customers. As we announced in our Investor Day last November, this will be the main focus of our company in the coming years. In generation, we added 0.8 gigawatts of new capacity in 2024, and our investments have led to an increase in solar and wind generation by 23%. EBITDA in 2024 reached USD 3.7 billion, in line compared to 2023. Despite the complex scenarios in terms of FX, hydrology in Colombia and curtailments in Brazil, we were able to have a good performance and offset a difficult situation as we will see in the next slide. This year, we reached a record net income, which will allow us to pay close to $0.8 billion of dividends to our shareholders, increasing our dividend per share by 3x. Before going into details of our operational and financial performance of last period, I would like to have a general view on the scenario that we faced in 2024. 2024 was a complex year. We faced a difficult hydro scenario in Colombia that had significant impact in our results with hydrology below the historical average in April, July and August, where it was at historical lows. During October and November, we faced limitation in our hydro production due to the shortage risk, leading us to increase our purchase in the spot markets at very high prices. We also continued to see extreme weather events in Brazil that led to blackouts. However, our company has improved in client reconnection, response and communications, a continuous improvement, faster and more effective reaction. Curtailment in Brazil has another challenge in 2024 with around a 3% loss of our wind and solar generation due to this situation. Most of it in the fourth quarter generation impact of less USD 90 million. In addition to this, currencies in the region suffered important devaluation in the fourth quarter, especially in Brazil. The impact in our 2024 results was around $100 million at EBITDA level. We successfully completed our asset disposal plan in Peru. The proceeds from these sales allowed us to optimize our financial situation and put the company in a very comfortable and flexible position to face the coming challenges and opportunities that we see ahead. Now let's analyze our investments of the period in the coming slides. During the fourth quarter, our CapEx decreased by 16% compared to the same period of last year, reaching USD 577 million. This is mainly explained by lower CapEx in generation due to the completion of renewable projects and a slowdown in developing new projects -- generation of new projects, pretty much in line with what we announced in our strategic plan about being more selective in our investments in renewables. However, it is important to highlight that investments in grids in distribution business increased by 37%, reaching $0.4 billion, 55% of the total investments were devoted to Brazil and 31% to Colombia. Argentina represents 13% of the total, reflecting the increasing relevance of this country in our company. In terms of business line, 65% of total CapEx was devoted to grids and 29% to renewables. Growth CapEx in grids totaled $90 million, a 65% increase reflected across all our concession areas. Let's now analyze Grids operational highlights in Slide 6. Electricity distributed reached 27.1 terawatt hours in the fourth quarter, which represents an increase of 0.3% compared to the same period last year, explained by higher sales in Brazil, partially compensated by lower sales in Argentina and Colombia. Regarding number of customers, we had an increase of around 414,000 in the last 12 months, reaching 22.6 million customers. Smart meters increased by almost 2x, reaching 1.4 million in this period, mainly due to the deployment in Sao Paulo. Net RAB and net RAB per customers increased by 22% and 20% respectively, isolating the impact of currency devaluation. This reflects the significant investments in our grids. In terms of quality indicators, we can see that SAIDI improved in all subsidiaries, except from Enel Rio, mainly due to the intensity of weather events, especially in the first part of the year. Regarding SAIDI, we were able to improve in Colombia and Sao Paulo. Regarding energy losses, we improved in Sao Paulo and remained flat in Colombia, but increased in Rio, Enel Ceará, and Edesur and this is mainly a consequence of higher temperatures registered in the fourth quarter. Let's continue with generation operational highlights. During 2024, we added 0.8 gigawatts, 800 megawatts, of new renewable capacity through the projects – Arinos and Pedra Pintada in Brazil and Guayepo in Colombia. This implied an investment of $0.5 billion. With this, we reached 12.9 gigawatts of installed capacity from which 98% is renewable. We currently have 0.5 gigawatts of capacity under construction, and these are solar projects located in Colombia, which will be finished between 2025 and 2026. Regarding our energy balance, we can see that on a cumulative basis, we saw a 1% increase in sales explained by Brazil, with 40.4 terawatt hour coming from our own production and 25.4 terawatt hour from purchases. On a country basis, Colombia saw a reduction in hydro generation as a consequence of the stressed hydro condition of the country during this year. We were able to partially compensate this with our increased solar capacity, but it was necessary to increase energy purchase to comply with our contracts. In the case of Brazil, we would like to highlight the significant increase in renewable production, thanks to the new capacity that we have added during the year. You can see the detail of both countries' energy balances in the annex of our presentation. Now Rafael will comment on the financial results of the period in the coming slides.

Thank you very much, Aurelio. [indiscernible] EBITDA in 2024 reached USD 3.7 billion, in line with last year's EBITDA. This result is explained by better results in Argentina and Central America, offset by lower EBITDA in Colombia and Brazil due to currency devaluation in both countries and a worse performance in generation in Colombia due to hydro conditions, as Aurelio mentioned before. On a quarterly basis, EBITDA reached USD 724 million, which is 15% lower than fourth quarter of last year, mainly due to lower results in generation in Colombia and currency depreciation in Brazil and Colombia. In terms of net income, during 2024, we reached $2.6 billion, including the positive impact of $1.7 billion coming from the sale of our Peruvian assets. Isolating this effect, as you may see in the slide, we reached USD 0.9 billion in this period, basically in line with the same period of last year. Our gross debt decreased by 35%, mainly due to liability management actions and currency devaluation. We will analyze in detail our debt later on. On Slide #10, we will see EBITDA evolution and the breakdown of it. Slide #10, starting from $848 million of adjusted EBITDA in the fourth quarter of 2023, we see that generation came in line with last year with new capacity in Brazil and higher generation in Central America offsetting the challenging hydro conditions in Colombia, while grids improved mainly due to better results in Brazil. Finally, customers decreased in Brazil and Colombia. And all in, we get to an adjusted EBITDA of $852 million for the fourth quarter of 2024, in line with the same period of 2023. FX had a negative impact of $128 million due to currency devaluation in Brazil and Colombia during the quarter, resulting in a reported EBITDA for this quarter of USD 724 million. From our reported EBITDA, 69% came from Brazil, 25% from Colombia and 7% from Central America. While in terms of business line, grids represents 61% of the total of our total EBITDA, generation 30% and customers contribute with 10%. As for our EBITDA breakdown, on a cumulative basis, we move to Slide #11. And as you may see here in this chart, for 2024, we see that EBITDA grew by 3% in homogeneous perimeter and isolating FX impact. Generation decreased mainly due to hydro conditions in Colombia. Grids significantly increased due to better results in Brazil, Argentina and Colombia and customers came in line with the previous year. FX had a negative impact of USD 100 million, mostly coming from Brazil and partially offset by Colombia, reaching a reported EBITDA of USD 3,735 million, slightly higher when compared with the previous year 2023. From this EBITDA, 59% comes from Brazil and 35% from Colombia. While in terms of business lines, Grids contributes with 35% of the total generation with 36%. Now we will focus on the cash flow of our company in Slide #12. Starting from an EBITDA of 3.74 billion, we see that net working capital amounted to USD 0.11 billion, a significant improvement compared to last year, mainly explained by lower executed CapEx in Brazil due to the completion of the renewable projects. Taxes paid during the period amounted to USD 0.57 billion, lower compared with last year, while financial net expenses had an important decrease due to the liability management actions that we have implemented with the proceeds coming as we mentioned before from the sale of our Peruvian assets. With this, funds from operations amounted to $2.4 billion, an improvement nearly to USD 0.8 billion compared to the same period of the previous year. After investments for $2.1 billion, as Aurelio mentioned before, we get to a free cash flow of USD 0.3 billion at the end of 2024. Now let me analyze the debt of our company in the following slide, which is the Slide #13. Gross debt amounted to $5.2 billion, a decrease of 35% compared to December 2023, mainly explained by debt reduction in connection with the use of proceeds coming from the sale of our Peruvian assets as well as currency devaluation in our main markets, while in this sense, we reduced our debt in Brazil by USD 2.1 billion, as you may see on the left side of this chart. We also see a reduction in Colombia, mainly due to FX effect and in Enel Americas -- at Enel Américas stand-alone, corresponding to a bridge loan that was paid after we received the funds from Peru. Net debt reached USD 2.1 billion, a decrease of 65% compared to the end of 2023. This includes, as I mentioned in the previous slide, free cash flow for USD 0.3 billion, net dividends paid for USD 0.5 billion, extraordinary operations for USD 4 billion, mainly related to the payment of the assets mentioned at the sales in Peru and FX effect for USD 0.6 billion. In terms of currency and country, we see that Brazil remains as the largest contributor, while the debt at the holding level represents only 11% of the total. Just to remind you, this is the Yankee Bond that we have that is going to expire in October 2026. Finally, regarding the cost of debt, we can see a decrease for this period going from 12.2% to 10.3%, mainly explained by our liability actions in Brazil and lower interest rates in both Brazil and Colombia. On the next slide, Aurelio will present the main highlights of the regulatory scenario that we will see during the first half of 2025, and we will be facing during 2025, concluding this presentation with some closing remarks.

Thank you, Rafa. 2025 is expected to be an important year in regulatory aspects in distribution business for our company. Beginning with Colombia, this year, we are going to have tariff revision process for the commercialization company, and we expect to have more details about this process in the coming months. In Brazil, we are moving forward in the concession renewal process with the recent publication of the baseline concession renewal contract by Enel. During the next 30 days, companies have to formalize their intention to renew the concession and 60 days after that, Enel gives its recommendation to the Minister of Energy, and they make their decision within 30 more days. Finally, in Argentina, after the recent public hearing, we expect that the tariff review process will yield a remuneration that reflects current market conditions and needs. The current expected time line is to have the final tariff scheme by the end of March, with these tariffs coming into effect at the start of the month of April. Let me conclude this presentation with some closing remarks in Slide 15. We are increasing our investments in Grids as announced on our current strategic plan, focusing our efforts in having a more resilient network and improving quality for our customers. Despite a complex scenario, including currencies devaluation and poor hydro conditions, among other difficulties, we were able to have a good performance in EBITDA, it was in line with last year. Thanks to the completion of our disposal plan, we reached a record net income, which will allow us to pay a significant dividend to our shareholders, almost USD 800 million. For 2025, we have important regulatory milestone coming up, and we are closely monitoring this process due to their importance in the coming years for the company. Finally, we'll have our shareholder meeting on April 30. As always, we'll be uploading the information regarding these events on our website. Please, Jorge.

Thank you, Aurelio. Thank you, Rafa.

First question comes from [indiscernible]. Can you talk about the curtailment situation across your generation fleet? How did we start the year 2025? And how does the situation compare with 2024?

Thank you for the question. Yes, the curtailment is a reality as we are facing, especially in the last years. I think it's a mix of issues that affect the curtailment. Just to give the -- how it's been originated, I mean it needs transmission, investments in transmission. It needs to have more, let's say, information regarding the intermittent generation in the system in Brazil. I suppose you are referring to Brazil. With all the increase that we had in -- especially in distributed generation, it's not easy to predict or to have a factual information regarding the quantity of generation that's been entering the system. So improving the transmission lines, the transmission transfers from the energy, improving the information of generation, the concentrated generation of renewables and also start to measure more effectively the distributed generation and also with the improvements with -- that the government is pushing for a new capacity especially capacity for the hours that we need more capacity in the system. I'm referring to the auction that the government is preparing for new capacity generation, thermal capacity, some hydro capacity and so on and some batteries. I think with all this process, it will improve the problems that the generation -- that is generating the curtailment, right? It's not fast. It's not something that will be in the following day, but it will be improving. We expect that will improve in the coming months and the coming years. But of course, when we do not have -- when the system does not have a good condition, especially in Brazil, that we depend on hydro generation, for example, we do not have water, do not have rain. This situation tends to be more difficult, tends to be more -- to create more difficulty in terms of operation, in terms of reliability. So the curtailments increase. So I'm just saying all of this to tell you that if we have improvements in the fronts in the -- especially in hydro, we do not have an unfavorable hydro condition in the system, which we cannot predict it right now. And if we have improvements in terms of new transmission line, if we have improvements in new capacity that will take time to be implemented, but especially hydro condition, maybe will suffer with this problems more than -- or equal that we had in the previous year. For last year, as I was explaining, our -- the effects in our results was USD 90 million. I know that other companies were affected more. In our case, it was $90 million, 3% of our generation. I mean we can support this. We have a huge portfolio. But of course, we are -- we do not agree that we suffer with this situation. So I mean we are analyzing the possibilities. But in terms of system, we have an issue here that as a system, we need to solve. I think not we, Enel, but as a part of the Brazilian system, operator, regulator, transmission, agents, we need to solve. I repeat some companies, it affects more than our companies. But of course, since we are a huge operator in terms of generation, in terms of renewables, we have some exposure. But we are also being very proactive in terms of contracts. We have a huge portfolio, more than 6 gigawatts of capacity combining hydro, solar and wind. We are able to -- and also with a huge front in terms of commercialization, in terms of trading, energy trading, we are able to compensate this or to reduce or to mitigate a little bit more of this effect. But exposed, yes, we are.

Thank you, Aurelio. And now a question from Rodrigo Mora related to hydro conditions in Colombia. Could you give us some color about the actual situation and the perspective for 2025?

Yes. Well, it's difficult to predict right now. As you know, we need to at least -- right now, the reservoir, they are in a good condition, but with the high temperatures, they are -- I mean -- well, especially in Brazil, but also in Colombia, we need to see the end of this -- of the current season to have a more clear view of the hydro condition of the year. Right now, what I have to tell you is that we are in, let's say, in a more balanced situation, not with the extreme dry that we had in the past, but in a more balanced situation. But it's too early to predict how it will evolve during the year since we see that this hydro condition in the past used to be more predictive after the end of the summer, for example. And now we see that during the same year, we have different situation. What we need to be -- what we need to have here is flexibility, productivity and we need to have the condition to contract and especially leave part of our energy, not contract in order to mitigate the adverse situations. This is a change also for the new times in the new way that we need to face hydrology in our geography.

Thank you, Aurelio. Alessandro Di Vito is sending 4 questions. First, is the company considering further corporate simplification actions? Number two, is the company confirming 2025 guidance unveiled at the last business plan in November? Number three, do you see any risk of revocation of distribution concessions due to service interruptions? And finally, can you also share the underlying drivers that led results to be below the latest guidance?

Okay. Well, Rafael, if you -- thanks for the question. If you don't mind, you answer the second question, right, the guidance and the last one. And I can answer 1 and 3.

Perfect.

Okay. Well, simplification actions, we are not analyzing. I mean our priority, as we said in the presentation, is to solve, especially to follow those milestones in terms of regulation, right? We do not have to wait too long because it's -- we expect this to be especially in Brazil in the first semester to be defined in the first semester of this year. And in Argentina, in the -- also in the first semester, I mean, we do not have to wait longer to enter in this part. But for now, there's no simplification actions moving far from our side from the company. Point three, let me tell you, the process of renewal concessions is being very transparent, is moving in the correct directions, considering our views, more aligned with the extreme events that we are facing in our cities, in our regions, in the world in general. So the concessions need more CapEx, more velocity in terms of CapEx recognition. It's fair also to consider that way, consider the customer satisfaction, which is very, very important here. This is a very important change that it's aligned with the new times, and we are -- we find it's fair and it is correct. So we do not have -- having said that, we do not have any discussion about revocation distribution concession. We maintain our intention for the concession renewal. We maintain our CapEx that we presented in the last strategic plan to invest in this concession, $4.6 billion that we announced, right, $4.5 billion, $4.6 billion announced for the next '25, '26, '27 to invest in this concession. So we do not see issues related to revocation. We reinforce our intention to renew the concession for the next 3 years. We are confident that conditions will reflect a fair economic remuneration and fair condition in order to absorb these investments. So we do not see -- and we are meeting the -- I mean the KPIs, the regulation KPIs in terms of quality that we have today. I repeat that we are still facing -- yesterday, for example, we had this huge temperature, huge flooding in Sao Paulo, and we are -- the time to reconnect, we've been improving the communication, we've been improving. So I mean we are doing our job and continuously improving the quality and our time of reconnection and our timing to provide [indiscernible] the customers. Rafael, if you can...

Thank you, Aurelio. I will go for the second question and fourth question. So in relation to the second question, Alessandro, thank you very much for it. The answer is yes, we are confirming the 2025 guidance for Enel Américas. First of all, let me remind you the guidance that we have in terms of EBITDA, which is a range between USD 4.4 billion and USD 4.6 billion for 2025. And in terms of group net income, the guidance is USD 1.4 billion, USD 1.6 billion. We are confirming this guidance. So the answer is yes. Of course, there is a KPI that we cannot control that is the FX. This is something that we cannot manage. Let's see how it evolves along the year. But in any case, of course, Enel Americas is a company with the U.S. dollar as a functional currency. Our operations are substantially local currency. So we could have a potential impact in terms of FX. But we are very conservative as usual. And as I anticipated before, we prefer to announce when we announce always the guidance to the market, we prefer to announce a guidance with a range for the year. So USD 4.4 billion, USD 4.6 billion in terms of EBITDA, I'll repeat just to potentially cover this kind of impacts like the FX effect that we may see during 2025. So we are confirming for the moment the guidance, I repeat, but let's see how the currencies in the different countries are evolving during 2025. In relation to the fourth question, can you also share the underlying drivers that led results to the below latest guidance. Substantially, the difference is due to the FX impact, substantially due to the devaluation of the Brazilian real during the November and December 2024. The guidance that we announced for 2024 when we presented the strategic plan of the company in November last year was USD 3.9 billion. The final number that we have announced today is 3.7 billion. Substantially, the difference between both numbers is the FX effect due to the currency performance in Brazil. There is also an impact in Colombia, but it's substantially Brazil, the highest impact in our numbers versus the guidance.

Thank Aurelio, Rafael. One final question from Rodrigo Mora. Could you give us some color about the tariff process in Codensa, Colombia, such as regulatory WACC?

Thank you, Rodrigo. Well, the process is starting. It's still early, but we expect it to be defined in the first semester of this year. The main point here -- well, the regulatory WACC, I don't know, Rafael, if you have it -- what we consider in terms of WACC, you can...

We have it in the annexes of the...

Yes, but it's pretty much in line of what we consider. There's no big issue. Can you -- you can mention. But in any case, I think -- well, this process, the main issue, Rodrigo, is related to the CapEx recognition and the process to evaluate the CapEx that we are -- that we invest and we are to invest and what's the percentage of recognition. I mean, the first discussions, we've been improving the discussion. I mean it will be pretty much in line in terms of what we plan to invest is what the regulator would recognize. It's still ongoing discussions, but this is something important. As you know, in Colombia, it is a revenue cap methodology. So CapEx is recognized during the same year, what we -- the amortization during the same year that we -- that you are starting to invest. So this is very important, and it's moving in a good way. So I give the floor to Rafael to mention the WACC.

I think you described very well the situation. In terms of WACC, Rodrigo, in Colombia, just to remind you, we have a 12.1% WACC [indiscernible] pretax. So it's a very good WACC. Let's see how it evolves in the revision. But for the moment, the one that we are -- that we have for this year was 12.1%. You have all the details in the annexes, as Aurelio already explained before, also related to the model of the current tariff scheme. But we are positive -- we have positive signals about what is going to happen in regulatory terms also in Colombia.

In the same line, Rodrigo also asked for the Edesur tariff process. What should be the regulatory EBITDA? And what is the CapEx committed by Edesur for 2025, 2027?

Well, the CapEx, of course, the situation in Argentina is improving. Rafael can give you the figures. But in terms of what is still pending, let's say, in Argentina. We are recognizing -- we improved the VAT -- the VAT, which is the regulatory value for the distribution, recognizing the inflation that was -- we are anticipating the inflation during the month, which is pretty much in line. I mean this is not the tariff -- the new tariff reset, but this is important because when you reach the tariff reset, anticipating this effect is very important. So it's been anticipating the effect in EBITDA. This is one very important point. Of course, it is important to have the inflation recognized in the RAB of Argentina, which is something that we expected to be performed. In terms of CapEx, of course, the future CapEx, we are estimating -- as I remember, Rafael, can give the...

USD 200 million per year -- for the year 2025. And in total, Rodrigo, as we announced during the strategic plan for the period 2025, 2027 is USD 770 million.

For 3-year period.

For the 3 years period.

Exactly. And the regulatory EBITDA, Rafael. I don't know if you have this figure. But at the end of the day, if you see the plan. Rafael?

It will depend on how the regulation evolves. But of course, in terms of EBITDA, Argentina, as announced in the strategic plan of the company, will be in terms of growth, a relevant contributor in terms of EBITDA for this period for the distribution business. In 2024, the EBITDA at the Edesur level was USD 30 million for the distribution sector, and we expect a relevant growth for the [indiscernible] 2025, 2027 and it's going to be one of the more relevant actors in terms of growth for this business line. I think if I -- if I remember correctly, we have a chart in the strategic plan of the company in which you may see the growth of Argentina and also the contribution of Brazil in the distribution business for this period, being I repeat Argentina in terms of growth, the most relevant actor for this period.

Yes. Just to add some comments to this. It's very important that Argentina, for example, we are -- as Rafael said, we are balancing the cash flow. We are maintaining the neutral cash flow. If we do not have tariff conditions, we will not invest. Simple like that. We do not anticipate money in the country. So I mean, we are not -- we do not have the process totally defined. We have, as Rafael explained, estimating that we'll rebalance the distribution in order to absorb the investment, $700 million of EBITDA, almost $700 million of CapEx. This is the number. But of course, if we do not have conditions, we will not put the $700 million on the table. I mean, this is clear.

This is a CapEx analysis.

Exactly. Profitability is our mantra. Cash flow is our mantra. And that's why we are focusing efficiency. We are focusing in financial profitability in order to have a balanced free cash flow -- positive free cash flow to -- I mean to retribute the dividends. And I mean we will not increase the debt, in the other way to speak, okay? Thank you.

Thank you. Well, as there are no more questions, I conclude the results conference call. Let me remind you that the Investor Relations team is available for any doubt that you may have. Thanks for your attention.

Thank you.

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