Enel Chile S.A. (ENIC) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Enel Chile's First Half and Second Quarter 2025 Results Conference Call. My name is Victor, and I'll be your operator for today. 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. 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 are described in Enel Chile's press release reporting its first half and second quarter 2025 results. The presentation accompanying this conference call and the annual report on Form 20-F, included under risk -- included under Risk Factors. You may access our first half and second quarter 2025 results press release and presentation on our website, www.enel.cl, and our 20-F on the SEC's website, www.sec.gov. Readers are cautioned to not place undue reliance on those forward-looking statements, which speak only as of their dates. Enel Chile 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, except as required by law. I would now like to turn the presentation over to Ms. Isabela Klemes, Head of Investor relation of Enel Chile. Please proceed.

Good morning, and welcome to Enel Chile 2025 Second Quarter and First Half Results Presentation. We greatly appreciate you taking time to join us today. My name is Isabela Klemes, I'm the Head of Investor Relations. Joining me this morning are our CEO, Gianluca Palumbo; and our CFO, Simone Conticelli. Before we begin, I'd like to take a moment to introduce Gianluca Palumbo, who assumed the role of Chief Executive Officer of Enel Chile on July 1. Gianluca is an electrical engineer, a graduate of University of Naples Federico II and brings nearly 3 decades of experience within Enel Group. Throughout his career, he has held several strategic leadership positions, including Head of Global Network Development for all distribution business lines within Enel and General Manager of EDESUR, Enel Distribution Company in Argentina. Most recently, Gianluca served as Head of Global Construction, Operation and Maintenance for the entire distribution business across Enel Group. Our presentation and related financial information are available on our website, www.enel.cl in the Investors section as well as through our investor app. In addition, a replay of the call will soon be available. [Operator Instructions] Gianluca will kick off the presentation by covering key highlights of the period and the country energy context. He will also delve into our portfolio management actions and provide updates on the regulatory context. Following that, Simone will offer an overview of our business economic and financial performance. Thank you all for your attention. And now let me hand over to Gianluca.

Thank you, Isabela. Good morning, and thank you for your participation. I'm honored to be speaking with you today. Together with our senior leadership team, I'm committed to our core goals as we navigate both challenges and opportunities with clarity and determination. Let's start the presentation with our main highlights of the period. Let's begin with portfolio management. Hydro generation remained consistent with the last year's levels, supported by a higher-than-expected thermal dispatch. This was largely driven by transmission constraints throughout the period as well as temporary unavailability of certain thermal units within the system. Our gas trading operations also performed well this quarter, playing a strategic role in complementing our portfolio and helping offset our spot market purchases. This activity continues to be a key tool in navigating current market dynamics and is expected to remain at a relevant level throughout the year. Now moving on to our Distribution segment. At the same time, we have made solid progress with our resilient in winter program. This initiative is designed to strengthen our grid and improve our response to climate-related events. As part of this effort, we have been deploying remote control systems across our networks to significantly reduce average services restoration times. This is a key part of our strategy to ensure long-term reliability and to improve our operational continuity. We have also implemented a new vegetation management control program carried out in close coordination with local municipality and relevant regulatory entities. This initiative aims to prevent service disruption and further secure the stability of our infrastructure. Additionally, we have introduced new procedures for managing grid failures more efficiently. For instance, once applied, we are using generation units to support service restoration during network recovery. These enhancements are part of our broader strategy to boost system resilience and operational responsiveness. Let's now turn to the regulatory and country context, which continues to play a key role in shaping our strategic decisions and long-term planning. This third quarter will be particularly relevant as we expect the release of the final VAD '24/'28 consultant report and the publication of a new regulation on base ancillary services. I will share more details later. In the meantime, the PNP regulated tariff decree for the second half of 2025 was published in July. This update adjusts the energy component of regulated tariffs. As I will explain later, it enables us to begin recovering a larger portion of PEC 1 and provides greater visibility of our cash flow for our generation business. Let's now move on to our financial performance, which reflects the resilience of our operations and our ability to adapt to a changing environment. In the first half of 2025, we delivered an EBITDA higher than the same period last year. This strong performance was further supported by a positive FFO driven by $261 million received from stabilization energy mechanism factoring. This inflow significantly improved our cash flow position. As a result, we have maintained a solid liquidity position and this allows us to navigate potential headwinds posed by evolving climate scenario while also advancing our investment program across both our generation and distribution businesses. Now turning to generation investments. After gaining confidence in proposed ancillary services regulation and deeply analyzing several market scenarios for Chile and observing the cost evolution of the BESS, we are ready to formally launch construction of our BESS investments. These projects will be deployed in the Northern Chile, adding around 0.5 gigawatts of battery energy storage to our portfolio within the next 2 years. This marks a significant milestone. It reinforces our commitment to Chile and demonstrates the strength of our strategy to continue serving both regulated and free market segments. Now let's move to Slide 4 to talk about the country's market situation. The national electricity system has been affected by several factors, including poor hydrological conditions, both scheduled and unscheduled maintenance across various thermal power plants and the temporary unavailability of transmission line connecting the Northern and Central Regions of the country, mainly in April and June, which led to significant system decoupling. All these factors combined led to increase in spot price in Central and Southern zone of Chile, mainly during daytime hours, resulting in higher operating costs for the system as we are showing in the left part of this slide. On the hydrology front, cumulative rainfall as expected, has been lower than in the same period of 2024. Nevertheless, the hydro generation during this period was close to last year's levels. Therefore, we are maintaining our hydrology guidance for the year in line with the average observed over the past 10 years. For the 2025, we expect hydro generation to reach around 11 terawatt hours. Despite this challenging scenario, we have managed to navigate it, thanks to our solid and long gas supply position, which includes our long-term LNG contract with Shell and Argentina gas supply, the full availability of our efficient thermal capacity and strategic water reserves from favorable rainfall in the 2024 storage in our dams. Thanks to our robust and diversified gas position, we were able to capitalize on favorable trading opportunities across both local and international markets during the period. This demonstrates the effective complementarity within our portfolio. Now moving on to Slide 5. Let's review our generation portfolio and energy balance, taking into account the system constraints I just outlined. First of all, I would like to highlight that we have started 2025 with a solid diversified portfolio, which includes a total net installed capacity of 8.9 gigawatts with 78 coming from renewable energy source and battery energy storage systems. Net electricity generation decreased 5% compared to production as of June 2024. This decline was driven by lower hydro dispatch during the first quarter of 2025, reduced renewable generation, increased the curtailment levels caused by transmission line limitation already mentioned. However, this was partially offset by higher contribution from our efficient thermal power plants. During the second quarter of 2025, net generation declined to 5.9 terawatt hour, mainly due to the reduced renewable generation already mentioned. In the first half, our energy sales almost reached 15.1 terawatt hour, mainly due to lower sales to regulated customers following the expiration of regulated contracts. During the second quarter of 2025, fiscal energy totaled 7.4 terawatt hour, lower than the second quarter of 2024, mainly due to reduced sales to regulated customers and free clients. In this first semester, as you can see in the slide, we reduced our purchases from third parties and also our spot market purchases, mainly at nonsolar hours. Now I would like to take a moment to discuss the energy regulatory framework and share important upcoming updates on Slide 7. Regarding our distribution business, we are currently navigating a new regulatory cycle that incorporates a new replacement value of $2.1 billion. The consultant's final report on the '24/'28 VAD is expected to be delivered and published in the coming weeks. We estimate the regulator will release the preliminary technical report for this new cycle in the second half of 2025. In relation to the 2024 VAD process, we remain monitoring the resolution from the Superintendency of Electricity and Fuels, which will establish the time line for defining the outstanding debt in favor of distribution companies, marking an important step towards improved regulatory. Now on tariffs, in July 2025, the decree for the second half of 2025 PNP was published. This decree allows the recovery of cash in our generation business for an amount of around $48 million in the next 6 months. Related to the PEC accruals as of June 2025, we had an account receivable related to the PEC of around $164 million. These figures already include the factoring executed in April for $261 million. Let's now move to right-hand side of the slide to review updates on important changes in the regulatory framework currently under discussion. The proposal to expand the electricity subsidy for the country's most vulnerable households continues under discussion. So far, the measures approved to date are additional net VAT related to the tariff increase, increasing the amount of compensation that distribution company must pay to clients in case of distribution power outages. The discussion now moves to the Finance Commission before being voted in Senate plenary. Measures related to the CO2 tax and so-called [ Bolsa PMI ] initiative are still under discussion. Regarding the remuneration of ancillary services for battery energy storage systems, we expect regulatory update in the third quarter of 2025. The proposal presented by National Energy Commission seeks to encourage the participation of BESS in the ancillary service market by recognizing the cost associated with their delivery given the systemic benefits that their inclusion would entail. To this end, the calculation methodology for the opportunity cost is proposed to mitigate the risk of foregoing participation in energy arbitrage. Next, our CFO, Simone ConticellI, will present a review of our financial and economical performance.

Many thanks, Gianluca, and good morning, everyone. I will start by reviewing the highlights of our performance over the period. Before we start commenting the first half results, let me remind that as of January 1, 2025, Enel Chile changed its functional currency from Chilean pesos to U.S. dollar. For comparative purpose, in today's presentation, the first half and the second quarter 2024 figures are converted using the average exchange rate of the figures. And now let's take a look at a brief overview of our financial performance. As shown on the slide, in the first half 2025 EBITDA reached $659 million, representing a 10% improvement compared to the last year figures. The improvement is mainly driven by strong sourcing performance in generation and improved gas trading activities, which more than offset the negative impact of regulated PPA expirations and transmission line constraints. The June transmission line constraint particularly impacted the second quarter EBITDA slightly decreased by $10 million compared to the second quarter 2024. Moving to the net income. The first half net income amounted to $246 million representing a decrease of 8% compared to the previous year, mainly due to the higher D&A, while in the second quarter net income amounted to $71 million. The first half FFO showed a significant improvement compared to last year reaching important $403 million, 7.8x the previous year figure. And the second quarter FFO reached $295 million, that means $357 million higher than the result of the same period of 2024. This is driven mainly by the previously mentioned improvement in EBITDA and the recovery of funds associated with PEC. We'll go into more details later in the presentation. And so now moving -- let's move to the next slide to review the progress made on CapEx. Our total CapEx reached $157 million in the first half, mostly centered on grid and power plant grid performance. Let's take a closer look at the allocation. 40% of $63 million was directed towards grid investments, 31% or $48 million supported thermal projects, 29% of $45 million was invested in renewable and storage. The grid focus as previously explained by Gianluca remains on the resilient program, reinforcing infrastructure to reduce vulnerability to climate-driven destruction. The priority for thermal segment is the maintenance and performance enhancement of the power plant fleet. In the renewable segment, we have centered our efforts on finalizing the PMGD program, enhancing hydro facility performance and maintain fleet availability. Moving to breakdown by nature, asset management CapEx totaled $89 million, accounting for 57% of the total CapEx, mostly used for the maintenance of Atacama, Quintero and San Isidro CCGT, and grid maintenance and digitalization. development CapEx was $38 million, primarily driven by the completion of 2024 investment program for Enel Chile and investment for grid reliability enhancement and [indiscernible] deployment. In 2025, the development CapEx [indiscernible] related project has been partially deferred to 2026. Customer CapEx totaled $30 million, mostly focused on low and medium [indiscernible] connection projects and initiatives to support growth increase. And now let's move to the next slide, which presents a detailed view of our second quarter EBITDA. In the second quarter of 2025, our EBITDA reached $293 million representing a slight decrease of $10 million compared to the same period of 2024. Let's go to the main reason for the performance differences. Starting with Generation business, we recorded a decreased of $106 million in PPA sales primarily due to the termination of some high-priced regulated contract that impacted on volume and average price of the regulated portfolio, partially offset by the negative impact of exchange rate hedges recorded in 2024. Going to the sourcing, we recorded a positive effect of $92 million despite the negative impact of $23 million due to the transmission line constraint and interruption, particularly in June. The group performance is primarily explained by lower cost in the spot market, mainly due to lower energy volume purchase and lower third parties purchases. Regarding gas optimization activities, we achieved a positive contribution of $25 million, thanks to increased gas trading volumes for the total of 6.4 [indiscernible] during the second quarter of 2025. Regarding our grid business, we reported a positive impact of $7 million, mainly driven by provision reflecting the higher tariff expected for 2024, 2028 regulatory remuneration period, partially offset by a higher in the quarter, mainly due to increased maintenance activities and strengthening the grid. We also recorded a negative impact of $14 million, mainly due generation costs related to the new development capacity that starting over at after June 2024 and maintenance activities. Finally, in the second quarter of 2025, we recorded a pension cost one-off effect, mainly for the incentivized retirement plan to support the company reorganization aimed at improving internal performance. And now let's move on to the next slide to review the main impacts on EBITDA during the first line. In the first half, EBITDA reached $659 million, representing an improvement of $62 million compared to the same period of 2024. Starting with the generation business. We recorded a decrease of $155 million in PPA sales, mainly due to termination of high-price related contracts, partially offset by the negative impact from exchange rate hedges recorded in 2024 and deposited price efforts due to the indexation of 3 market contracts. Regarding sourcing, we recorded a positive effect of $189 million despite this $34 million negative the impact due to the transmission line restriction following the February blackout and the additional second quarter issues. The result was obtained, thanks to lower spot market and third-party energy purchase costs, energy settlement for previous periods, reduced transmission costs and finally, lower production costs, thanks to the efficiency of our thermal power plants. In the first half of 2025, gas optimization activities contributed [indiscernible] $22 million, also thanks of the increase of 5.9 [indiscernible] in trading volumes versus the same period of 2024. On the grids business, we recorded a positive impact of $34 million, primarily driven by 2 factors, provision reflecting the higher tariff expected for 2024 2028 regulatory remuneration and [indiscernible] of tariff indexation. As outlined in the quarterly analysis in the first half, we recorded an increase of generation cost due to the new developed capacity and the maintenance activities. Finally, as previously explained, we have a nonrecurring effect of $30 million related to the company's reorganization. And now let's move on to the next slide where we will review the net income evolution. Our first half 2025 net income reached $246 million, a decrease of 8% compared to the last year figures, mainly explained by improved EBITDA by $62 million, offset by higher depreciation, amortization, impairment and net debt expenses for $66 million, mainly due to the commissioning of new renewable capacity amounting to $20 million, $29 million impairment following our decision not to proceed with the new PMGD solar project initially planned for development in this area. And finally, the increase of net debt provisions amounting to $6 million, mainly driven by higher average invoice amount due to the rise of tariffs. Regarding financial results, we reported a negative variation of $28 million, mainly explained by the lower capitalized expenses of renewable projects, the 2024 interest on tax receivables, partially offset by lower financial expenses and positive foreign exchange differences. We also recorded a $3 million increase in the income taxes, mostly due to the improved results. Focusing on the quarter, net income decreased by $39 million mainly due to $10 million decline in EBITDA, $41 million increase in depreciation, amortization and net debt, primarily due to the operation of the renewable capacity and [indiscernible] impairment. And finally, $12 million decrease in income taxes mainly due to the lower results recorded in the second quarter 2025 versus the second quarter 2024. And now let's move on to the analysis on the next slide. Let's analyze FFO first half of 2025 and the main effect compared to the same period in 2024. Our FFO reached at $403 million, representing an improvement of $261 million comparted first half of 2024. This is due to the following factors. First, EBITDA amounted to $659 million with a positive variation of $62 million as previously explained. Second, a $269 million of recovery PEC receivable in the first half of 2025, mainly due to factoring executed in April 2025 related to PEC 3s. It's worth mentioning that we offset a positive FFO variance of $460 million versus the first half 2024, thanks to the end of accumulation of PEC receivable started in October 2024. Third, the working capital increased by $256 million, mainly due to the development CapEx payment and seasonality on energy payments. The increase was higher by $115 million versus previous year, mainly due to the negative effect of energy payment scheduling and the increase in distribution receivables due to the increase in the tariff. These effects were partially offset by lower CapEx payments related to the new renewable capacity. Fourth, income taxes impacted on FFO by $187 million, mainly due to the tax payment in the generation business. Income taxes paid in the first half 2025 were higher by $50 million compared to the first half 2024. This difference is mainly due to the increased tax payment in the generation business driven by both higher results and higher monthly payment tax rates. And finally, financial expenses amounting to $82 million, mostly due to the debt-related cost. This represents a reduction of $38 million compared to the first half 2024, mainly driven by a lower average debt this year. And now let's take a look to our liquidity and leverage position. Our gross debt increased slightly by $4 billion to $3.9 billion at the end of June 2025 compared to December 2024. This increase is mainly due to a seasonal effect related to the net working capital needs in the second quarter. The gross debt increase between December 2024 and June 2025 was driven by $100 million drawn from the new credit line with CAF -- Banco de desarrollo de América Latina y el Caribe and $42 million in new leasing liability offset by $102 million debt amortization. The average maturity of our debt portfolio slightly declined to 5.9 years as of June 2025 compared to 6.2 years in December 2024 and the portion at fixed rate is the 86% of the total debt. The average cost of our debt reached 4.9 as of June 2025, in line with our effort to optimize the financial costs. Regarding liquidity, we are in a comfortable position to support our capital needs for the upcoming months and cope with the next year maturity. And finally, as of June 2025, we have available committed credit lines $590 million and cash equivalents for $320 million. So thank you all for your attention. And now I will pass the floor to Gianluca for the closing remarks.

Thank you, Simone. As I take part in my first earnings call as CEO, I'd like to extend my thanks to our shareholders and the broader investment community for your continued support of Enel Chile. I step into this role committed to working with the Enel Chile team through an agile data-driven approach, clarity in execution and deeply rooted in operational excellence. This mindset will guide how we identify the seek opportunities design and scale innovative solutions and lead our team with clarity, purpose and accountability. I look forward to fostering our culture of agility, productivity, resilience and innovation, confident that this approach will generate consistent and sustainable value to all our stakeholders. Now I would like to share the following closing remarks. We remain fully committed to our winter plan in the distribution business with a clear focus on ensuring services continuity and reliability, especially during the most critical months of the year. The timely completion of all infrastructure projects is progressing as planned, strengthening our ability to respond effectively within a robust risk management framework. This approach includes a well-defined risk prevention activities, improves organizational readiness, enhances our capacity to respond rapidly and supports a swift recovery. Also, now that we have greater clarity regarding the regulation, we are set to begin construction of our BESS pipeline in the coming months. In parallel, we are proactively implementing managerial measures to mitigate the impacts on our portfolio, those related to transmission constraints and asset unavailability. We are acting with flexibility and precision to identify key operational actions and deploying solutions to safeguard value and maintain system stability and rentability. At the same time, we continue to improve the foundations of our business model, which has consistently proven resilient in face of external challenges. These ongoing managerial actions enhance our adaptability, reinforce our positioning and support the delivery of sustainable long-term value. Now let me hand it over to Isabela for question-and-answer session.

Thank you, Gianluca. Thank you, Simone. So let's now move on to the Q&A session. We will be taking questions this time via chat through the webcast. So the Q&A session is now open. So I will start here, Gianluca and Simone with the first question we have received. The first question comes from [ Florence Mallorca from METRI ]. The first question of Florence, is Gianluca, which is the main reason behind the higher energy losses in the distribution business? And she also -- the second question is regarding higher gas sales in the generation business, how sustainable they are? Okay. Gianluca?

Yes. Losses in distribution increased once comparing 2024 versus 2025. One reason is higher electricity prices starting in the mid-2024, which led to more energy debt and the last year climate events. Some changes in customer habits also added to the problem. To fix this, we have made payment plans easier for customers. We have also adapt better tools to find that. And we are working with regulators to improve the rules and regulatory model. Chile still has lower losses than other Latin American countries, but we are watching the situation closely and working with teams in other regions to share what's working and reduce these losses.

Thank you, Gianluca. Then we have the second question regarding the gas.

Yes. Okay. Our current guidance is between $80 million to $90 million for this year. We expect that the sale of gas surplus could be sustainable in the next few years, considering our liability. However, profitability and volume of gas trading will vary considering market conditions.

Okay. Thank you very much, Gianluca. So now let's go to our second question coming from Beatrice Gianola from Mediobanca. So she has several questions. I go one by one, Simone. So the first one is from hydrology, okay? So she's asking that in the first half, hydro production is slightly above 50% of the full year target, which gets confirmed. How do you expect hydro volumes to evolve in second half? Do you expect a slowdown? And if you are comfortable with the full year guidance, both in the hydrology and also in the -- we understand also in the EBITDA numbers, if you are confirming.

Okay. So the first half was a very, very seasonal, but considering that we have many plants with reservoir and the reservoir was at the highest level at the beginning of the year, we achieved a very high level of production. July was a little bit of surprise, it started a little bit dry. And -- but in this moment, it seems that the rain season has already come a little bit late. So also considering that we are expecting the melting season and there are a lot of snow on the mountains. We are quite optimistic about the hydro production for the next month. But clear, we will go on monitoring the situation. And so we can confirm 10.7 terawatt hour that was our target in the first year of the strategic plan.

Okay. Thank you, Simone. So we are going to the second question from Beatrice is about the debt cost of Enel Chile. Can you share with us your current average cost of debt?

We have a very good cost of debt coming from the indebtedness that we made in the past in a more favorable condition. We would start the year with 5%. But in this moment, the cost of debt is slightly decreased to 4.9%, also due to our good mix between long-term and short-term debt.

Okay. Thank you, Simone. So let me see now. We have a question coming from Francisco Paz from Santander. So the question of his is regarding the 2025 guidance as well. So considering the worse-than-expected energy market condition, also he's talking about the low hydrology and available of generation plant, transmission issues, which led to higher spot market prices. Are you considering to adjust your full year year-end guidance in terms of EBITDA, net income and payout?

So thank you for the question, Francisco. As we know, we are a very well-balanced company. So we have many possibility to react also to bad events. And so also in the first half, that as you commented, was a negative from the point of view of external pressure, hydrology, higher price, product transmission line and everything. We reacted and reached good results in line with our expectation. And so we are sure that we can continue on this trend and so we confirm also the guidance for the cost of debt...

Okay. Thank you, Simone. So I'm checking here. Okay. The next one is coming from [ Ruby Alvarado from BC ]. So he has 3 questions, Simone. So I think I can go one by one. So he's asking about do you expect any additional impairments in the future related to Salinas project, is the second one. I think it's one by one.

Okay. So let's talk about Salinas project. This is an important project, a power plant with 375 megawatts in the initial project. We built the first 205 megawatts in 2024 and then the condition in the market changed. So what happened that we moved the destination of our 2 different projects, in particular the construction of PMGD, it's a small power plant -- solar power plant in the area. Considering that the market for this kind of project is reducing, finally, we change the value of our assets to align the assets at the market level. And in this moment, the value of the asset after the last impairment is quite low, and we are not expecting any other impairment.

Okay. Thank you, Simone. So the second question is, could you give us more color on the reduction cost in the distribution segment? So yes, if sales in the distribution business were down, why do you see consolidated cost decreasing more than consolidated sales? Did you reach some additional efficiencies in terms of cost this year?

So we keep on working on distribution business. You know that this is for us a core business. And for sure, we are looking at the possibility of reduce the cost. For this reason, we launched some of the concepts and also some extraordinary activity to contain the cost, and this is the main reason for the cost reduction. This is in line with our policy, try to increment the value of this business.

Okay. So the last one is what is the reason behind the year-over-year increase in the financial expenses in the quarter for Enel Chile?

The increase is related to also to increase of amortization. The reason is that in the last year, we have a large amount of projects under construction. And so we have the opportunity to capitalize on some cost in the way in these projects. And considering that this project start producing energy, we issued a COD in particular for the huge project of Los Cóndores this year. We have a little bit changed the possibility to capitalize the financial cost.