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

Good day, ladies and gentlemen, and welcome to Enel Américas Second Quarter and First Half 2026 Results Conference Call. My name is Liz, and I will be your operator today. [Operator Instructions] Please be advised that today's conference is being recorded. 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, trends affecting Enel Americas financial condition or results of operations, including market trends in the electricity sector in Chile, the countries where the company operates or elsewhere, supervision and regulation of the electricity sector in Chile and the countries where the company operates or elsewhere and the future effect of any changes in the laws and regulations applicable to Enel Americas or its subsidiaries. Such forward-looking statements reflect only our current expectations and 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 and increase in the market rates of interest in the United States or elsewhere, adverse decisions by government regulators in Chile, the countries where the company operates 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 results 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. Good afternoon, ladies and gentlemen, and welcome to our second quarter 2026 results presentation. I'm Jorge Velis, Head of Investor Relations of Enel Americas. In the coming slides, our CEO, Giuseppe Turchiarelli; 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 on 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 with us to our corporate e-mail ir.enelamericas.enel.com. Now let me hand over the call to Giuseppe, who will start by outlining the main highlights of the period on Slide 3.

Thank you, Jorge. During the second quarter of this year, we delivered positive results across all our businesses, reflecting solid execution healthy financial performance and sustained profitability fully aligned with our strategic plan. Regarding the investments, total CapEx reached USD 0.54 billion in line with the second quarter of last year with a significant increase in grades, offset by lower CapEx in generation due to the completion of renewable projects in the last 12 months. In Argentina, we increased our investment by 10%, supported by the continued implementation of the new tariff scheme. In Brazil, we saw a 42% increase in risk CapEx focused on digitalization and network resilience. Finally, in Colombia, CapEx decreased due to a lower investment in generation business, mainly explained by the completion of GualapoI and Atlantica solar plan. Regarding our financial performance, EBITDA reached $1.25 billion, an increase of 18% compared to the same period of 2025. Growth was driven by better results in all our businesses, boosted by currency appreciation. Finally, net income increased 31% compared to the same period of last year, reaching $0.25 billion. Let me also highlight that last week in an extraordinary shareholder meeting our shareholders approved a new share buyback program of up to 5% of the share of the company. Our Board of Directors was mandated to define the percentage to be acquired and price of this operation. And the final decision will be communicated to the market through a material part. Now in the coming slide, let's see the main regulatory news for the period. Starting with Argentina, the Congress is discussing a new build for energy sector matters, including a provision related to the regulatory assets associated with the frozen tariff. The proposal has already been approved by the Chamber of Deputies, and now we are waiting for the discussion in the center. In Brazil, the main focus remains the administrative process initiated by Enel regarding Enel Sao Paulo concession. During the quarter, the company formally challenged the possible recommendation of early termination, and we presented our final argument to Enel on July 23. In a parallel process, the company submitted a comprehensive defense supported by technical and regulatory analysis. The case remains under review by Enel. Also in Brazil, the Minister of Mines and Energy recently issued the regulation of earning the compensation maintenance for renewable generation curtailment events that occur between September 2023 and November 2025. The framework provides higher legal certainty for the sector by establishing the process for compensating generation cuts associated with transmission constraints and electrical reliability requirements, while curtailment driven by energy oversupply remains excluded from competition. Finally, in Colombia, the regulator, Craig, recently issued a set of preventive measures in strengthening the reliability of the power system in anticipation of the effect of El Nino phenomenon. The measures are designed to increase energy availability and operational flexibility, thereby reinforcing security of supply. Now let's analyze our investment for the period of the coming slide. CapEx reached $537 million in the second quarter, remaining broadly stable year-on-year. This is explained by an increase in CapEx in our distribution concession offset by lower investment in generation due to the completion of renewable projects in Colombia. Brazil accounted for 70% of the total investment, followed by Colombia with 19% and Argentina with 10%. By business line, 90% of the CapEx was allocated to grids, while 10% corresponding to the integrated businesses. Grid CapEx totaled $481 million, increasing 24% year-on-year, mainly driven by continued investment in network modernization and quality improvement. Within this, investment in network upgrade increased by 19% compared to the same period of last year. On a cumulative basis, CapEx increased by 4% compared to 2025, reaching almost USD 1 billion in the first half of the year. Let's now analyze Grid's operational highlights on Slide 6. Electricity distributed reached 24.3 terawatt hour in the second quarter, slightly lower than the same period of the last year. This is explained by lower demand in Brazil, mainly due to milder temperatures. Regarding number of customers, we had an increase of 347,000 in the last 3 months. reaching 23.2 million customers. Smart meter increased by 63%, reaching almost 2.8 million in this period due to our deployment plan in Sao Paulo. Net RAB and net rab customer increased 12% and 11%, respectively, isolating the impact of the exchange rate. This reflects the significant investment that we are making in our grid. In terms of quality indicators, we can see that said improved significantly in Edesur and Sara and in Colombia. And in Sao Paulo and Rio, last increased mainly due to weather events registered in the last 12 months. SAIFI improved in Colombia and Sao Paulo increased mainly due to the effect of service interruption events in the transmission line in the case of Edesur and due to higher number of incidents associated with extreme weather condition in the case of Sao Paolo. Finally, regarding energy losses, we see an increase in own subsidiary. In Edesur, this was mainly driven by higher LTC demand, mainly due to lower temperatures in May. Colombia slightly increased to higher energy transport dated and in Brazil, despite having an increase in loss in the last 12 months, if we consider the first half of the year, we can see a recovery in this KPI. Let's continue with the generation operational highlights on Slide 7. Installed capacity reached 12.1 gigawatt from which 96% is renewable compared to June of last year, we added a 0.3 gigawatts of solar capacity of Yapo 3 project in Colombia. I remind you that we have a decrease of 1.3 gigawatts of hydro capacity related to the nonrenewal of Elton hydropower concession in Argentina. We are currently working on additional 0.3 gigawatt capacity related to the solar power plant Atlantico in Colombia. This plant is already delivering electricity to the grid under commissioning test. Formal approval of commercial operation is expected soon. Regarding net production, we recorded an 8% increase consolidated level. This was mainly driven by higher solar production in Colombia and hydro and wind output in Brazil. Let's see our energy balance on the next slide. Energy sales showed a positive evolution during the quarter, increasing 4% year-on-year to 13.1 terawatt hours. This growth was mainly driven by higher energy sales in Colombia and Central America, where volumes increased 9%, reflecting higher solar production in Colombia and stronger hydro availability in Panama. In Brazil, sales lighter decrease, reaching 7.2 terawatt hour. On the sourcing side, total energy variabilities increased from 12.6 terawatt hour to 13.1 terawatt hour, supported by higher production levels, which more than compensate for the reduction in the third-party purchases. As a result, our generation represents a greater portion of energy supply during the quarter. Looking at the sales mix, regulated sales continued to grow, reaching 6.9 terawatt hour, an increase of 17% year-on-year, while unregulated sales declined to 5.2 terawatt hours. On a year-to-date basis, energy sales reached 23.9 terawatt hour, a slight reduction compared to the last year mainly due to lower energy purchases to third parties. Now Rafael will comment on the financial results of the period in the coming slides.

Thank you, Giuseppe. EBITDA this quarter reached USD 1.25 billion, which represents an increase of 18% compared to the second quarter of 2025. This result is mainly explained by better results in generation business in Colombia, mainly due to higher production and distribution business in Brazil due to higher tariffs. Currency appreciation in Colombia and Brazil also helped to boost EBITDA. Net income reached USD 0.25 billion in this quarter, which is 31% higher than second quarter of last year, mainly explained by better EBITDA. This was partially offset by higher financial expenses due to higher gross debt and higher average cost of debt. Funds from operations showed a positive performance during this quarter, reaching USD 0.66 billion. This represents an increase of 12% when compared to last year mainly explained by higher EBITDA. Ahead in this presentation, we will see more details about fanfare operations. On Slide #11, we will see this quarter's EBITDA evolution and breakdown. Starting from reported EBITDA of USD 1,061 million in the second quarter of 2025 and excluding the positive impact recorded last year from the debt agreement, with Cammesa in Edesur, adjusted EBITDA stood at USD 962 million. On this comparable basis, both businesses, both business lines show a solid performance, integrated business increased by USD 114 million, mainly supported by stronger generation results in Colombia while grids contributed an additional USD 42 million, supported by a strong performance across these 3 countries in which we operate. As a result, adjusted EBITDA reached USD 1,116 million, up 16% year-on-year. But in addition, FX had a positive impact of USD 138 million, bringing reported EBITDA for the quarter to USD 1,254 million, that represents 18% above the same period of 2025. In terms of EBITDA contribution, Brazil remained the largest market, representing 48% of the total followed closely by Colombia with 44% of the total. Argentina and Central America, each accounted for 4% while Peru, Peru contributed 1%. By business line, Grids represented 55% of EBITDA, while the integrated business accounted for 44%. Now on Slide #12, let me analyze EBITDA breakdown on a cumulative basis. Adjusted EBITDA in the first half of 2026 reached USD 2,186 million, reflecting an 11% year-on-year increase. This positive evolution was supported by both business segments, with rigs increasing by USD 166 million, driven by a strong operating performance across all countries, while integrated business grew by USD 50 million, mainly due to a better result in Colombia, mainly due to the relevant performance in Colombia this first half. After including FX effects, which had a positive impact of USD 242 million, reported EBITDA amounted to USD 2,428 million representing a 17% increase versus the first half of 2025. Looking at the EBITDA mix, Brazil remaining the largest contributor, accounting for 49% of the total EBITDA, followed by Colombia with Argentina and Central America represented 5% and 4%, respectively, while Peru contributed 1%. By business line, Grids accounted for 60% of the total EBITDA, while the integrated business represented 39% of the total. Now on Slide #13, we will review the cash flow of our company. Starting from an EBITDA of USD 2.43 billion, we see that net working capital for the period accounted to USD 0.95 billion higher than last year and mainly explained by Brazil due to higher way mechanism, which is a regulatory pass-through account that records differences between actual and tariff recognized energy purchase costs. higher effect from the inflation adjustments over the trap regulatory asset base, which is a noncash item and by timing effects related to CapEx payments. taxes during this period amounted to USD 0.35 billion, an increase of USD 15 million, while net financial expenses increased by USD 130 million reaching USD 0.39 billion, mainly explained by higher debt in Brazil. With this, fandom operations remained positive, amounting to USD 0.74 billion. After investments for USD 0.98 billion, we get to a free cash flow -- negative free cash flow, in this case, of USD 0.25 billion. Let me now analyze the debt of our company on Slide 14. Gross debt amounted to USD 7.7 billion, an increase of 12% compared to December 2025, mainly explained by higher debt in Brazil and currency appreciation in Colombia and in Brazil. Net debt reached USD 6 billion, an increase of 25% compared to the end of 2025. This includes negative free cash flow for USD 0.2 billion that we saw in the previous slide, net dividends paid for USD 0.3 billion and negative FX impact of USD 0.7 billion. In terms of currency and country, we see that Brazil remains the largest contributor while the debt at the holding level represents 8% of the total. Finally, regarding the cost of debt, we can see an increase for this period going from 11.4% to 13.1%, explained by higher proportion of debt coming from Brazil, Brazil and Argentina and higher rates in Colombia. On the next slide, Giuseppe will conclude this presentation with some closing remarks.

Disciplined CapEx allocation, capital allocation continues to be central for our strategy. We remain focused on investing in Greece, where we see attractive risk adjustment return and clear opportunity to strengthen network resilience. Our second quarter results reflect the consistency of this approach. We delivered solid performance across our business, supported by positive contribution from currency appreciation. This reinforced the strength of our asset base and our ability to execute effectively in a complex operating environment. Regulatory advocacy remain a key priority for the company. We continue to engage constructively with the regulator and other stakeholders to support business continuity, protect value and advance towards regulatory certainty across our markets. Finally, I would like to highlight the approval of the share buyback program by the extraordinary shareholder meeting on July 23. This initiative reflects our commitment to enhancing the shareholder return while maintaining a disciplined and balanced approach to capital allocation. Now I will give the floor to Jorge for the Q&A section.

Thank you, Giuseppe. Thank you, Rafa. First questions come from Isabella Pacheco, Bank of America. How do you expect Nina to impact your operations? Are you taking any measures initiatives to minimize risk? Could you also please remind us how you handle Elin in the past and what the impacts on your operations and financial results were.

Well, let me say that, of course, Colombia is closely monitoring this phenomenon. As of today, we don't have any material impact to be reported for what concern our financial target. The hydrological risk is mitigated because of our diversified hydropower plant portfolio, which reservoir are in a very good situation compared to the average of the other hydropower plants in the country. And thermal resilience is secured through maintenance planned guaranteed availability of automotive for the unit. So as of today, we don't have any major impact to be reported.

Thank you, Giuseppe. Second question from Felipe Reserva from Credicorp. Could you please elaborate on when we could expect the final decision regarding the price and size of the approved share buyback program.

Well, as I said during the presentation, the shareholder meeting gave the mandate to the border to the and channel price. So we are going to communicate the characteristic of this share buyback program through a material fact. .