Enel Chile S.A.

Good day, ladies and gentlemen, and welcome to NM Chile 1Q 2020 results conference call. My name is Gigi, and I will be your operator for today. Questions will be taken through the webcast chat. This call is made for investors and financial analysts, and the press is not allowed to ask questions. 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. After results may differ materially from those anticipated in the forward-looking statements as a result of various factors. These factors are described in the Nev Chiles press release reporting its 1Q 2020 results. The presentation accompanying this conference call and a Nev Chiles annual report on Form 20F, including under risk factors. You may access our 1Q 2020 results press release and presentation on our website, www.nl.cl, and our 20F on the SEC's website, www.sec.gov. Readers are cautioned not to place undue reliance on these forward-looking statements, which may speak only as of their date. NL 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 Mrs. Isabella Clems, Head of Investor Relations of Enel Chile. Please proceed.

Good morning, ladies and gentlemen, and welcome to Enel Chile's first quarter 2020 results presentation. I hope you are all safe in your homes and are following all the required safety measures that the prevailing circumstance requires us all. I am Isabella Clemes, Head of Investor Relations. Our presentation will be hosted by Giuseppe Curchiarelli, our CFO. In occasion of this event, we have adopted appropriate prevention measures. We are all connected through our homes or individual offices. previously sanitized, located in our corporate building. The ones that eventually have translating are using a mask, when in a common space, and also gloves. Giuseppe will be working with them in real life and will give us all an update on the global situation that we are facing. We will then walk you through our financial results and our operation performance. The usual Q&A section will follow. Please note that questions will be received only via chat, available in our webcast at www.nl.ca at the investor section. At any time during our presentation, you can submit your questions. Just select the link at the top of the webcast page, ask a question. After this call on Q&A, our IR team will continue to be available to provide with you any detailed information you may need with respect to figures included in this presentation. Thank you all for your presence, and now let me hand over to the call to Giuseppe.

Thank you, Isabella, and good morning, ladies and gentlemen. Let's start by mentioning the highlights of the piece. The world is facing one of the biggest health crises we remember. Immediately after the first alert of COVID pandemic, we have taken several actions to implement different measures to protect the health of our collaborators and to ensure the continuity of our services. Thanks to our investment in digitalization, we have developed a solid platform that has been able to ensure our business continuity. In the last year, we have been promoting remote working methodology by adopting new systems and the cloud. Today, we have been able to switch immediately to work remotely efficiently and effectively. In line with that, today all our generation and network activities are fully operational. We have been taking care of minimized risk in order to protect our people and guarantee that our services are fully available. This year, we were awarded in the top 10 in Latin and second in Chile in terms of corporate governance among the topics evaluated, and Chile was awarded with the first place in transparency and compliance practices. This confirms our solid commitment with our governance practices and in being a transparent company. Also, on January this year, we were included for the first time in the Rebecca Samir book, Receiving Bronze Class Distinction, which also reflects our strong commitment toward a sustainable business model. With reference to 2019, dividend distribution, as announced, it will not be impacted by one-time effects related to the decarbonization agreement, as we were announced, an extraordinary dividend amounting to 1.66 pesos per share, charged from the return on income in order to have a 60% payout on the performance income, excluding the one-time decarbonization effect. This is a clear demonstration of our commitment with our shareholders and our ESG attitude. Lastly, As we will demonstrate in the next slide, our liquidity put us in a solid position to face these global challenges. First of all, let me start by thanking all our people for their incredible positive reaction and strong commitment on responding to this contingency event. Now on page two. As anticipated, we have taken important measures in order to face this crisis. We are constantly monitoring the information concerning COVID-19, taking preventive measures and all necessary action. As a matter of fact, we have created a committee with representatives of different areas of the company to analyze the situation on a day-by-day basis and to coordinate all the required action we may need to take. The aim is to ensure the health and safety of our staff while guaranteeing the continuity of the services we provide. We have immediately activated the remote working for all employees. Today, almost 100% of our personnel that can work remotely are doing so. In terms of total figures, as of yesterday, 75% of our total employees are working from home. For the ones that need to be in our facilities, we have reduced the number of people present, the physical interaction, and implemented workplace sanitization with a continuous check on personal symptoms and the use of additional safety equipment. Crucial activities like risk control and plan dispatch are performed with extreme safety measures. In this exceptional situation, we have temporarily closed our distribution commercial facilities and improving at the same time our digital and online services. We have also temporarily suspended the residential metal reading in order to reduce risk for our collaborators and customers. Finally, Enel Group has drawn up an insurance policy to cover the groups over 68,000 worldwide employees. in event of hospitalization if they contract the COVID-19 virus. This solution is the first insurance tool in the world aimed to guarantee support at the global level for the current pandemic. As a company that provides an extension service, and then Chile is adopting all necessary measures to protect the most vulnerable clients and local community. Now, on page three. Considering the measure I had mentioned before on distribution business, we are also providing distribution client support by telephone, online, and app. Our clients are invited to use our digital platform that has been announced to manage their bill and to get all the information they may need. On that, let me highlight that on March 31st, we have reached the amount of 292,000 clients that have downloaded our app, designed exclusively to cope with our clients' needs. The same at March 31st, 65% of the payments were performed via digital channels. This represents an important growth when we compare to 51% ratio as of March 31st, 2019. As an additional support to our clients, during the emergency period, we are offering special payment plans for our most vulnerable clients with no interest or fee. There will be no power cuts and we will not disconnect these clients due to the no payment of electric bills. We are also introducing a special method reading program to support small businesses that were forced to close or to reduce their operations. As we know, their consumption on this time may be different once compared with the previous month. Last week, we launched a campaign called Kodo a Kodo, Elbow to Elbow, to support local communities close to our activity. And the most vulnerable part of our contention against COVID pandemic with urgent need in health and nutrition. Our first package of measures include the donation of the first 100 electric ambulance to the Chilean Red Cross, as well as contribution to other public hospitals and an e-bath that will be used as a mobile laboratory to the university. Let me now present you the financial highlights for the first quarter 2020 summed up on slide five. Our EBITDA amounted to $143 million in first year 2020 and negative balance of $37 million when we compare it with March 31st, 2019 figures. that has been adjusted by the PPA early termination books last year of $151 million. Group net income is 23% lower than 2019 adjusted figures, mainly by the lower EBITDA results. Higher depreciation in our distribution business due to the last year investment. Accelerated depreciation as a part of our decarbonization strategy. and partially offset by lower financial expense as a result of the liability manager executed in the second quarter 2019. Our total capex amounted to $170 million, 65% higher than previous year, focused on our decarbonization strategy and digitalization of our distribution business in new connection. The FFO decreased 67% or $190 million, mainly due to already major impact on EBITDA and the CAPEX development in 2018, whose payments were made in 2020. Our net debt in the period increased $122 million, mainly due to higher CAPEX payments executed on March 2020, and the interim dividend of the 2019 results which were paid in January. I will give you more detail in the following slides. Let's now give a deep view on company financials, starting with our capex. In slide 60, our total capex amounted $170 million. It's 65% higher than previous year, focused on asset development. This quarter, our development cap has reached $91 million, mainly allocated on renewables. It's part of our decarbonization strategy, which recorded $83 million, and on digitalization of our network that is bringing to us operational flexibility. On our renewable project, considering the current restrictions, Due to the COVID pandemic, we have been reviewing the logistic and construction plan, taking into account the additional safety standards in order to keep the development and construction of our project on track. From our total capacity estimated for 10,000 children, we have deployed around 10% in the first year of 2020, as expected. The remaining 90% of our capital will be concentrated in the third whole queue, being 22% allocated in the second queue, 37% in the third queue, and 30% in the last quarter of this year. During the first quarter 2020, almost 95% of our investment was allocated to achieve the SDG target that NHG has committed. Let's start with the EBITDA breakdown on slide seven. As you can see in the graph, in the first year 2019, Enel Chile had a non-recurring effect regarding the early termination of PPA clearance, which amounted to $151 million. Excluding this effect, our adjusted EBITDA decreased 13% or $37 million mainly in our business generation due to a lower hydro generation as a consequence of a drought that has been affecting the country, amounting to a negative impact of $10 million. Next, commodity coverage systems that had a negative effect in our EBITDA due to the drop of international brand price that brought us a negative impact on the settlement of our energy coverage of $25 million, partially offset by $9 million on saving on commodity, mainly to lower prices. Sales of two LNG cargoes in the first year 2018 that wasn't executed this year due to lower price of the commodity in the international market, with an impact of $70 million. These effects were mainly offset by higher CPI prices, mainly due to the indexation of contract by CPI and US dollar, partially offset by negative effects of the early stabilization rate. Now, let me go deeper on generation business. Moving to slide eight, I will present our CPI experience. The net production decreased 15% amounting to 4.8 terawatt-hours, driven by 90.5 terawatt-hours of lower thermal production, mainly in our local five planes, due to the closure of Tarapacá power plant on the 31st December 2018, and the impact of the lower system and marginal cost in our production strategy. minus 0.2 terawatt-hours of lower generation in our hydropower plants, reflecting the hydrology. We can also see this trend of lower hydrology within the Canadian system, as you show on the right, in this slide. In terms of our energy balance, we remain a spot buyer in the market, with the purchases of 1 terawatt-hours in the first few 2020, a variance of 0.6 per hour versus Q2 2019. This is mainly explained by low agrology and low marginal cost in this season, as we are showing in the right side of the slide. The lower season marginal cost, coming from the Argentinian natural gas availability, New transmission lines fully in operation starting from June 2018 and renewable development in the country explain our production strategy for this quarter, particularly in the month of January and February. Our physical energy sales is almost in line with 2019, thanks to the fact that we were able to secure new clients on the free market. The balance sheet is explained as the following. Minus 0.5 terabyte power or lower consumption of distribution companies, mainly associated to the termination of regulatory TPAs with Taesa and MS secured in 2006 auction, partially offset by 0.4 terabyte power of earlier pre-market sales as a part of our strategy to capture new clients and the ones that recently immigrated to the pre-market. In slide 9, we have a summary of the performance of our generation business, including energy generation and energy empowerment. All generation has been done. I have already get you through the main variation in the previous slide. What I would like to recall you is that we have produced 66% of our generation with renewable sources, 5% higher when we compare to last year's results. As a result of the already mentioned elements, our generation EBITDA margin reached 41% in the third year 2020, despite lower hydro production and commodity channels. Regarding our net install capacity, 65% of our capacity is based on renewable sources. This is part of our strategy plan to increase presence of pre-emission generation by closing our coal facility, which was the case of our coal facility Tarapacá that was closed in this year and adding new renewable capacity. Let me explain the most relevant operating part of our distribution and analytics design. We are in slide number 10. We have been advocating that the role of customers is set to change, opening up new business opportunities that have been captured by analysts. On that, we have secured new contracts on public lightning, where we will change the lightning structure by LED ones, which will bring a more efficient system to the local municipalities. from the digitalization of our distribution business, thinking on a medium term, and continuing working on the quality of our services, we have reached 1,206 telecontroller equipment installation in our grid. In the next two years, we are planning to install 785 additional units. Please, let's move now to slide 11. to explain the most relevant operational results of our network and NLX business. As of March 2020, the EBITDA of vinyl distribution and NLX had a minor variance when we compare it to the last year results, mainly due to new smart lightning contracts adding $1.9 million, target indexation totaling $1 million, offset by a $1.4 million income from 26 electric buses registered in 2019 that started the operation in the public transportation system in January last year. And higher losses due to the logistic restrictions to the social unrest in Chile during the first year 2020 of $1.6 million. As you can also see from the right side of the slide, Our customer base increased by 45,000 clients when we compare the first quarter of 2020 with the last year figures, reaching 1.98 million of clients, also reflecting an increase on the energy distributed of 0.1 terawatt-hours. It reached 4.3 terawatt-hours in this quarter. Following logistics restrictions coming from the social unrest and lastly from the pandemic situation, our international index had an increase of 4% in the first quarter of 2010 compared to last year's results. This index remains being a group benchmark in Latin America. On that matter, we continue to focus on critical areas for Saidi and Saifi, replacing approximately 52 kilometers of cable in our low-tension grid and executing more than 7 kilometers of medium-tension network in grid extension and reinforcement in this quarter. The energy losses increased for it to be reaching 5.25% due to a lower activity on site inspection. This decision was adopted in order to safeguard the safety of our workers. Now, on slide 12, let's go to the main drivers of our next ordinary income. As already mentioned before, the 2019 EBITDA includes the PPA determination, depreciation and amortization of each $76 million related to the higher depreciation and distribution business due to higher investment in the last year, and depreciation New calculation of the useful life of Bocamina-2 as part of our decarbonization strategy, partially compensated by the closure of Sarvaka on 31st December last year. The impairments and bad debt increased $4 million mainly in our distribution business as a result of the social unrest in the country. Financial results and other amounted to an expense of $32 million. a decrease of $5 million mainly due to the foreign currency exchange rate appreciation in the first year 2020 and a lower average cost of our debt due to the negotiation on AGP debt with the agency. Income taxes and minority reflect mainly the bid-up performance. As a consequence of all the above, the ordinary first year 2020 net income reached $88 million dollar decrease in 59 percent when it compared to first q 2019 the first q20 training the income compared with the adjustment income by the dpa and determination would have decreased 23 percent let me now go through our data on slide 13. Our gross debt increased by $585 million versus December 2019, amounting to $4.13 billion in March 2020, mainly due to the energy and new funding with AP. The average cost of our debt was reduced from 5.2% in December 2019 to $4.7 as of March 2020, showing an important improvement in our financial condition as a result of our constant effort to optimize our financial assets. The average sales of our loan is almost seven years. Our FSO reached 70. $57 million also affected by energy stabilization may come into $45 million. And the CAPEX developed in 2019 and whose payment was made in 2020. Our net debt as of March 2020 compared to December 2019 increased $122 million. Finally, on our Debt Amortization on Class 14, I would like to highlight that with our liquidity position, we are able to finance our CapEx plans, respect the commitment to our shareholders, and face possible worsening scenarios in the account. On our Debt Amortization, with an annual average of $2,281 million in liquidity in the next three years, Our liquidity allows to support the maturity over the next year. Before starting the Q&A section, I would like to mention some relevant takeaways on slide 15. In this global contingency, we have taken action timely and proactively Since the first day, in order to protect the health of our people, support our clients and community, and to guarantee business continuity. We are continuously monitoring the evolution of the situation in order to quickly react. And, at the same time, preparing a mid-term plan to keep our company at the best efficient level. Digitalization is key. to support this contingent period, and we believe that we should take this opportunity to follow and shape new habits of our clients. Sustainability continues to be the pillar of our business model, which has coped with any business disruption, and to maintain our strategy on the medium to long-term basis, despite current challenges. I would like to reinforce that today we are an activity that will allow us to cope with this global contingent. Thank you for your attention. Let's now open this next section. I will hand over to Isabella.

Thank you, Giuseppe. As we have anticipated, in this occasion we will receive questions via chat in our webcast. So I will start with our questions. First question from Murino Riccini from Santander. The first question is the following. Could you please give us more details regarding the 38.6 year-over-year retraction in operation cash flow, how much of that was affected by the stabilization mechanism, and how much for lower collections? Is there any other relevant effect impacting the number, maybe payments to suppliers? It grows 10% year over year. The second question from Marie-Louise, regarding generation. Are there ways to mitigate the issues that Bocamina 1 and 2 were unavailable? What could you do to avoid suffering that kind of impact in the coming period? Please, Giuseppe.

Thank you, Isabella. Okay. For what concerns the FFO, I have to say that the mean variances in comparison with 2018 is coming from the EBITDA reduction and the capex executed in 2018 that has been paid in 2010. On top of that, I would like to remember that This year we paid a higher amount in terms of fee basis in comparison with last year, roughly $25 million. We don't see any major impact in comparison with last year for what concerns the stabilization mechanism, neither for what concerns the collection, at least in March. For what concerns the Bocamina 1 and 2, well, as you may know, we had to shut down our book plant after the invasion of one person in one of the transmission lines that wasn't owned by our company as a part of the project. We truly believe that this process has no substance Considering that we are fully committed and since 2018, Enel Generation has been working with 1,370 coronal families to apply international standards to the resettlement process of regulatory audits. We have installed criteria of transparency and objectivity based on the auditory standards to end differences between agreement times at a different time. However, in this process, some leaders have appeared who only demand monetary compensation in addition to what they already obtained. So this is the situation as of today.

Isabella?

Thank you, Giuseppe. We have now a second question coming from Javier Suarez from Mediabank. He actually has two questions, okay? The first one is, can you help to understand the reasons why FFO has decreased by two-thirds during first quarter? And I think we have our answer, but if you wanted to also give any other information. And the last one from Javier is that, does the company feel the necessity to revise the work, its latest guidance? Thank you, Javier. Giuseppe?

Okay. I believe that I have already, you know, answer. Again, the main balances are maybe that and the cap executed in 2018, which had a rebound in 2020. As of today, we don't see a major impact in terms of COVID, and it's really hard to believe that we are not able to recover the Delta, the situation. So, frankly speaking, as of today, I'm not in a position to see whether we're going to have a different guidance. So I would confirm the guidance.

Okay. Thank you, Giuseppe. Well, we have now a question from Rodrigo Mora from Monega. The first question from Rodrigo It's about the forced disconnection of Bucamina, and I understand that was also responded to by you now. And the second question, if you can give more details about the Renewables Project COD for the year that was included in the business plan from the company that was presented last December, last year. And then we have a third question from Rodrigo. If we can give us more details about the supply contract ended with Saeza, how many gigawatts hour it has? Thank you, Rodrigo, for our question. Now, Giuseppe, I'm going to hand it to you.

Okay. So let's consider the CapEx. In the spite of the international situation, we can confirm our plan. As a matter of fact, we found a way in order to keep on track in our construction. So except for, you know, to which that can be recovered, I'll confirm our plan for 2020. Regarding the supply contracts that ended in the first quarter, in a second that I will check it and i will give you it's around 400 if i'm not wrong yes we are talking about we are talking about 0.4 You know, the contract that ended up with the regulator, with the distribution of SESA and MRN. This amount of tariff power that has been compensated by the new distribution, with the new contract with the free market.

Yep.

Okay. Thank you, Giuseppe. We have Michette here. Another question now from Arturo Morua from Soesca. Hi, everyone. My question is regarding to an L-renewal purchase with an L-renewal power. If we see the physical sales between both companies, it declined almost 20%. However, the total purchase cost remains the same. Thank you. So, Giuseppe, this is a question. Thank you, Arturo, for your question. I'm handing it now to you, Giuseppe.

So, basically... Yes, the question... Yeah. Okay.

So his question is regarding to a new generation purchase with a new power, the PPA with both companies. We see the physical sales between both companies decline almost 20%. However, the total purchase cost remain the same in the period with the comparison between first quarter this year with first quarter last year. So this was the question from Arturo Morua from Tuisca Asset Management. Right.

If you see in the slide eight in the presentation where we compare the whole picture of Enel Chile, Is it clear that the reduction in the product is coming from, you know, sticking out to the impact of . It's coming from the fact that we have a worse performance in hydro, okay? And of course, last year, The system marginal cost was pretty high, so it was convenient for the company to produce with its own power plant. In this year, the situation is slightly different, at least in the last month. This explains why we increased the purchases. this was the question.

Yeah, and he's also questioning why there is an increase on price on the PPAs between green power, now green power, and also a new generation.

Between green... All the PPA among energy power and are made according to the market type. So it reflects basically the situation that we have in the market.

Okay. Thank you, Giuseppe. We have another question from Alex . The first question that Alex has is – thank you, Alex, for your question. Are you expecting that the delay in collection based from distribution segments could be transferred to transmission and generation sector? Have you run an analysis for that? And I believe this is the question from Alex regarding the discussions on the most vulnerable clients. And then the second question that we have is that COVID-19 context, we will affect the impact of our growth projects. What are you seeing in that topic?

Okay. For what concerns the collection of our distribution company, and in general, the distribution, we don't expect any, how can I say, rebound on the transmission and production costs, on transmission and production company. We believe that, you know, we are working actually together also with the VAT, Banco Interamericano del Arroyo, in order altogether the sector, the distribution sector and the generation sector in order develop a way in order to reduce as much as possible the possible impact of the collection on the distribution company and avoiding any kind of break in the payment chain along the sector. So we don't expect any rebound on the transmission and production company. For what concerns the impact of COVID in our project, as already said, you know, part of our equipment is coming from China, but we have We had already checked the regular supply of the ketones. As a matter of fact, they're already coming, so we don't see any kind of impact on that. And this is the reason because we assume a respect of the project construction timing at the end of this year.

Okay, thank you, Giuseppe. And that question was from the Candidate Credit Corp. And now, yes, the question from Alex Bastradsky. I hope I have said correctly your surname, Alex. So could you please provide some color regarding your LNG obligations? and the impact then could have in a scenario of lower international gas prices and higher availability of the Argentinian gas. So this is the question for Alex. So Giuseppe, I'm going to hand it to you.

Yeah.

As we mentioned last year during the presentation, We have basically two kinds of sources in terms of gas supply. One is, of course, the Argentinian gas, and the other one is the contract, the LNG contract. The LNG contract is a contract that guarantees any possible interaction of Argentinian gas. Basically, we have a long-term contract that give us the right guarantee of the supply. The contract provides a certain amount of gas that has to be by every year. We have some condition among them in order to organize and to align the buy of the contract according to our needs. So the contract is basically very positive for us in terms of flexibility. Is it clear that the international price in the market will have an impact what concerns this contract? For two reasons. First, because, of course, as we did last year and as we did in the past in general, sometimes we use this contract in order to to make a margin in trading it. So in other words, we buy from the contract and we sell from the market. Here, we don't have this kind of opportunity, but that doesn't mean that we are not, we are going to be affecting the important way. This is basically the main impact because, you know, the Argentinian gas probably follows different kind of trends. So, basically, again, we buy from Argentina when we need to use it in case it's cheaper than LNG. Otherwise, we utilize that in our contracts.

Okay, thank you Giuseppe. And now we are going to go to a question from Enrico Bartoli from May 1st. So his first question is, do you see any risk of increasing bad gas due to COVID emergency? Are there any discussions with the regulator on how, in case, to manage and recover unpaid bills. Okay, and the second question is, the COVID emergency is affecting, in any way, the construction schedule for new renewable capacity?

Okay. Is it clear that the COVID emergency in some way could affect the business? In March, we didn't see it. We are also pushing a lot our digital channel in order to reduce it at the minimum level possible Again, as of today, the impact is coming more from the tail of social unrest that we faced in October last year, more than on the COVID. The COVID impact as of today, at least in March, we don't see any kind of impact. For what concerns the second question, we don't have a specific discussion on the MTA bill with the regulator. What we have, as I said before, is a... Of course, what we have is a... discussion with the bid in order to find a way in order to cover you know the possible delay in the payment so impossible delay with the recollection that of course will take care about also certain percentage of the campaign clear that uh We are, again, in contact with the regulators to understand how to face this situation.

Okay. Thank you, Giuseppe. Now we have another question from Rodrigo Mora. The question is related to Los Congres Projects. So, Giuseppe, due to the – let me just replace the question. Do the pandemics that we are facing will somehow affect the COD that we are expecting for the Los Condores project? If you can give a color on this. Thank you, Rodrigo, for the question, Giuseppe.

Yeah.

As we mentioned before, we are reviewing all our projects to be in line with the new safety standards. It's the kind of stuff that we used to do pretty often, of course, to review and understand how the project is going. As soon as we have the next review, we're going to communicate in case we find a difference in comparison with our declaration in the past.

Okay, Giuseppe, thank you. I think we have answered and followed all the questions. So I would like them to, as we do not have any, no, we don't. We don't have any more questions. Then I conclude the results conference call. And let me remind you all, the ones that are connecting, that our team is available for any questions that you may have. And thanks for your attention and stay safe. Thank you. Bye-bye.

Bye-bye. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.