Enel Chile S.A.

Good day, ladies and gentlemen, and welcome to our NO Chile third quarter and nine months 2021 results conference call. My name is Victor, and I will 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-lifting statements as a result of various factors. These factors are described in NLT's press release reporting its third quarter and nine months 2021 results. The presentation accompanying this conference call and NLT's annual report on Form 20F include under-risk factors. You may access our third quarter and nine months 2021 results press release and presentation on our website, www.no.cl, and our 20F on the SEC's website, www.sec.gov. Readers are cautioned not to place under-reliance on those forward-looking statements, which 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 will now turn the presentation over to Ms. Isabella Clemes, Head of Investor Relations of NL Chile. Please proceed.

Thank you, Vitor. Buenos dias. Good morning and welcome to NL Chile's third quarter 2021 results presentation. Thanks to all for joining us today. I am Isabella Clemens, the Head of Investor Relations. Let me remind you that our presentation and related financial information are available on our website, www.nl.cl, in the Investors section, and in our app, Investors. In the final of the presentation, there will be an opportunity to ask questions via phone or chat through the link, Ask a Question. Joining me this morning, our CEO, Paolo Palocchi, and our CFO, Giuseppe Tucciarelli. In the following slides, Paolo will open the presentation with the main highlights of our strategy and operational performance of the quarter. Then Giuseppe will go through our financial results. A replay of the call will also be available. And as always, our IR team will be continually available to provide you with any other detail that you need. Also, let me remind you that media participants are connected only in listening mode. Thank you all for your attention and let me hand over to Paolo. Paolo?

Thank you, Isabella. Good morning and thanks for joining us. Let me start with the main highlights of the period of design number three. First, let me comment about the unusual situation of the Chilean electricity market. In terms of hydrology, The country is facing the driest calendar year of its history, and as a consequence, the system has required and is still requiring an important support from thermal generation. At the same time, by the end of 2020 and the first month of 2021, Chile suffered a shortfall of Argentinian natural gas, followed by the rise of the LNG stock price. Considering this lack of resources in the system, since the first month of 2021, we put in place some actions to improve gas availability, buying additional energy cargos to supply our plants at first, and then to sell gas to the system. During the first period of 2021, we have been the largest importer of energy gas in the country. At the same time, we launched a force to improve the performance of our hydro plants to operate also with minimal conditions. Despite all the actions we put in place during 2021, the external scenario has worsened with escalation of commodity prices and a very bad energy, especially in July and the first half of August, leaving the authority to put in place a preventive rationing decree within due date March 2022. Consequently, our margin remains affected. Within this challenging scenario, investing in renewables to diversify our matrix to reduce our exposure to the hydrology and commodities has been confirmed to be a priority. With reference to our 1.3 gigawatts of new projects under construction, the activities on site are advancing and during the last quarter, also celebrated the start of the construction of the first green hydrogen pilot project in Chile and in Latin America, located in Mariana. On electric mobility, last week, Enel X signed an agreement to bring to Chile the first mining electric truck. Additionally, today we have more than 10,000 wood heating systems replaced with safer, efficient, and cleaner technology as part of our effort to support the contamination of the cities. We continue to develop our actions based on ESG-XL standards, allowing us, for instance, to leverage our expansion through SDG-Link financial instruments. Now move on to page 4, our capacity in construction. We continue to develop our strategy toward a cleaner generation monthly. Renewable energy is the catalyzer for the energy transition and an essential pillar for our positioning in the market. During the last 18 months, we went through some heavy wind associated with the COVID-19 pandemic, as the constraints in worker displacement and closing of the border, and the bureaucracy's slowness for archaeological permits, for instance. Nevertheless, Without including Los Congres, today we have 1.3 gigawatts of projects under construction, of which around 0.6 gigawatts have been already connected to the system by the end of September. By the end of this year, we are maximizing our efforts to advance the construction of the remaining projects, expecting to reach at least 900 megawatts to be connected into the group. Additional 250 will be connected to the grid by first quarter 2022, and the ramp-up to full production will be finalized by first half 2022 for most of the projects. The construction of wind farm Renico II will be finalized during 2022, considering the effort to move components of the wind facilities from the port to the site location. With reference to our JD on green hydrogen with Amy and other partners, we have recently started the construction of this first pilot project in Chile, and we expect it to be operational by second quarter 2022. We are fully convinced that along the renewable energy, green hydrogen will be essential ally in the energy transition and faster decarbonization process Now let's move to the decarbonization of the final concern. Page 5. NLX is expanding its effort to displace polluting energy sources and promotes the intensive use of electricity in the public and private sectors, accelerating an agenda that allows the electrification of industrial processes and public transport. as well as the implementation of energy efficiency mirrors in private and public buildings. Along with this plan, a good complement is the action in public transport. Chilean government, committed to reaching 100% electric public transport by 2040, launched a standard to replace 1,640 buses in early 2031. As an election, We are participating in this process and have been awarded, together with our partners, with 991 electric buses, reinforcing our leadership position in public mobility in Chile, with a market share of 81%. In the field of private sector fleet, together with the mining company SQM, we have presented the first 30 tons electric mining truck. with incorporation of six electric buses for transportation of the employees. NLX is also implementing the necessary charging infrastructures for the operations. This is an important step for the mining industry in Chile, where a complete process has been made in mitigating emissions at the core of the mining operations. Regarding the decarbonization of homes and final consumer, we have achieved the milestone of replacing 110,000 wood stoves with an efficient electrical air conditioning equipment in Chile. This initiative reduces CO2 emissions and improves the well-being of our city and communities, benefiting more than 40,000 people. Finally, in the face of efficient lighting in our cities, LNX expands and consolidates its presence in regions with the award of the maintenance service of the public lighting system in the municipalities of Temuco, with more than 32,000 public lighting that allow us to reach 340,000 points of light, of which 50% correspond to projects carried out outside Santiago, lighting our city efficiently and increasing the safety of the citizens. Now let's go to Network, page 2. Energy distribution improvement reflects the recent easing of the sanitary conditions, showing a partial recovery when comparing to the previous year. Our efforts and investments have allowed to increase the quality of our service, resulting in lowering CID by 16%. Our investment in digitalization continues to improve the contact channels with our clients. In this period, almost 90% of our contacts with our clients have been executed through digital channels. Let's now move to the classic service load. With its extension until 31 December 2021, the application of such a law is still affecting the level of overdue debt. As of September, the overdue debt reached $180 million. In order to minimize this impact, we continue to promote payment agreements with the aim of reducing the overdue accounts by September 2021, in more than one year, we have reached more than 58,000 payment agreements with our clients, of which 53% correspond to the basic service load. Moving to collection, the ongoing process for the update to sub ISO of our billing system, as important lead in the digital transformation process of our company, has temporary worsened our KPI versus previous quarters. We expect a normalization of the collection rate during the next quarter. A quick update on regulation. On distribution, we expect that the consultant report on the reference model will be released during November. If this date is confirmed, the final report could be issued early next year. Considering the challenge of potential discrepancy to the ex-panels, the final distribution tariff decrease is expected to be released during mid-2032. On transmission, we have answered in the ex-panel phase. All the discrepancies referring to the final reorder report on the transmission system for the period 2020-2033 were already presented. As a result, we expect that the new VAT shall be published early 2032. Thank you, and now I will hand over to Giuseppe.

Thanks, Paolo. Let me start with the summary of our financial highlights on slide 8. Before starting, let me explain the extraordinary effect of the period. 2021 adjusted a bit down. and net income considered the effect arising from the cold stock impairment associated to Bocamina 2 and the Voluntary Retirement Program announced last quarter. The cold stock impairment and the Voluntary Retirement Program had an aggregated effect of $56 million and $39 million, respectively. In EBITDA, and at the bottom line in cumulative figures. In the third quarter of 2021, the cold stock impairment amounted to $11 million in EBITDA and $8 million in the group net income. For cumulative figures in 2020, the adjustment coming from the cold stock impairment is $22 million in EBITDA, and the net effect of the impairment of Bocomina 2 is $659 million at the bottom line. All the details are described in the bottom of the slide. Now, on CAPEX deployment on slide 9. 2021 accumulated CAPEX reached $735 million, largely devoted to the construction of our new renewable capacity. Customer capex totaled $49 million, mainly allocated to build new connections and to implement the new commercial system. Asset management capex reached $86 million, 21% higher than 9 months 2020, mainly due to the maintenance of new high-voltage projects awarded in 2021 and other digitalization projects. Development capex reached $600 million, largely driven by our renewable expansion program and development of our distribution business to contain the digitalization of our network. Let's now start with the third queue adjusted EBITDA breakdown on slide 10. Data counted $93 million. 71% lower versus 2020 figures, mainly due to higher PPA sales in the third Q, 2021, primarily explained by the new agreement started in 2021 with mining companies as Anglo-American and BHP, the adjustment due to the indexation and the new contract coming from annual distribution free customer portfolio at the beginning of the year. Hydrology, lack of Argentinian gas and higher LNG international prices explain the main variances of this quarter that demanded us to increase the volume of purchases at a higher prices versus last year. Let me explain each element that are included in the slide. Spot purchases volume represented a variation of almost $120 million, mainly explained by the lower hydro generation. Spot purchases cost represented an increase of around $90 million, Variable production costs partially offset by the aging contracted for the year represented a variance of around $100 million. Gas margin represented a positive variance of $6 million in our EBITDA as an increase of our natural gas trading activity in the market. Following the chart, we have also in the period variances coming from A recovery of the third Q2021 demand in distribution business, mainly in the regulated customer, due to the release of the lockdown measures in the step-by-step government plan. Network remuneration, mainly related to the provision on lower remuneration on distribution tariff, which should be retroactive to November 2020, and in the lower remuneration of transmission tariff as a result of the indexation of the tariff. Other effects accounted for $18 million, mainly related to a higher analysis done in the quarter, mainly due to the public likening by business, lower penalty and compensation costs in distribution business due to a better quality indicators, and the temporary effect during the 32-20 on reading services costs due to the logistic restriction. Let's move now to slide 11, where we have the summary of 9 months adjusted EBITDA breakdown accounting for $536 million. 39% lower versus 2020 figures. As you can see, the main effects are the same that we presented in the first two. Higher TPA sales in the 9 months 2021 due to the new agreement already mentioned, which started in 2021. Higher spot purchases volume during the 9 months with an effect of $160 million. The increase in the spot price due to the drought and for the commodity availability and other higher commodity prices in the international market represented an impact of $151 million. The variable generation cost, mainly impacted by the third quarter results, offset by the commodity coverage of around $8 million, totaled $45 million in the period. The already mentioned gas wholesale effect, with a positive impact in the bid of $70 million. The distribution business, has had a recovery of the demand due to the flexibility of the lockdown with an effect of $5 million in the bid-up, a negative $33 million on network recommendation related to the expected lower distribution and transmission tariffs, and others accounted for $7 million, mainly due to the new contract agreement booked in the first Q2021 with Enel distribution unions. Now, on slide 12, let's go through the main driver of our block net income. DNA embed debt reached $223 million, a variances of $42 million, mainly related to lower DNA in Enel Generación, due to the impairment made in VOCA-2 in 2020 and lower DNA in EGP-H due to depreciation of Chilean pesos in the period. Net financial results total an expense of $165 million, an increase of $47 million mainly due to higher cost, mainly related to the factor in executing generation business on stabilization mechanism account, higher client agreement due to the basic service law and higher financial expense capitalized during 2021. Income tax reflects the impact related to the lower EBITDA, higher financial expense and higher tax credit in the quarter due to the higher monetary correction in the period. As a result, the adjustment 9 months 2021-19 can reach $104 million. The adjusted 3rd Q 2021 reduced losses of $13 million, mainly explained by the lower EBITDA results in the quarter, for the reason mentioned in the previous slide, partially offset by the lower income tax, mainly due to the earnings before tax results and the monetary correction due to the higher inflation in the country versus last period. Moving to the cash flow on slide 13. 9 months 2021 FSO reached $309 million, 45% lower than previous year figures, mostly due to lower EBITDA, due to the redimensional hydrogen spot price effect, higher income tax during 9 months 2021, mainly related to COVID-19 measures during 2020 that postponed part of the corporate tax payment to 2021, lower fiscal tax payment days during 2020, and of sharp depreciation in the end of 2020 that generated gains resulting in higher tax payments during this year. And higher financial expense, mainly explained by the cost of the factoring of the stabilization mechanism account. All these effects were offset by the higher net working capital versus 2020, mainly explained by the factoring in both generation and distribution business, accounted for almost $300 million. A transmission line sales in 2020 with a cash impact of $28 million in 2021, lower impact of stabilization price mechanism in 2021 versus 2020 due to depreciation of Chilean antennas. partially offset by sales of e-buses during nine months in 2020, a temporary effect in collections in 2021, mainly due to the implementation of new commercial systems. Let me now go through our depth on slide 14. Our gross debt increased by around $700 million versus December 2020, amounting to $4.7 billion as a result of new issuance in the period with Enel Finance International and third parties. The new issuance, all SDG-linked, which consider as KPI the CO2 emission of our regeneration fleet by 2023, are mainly related to the CapEx plan execution. Therefore, we now have 14% of our total gross debt as digitally linked. Our plan is to continue to pursue this kind of debt line that is awarding our movement toward a cleaner matrix. In terms of debt amortization, our schedule remains sustainable with an average of 6 years and with the cost substantially aligned with the last year figures. Finally, in terms of liquidity, our figures give us flexibility to face potential headwinds in the market. And now on page 15. Since the first quarter of this year, we have been anticipating our internal view of the hydrology for Chile. As we show in this slide, the ideal performance is pretty much correlated to the driest period we have faced for Chile, and there is no perspective this far from the last year's figures. Tied to this scenario, which demanded much higher national thermal generation levels, the lack of Argentinian natural gas coped with the sharp increase of LNG and the brain crisis exposed ourselves to a non-competitive mix of generation and higher spot prices. Therefore, we have revised our number to express this update advanced several scenarios to reflect the evolution of some variables. This study drove us to predict 2021 adjusted EBITDA figures between $0.8 and $0.9 million, implying an evaluation of around $300 million versus our guidance reported in the last quarter. We don't see essential deviation on CapEx, as the more significant part of our development CapEx is being deployed in the following mode. In our view, the 2021 scenario adjustment is not a structural one. We strongly believe that our strategy of increasing renewable capacity will significantly reduce the exposure to commodity and hydro in the following year. Paolo, I will hand over to you for closing remarks.

Thank you, Giuseppe. Executing our investment plans will remain our priority. and three, to bring additional flexibility and resilience to our current portfolio. Last month, the regulator presented a proposal to define a new framework for storage remuneration electrical system. Companies and associations submitted their feedbacks on the proposal, and we are waiting for the final version of this regulation, expected to be published in the next month. This is an important step ahead for the improvement of the use of such technology, adding resilience and flexibility into the system. We will continue to support our clients and communities to accelerate the electrification of their energy use in order to reach the net zero ambitions. Our strategy will continue to be deployed under the highest ESG standards. For example, we have been awarded in the Informer Report 2021 as the best company in terms of reporting and power posts and recognition in the PwC study as one of the companies with the best practice in corporate governance in Chile. Thank you for your attention. Now, let's move into the Q&A session.

That's a question at this time, on your telephone. And to withdraw your question, just press the pound key. Once again, let's start one for questions. One moment for questions. Our first question will come from the line of Javier Suarez from MedioBlanca. You may begin.

Thank you. Good morning, and thank you for the presentation and for taking my questions as well. I have three questions. The first one is obviously on the margin for the generation activity this quarter that has been affected by hydro, and I guess on that the company is a taker, and also by the lack of Argentinian gas and very high international gas prices so I was wondering if you can give us an update on your gas supply natural gas supply strategy and outlook for the next couple of quarters because obviously that is going to be very relevant for your profitability in case of higher conditions continues to be difficult so any guidance on managerial action to improve natural gas supply for the next quarter and maybe mitigate that negative impact could be helpful Then second question is on the TPIs during the third quarter. There has been some deterioration on the collection. I think you mentioned that during the presentation. So you can kindly elaborate on the reason for that deterioration on the collection. And the third question is on slide number 13, 12 and 13 on your factoring strategy or your factoring for the TPIs. if you can help us to understand how this is and this is working and how that is accounted. Many thanks.

Okay. Thank you, Javier, for all your questions. I will take the first two and the second one. We manage together with Giuseppe and leave Giuseppe for the third. Regarding the gas strategy Just to give you an update on the situation, starting from end of September, I would say very early October, the gas, Argentina gas has been available for the Chilean market. So we started to import two pipes, Argentina gas, that is continuing until now, and just as an analysis, We don't have, let's say, circumstance is 100%. But I can mention that today the flow, the beginning of October started with an amount of 2.5 million cubic meters per day. And then now it's increasing a little bit. We have, and together with other players in the sector, in the Chilean market, we have a firm contract with Argentinean counterparts. And considering the current situation and considering that during recent times the pressure on energy demand in Brazil is a little bit lower, demand from outside, so the importing from Argentina to Brazil, we see some more stability for the availability of the Argentina gas. It's hard to mention how it relates, but it is, let's say, a relief within this situation. And four additional elements during this period. We are analyzing our negotiation with our counterpart in the LNG gas contract in order to define the availability of delivery for investors for the next years, starting from early 2022. This is important because we are working to cover all the periods for 2022, including, let's say, the early months where maybe the impact of growth is higher and usually, if you look at the standard here, we used to, let's say, burn only in Argentina gas. Now we are doing, let's say, a more equilibrated approach on this availability. Usually we are looking also at other elements in terms of gas availability. The other element that I would like to mention is that The issuing of the rationing decree by the minister and let's say some agreements that we have signed with the local community in our water basins allow us also to keep the level of basins with a higher level. consider also the availability of Argentinian gas, as I mentioned. So the outlook in the next month, even if the contribution of melting or the snow and rain is very, very limited, give us, let's say, some, I would say, and not a negative view for the next month. Clearly, everything is based on the next month's evolution, considering also that the commodity price still remains high looking at the forward curve for the, let's say, end of the year, early 2022. Regarding collection, as we mentioned, as I said myself, we are in the process of upgrading our system. So it is requiring the adequate time to migrate two million clients from one system to another and put everything in line and keep working properly. Clearly, at the regime, we will gain a lot in terms of speed and, let's say, precision, and so we can have, let's say, the capability of elaborating, issuing the bills in a quickest, more precise, more adequate way. For the time being, we are working for finalizing this transition We elaborate and issue the bill for the month of September. We are finalizing the month of October. So we still have some weeks of delay that we are covering during November and December. Regarding factoring, I will leave the answer to Giuseppe.

Yes. Well, let me say first of all that up to now we sold $226 million of receivables coming from the price stabilization mechanism. And we have an agreement to sell up to around $350 million. So we are still part of the craze that is going to be in the future. according to the release of the decree, because as we discussed several times, we can sell the receivable only once the regulator will issue the decree, stating exactly how much credit each bank has in their portfolio. Having said that, the impact that we have in the profit and loss is pretty high because the discount of the receivable are made assuming a cashing of the receivable the last moment of 2027. So it means that the time value of the money from 2007 till this year is pretty important and this is the reason because we have such a high level of interest expense in this year that we made 226 million dollars of factory this is the reason we have an agreement based on which if the resource will be paid in advance, we have certain, you know, sharing. But in general, this is the reason because we have such an important amount in this inter-existence.

Interesting. Many thanks.

Thank you. Once again, that's star one for questions. Our next question will come from Murilo Resini from Santander. Your line is open.

Hello, Giuseppe and Isabella. Thanks for the call. I have some questions, and sorry if I repeat any that has already been answered. Could you comment on the production of your solar facilities? Are they producing accordingly to your estimates, and Are you seeing some seasonal deviation in this regard? The second one is, are you having any deviation from CAPEX versus the expected guidance? And could we see a lower than expected CAPEX execution since most of it was left by the end of this year? And the last one, just to confirm the previous question about natural gas, you were not able to get more gas DPAs during the past year. Is that right, or I misunderstood something here? That's it from my side. Thanks.

Hi, Enrio. Thank you for your question. Regarding the production of solar facilities, let me comment that if we do, if we see, The expected generation curve that we projected at the beginning of this year, beginning of 2021, clearly there is a remodulation. The relation due to the execution of the project that has been affected, especially in 2021, from events derived from the pandemic. So we, in some cases, we had to wait until the opening of the borders to people on board and working on the sites. And we manage all the problems regarding the delay in the permits from the archaeology. Now we are, let's say, almost at regime, even if really each site has its peculiarity. So what we are projecting is to have at least 900 megawatts already connected by the end of this year. The remaining, considering 1.3 giga, the remaining 250 connected in the early months of 2022, and the main plant, the only one in the south, is still requiring some more time because of transferring of the equipment. So what I would say is that the work on site is advancing. We started to operate some megawatts that are already connected to the critical unit with the limited amount of the operation. The full ramp-up will take place in the first part of 2022. We think as well to, let's say, to reach approximately the expected level of CAPEX that we have, let's say, forecast for this year. And we are also working for opening additional working areas for new projects. So the activities are advancing. We are very focused on these developments. And we don't expect to lower the CAPEX for this year and we are preparing the new CAPEX plan for the next, for the following years. Regarding gaps, regarding gaps, if you look backward what happened this year, clearly You have also to consider that the plan for dispatching our gas contracts is discussed and agreed with the counterpart, let's say, in September. So at that time it was not possible to anticipate, let's say, the shortage of Argentinean gas. what happened to every player in the gas market in Chile is that there was a lack of resources in the early 2021. So we managed in some cases to anticipate the delivery of a ship. We managed to buy on the spot in the required amounts and there was the lack of gas still remained because not all the players have been able to cover their gap. Clearly, starting from end of March, April, the delivery of shale gas was a regime, but continuing the month of July and August, especially the first 15 days of August, where the draft was very, very, no, very, very big. So, into the system very much. Additional ship, additional vets have been bought and delivered early September. So, this is, let's say, the situation backward. Looking forward, clearly, we are managing to have a more equilibrated delivery of gas around 2022. This is a negotiation, a negotiation with the Kwanzaa part, and we have also taken into consideration what the pressure on this sector at the global level. So it is an hard task that we are trying to cover because our scope is to cover all the needs that we have in 2022.

Okay, thanks, Paola.

And once again, let's start one for questions, start one. One moment for questions. And I'm not showing any further questions in the queue. I'd like to turn the call back over to Isabella for any closing remarks.

Thank you all for your attention to be here with us today. As I anticipated, we received questions. Sorry. So take care of questions that we have already received. But if you have any other questions or any other comments, please let us know. Just send us a message from the IR team. Many thanks for your attention and stay safe. Bye-bye.

Thank you. Bye-bye. Thank you. Bye-bye.

And this concludes our conference call for today. Thank you for your participation. You may now disconnect. Have a great day.