Enel Chile S.A. American Depositary Shares (Each representing 50 shares of Common Stock)

Good morning, ladies and gentlemen, and welcome to NLG's first quarter 2024 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 meanings 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 NLCHLAS press release reporting its first quarter 2024 results. The presentation accompanying this conference call and NLCHLAS end report on Form 20F include under risk factors. You may access our first quarter 2024 results press release and presentation on our website. www.ano.cl and our 20F 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. Ano Chile undertakes no obligation to update these forward-looking statements or to disclose any development as a result of these forward-looking statements become inaccurate except as required by law. I would now like to turn the presentation over to Mrs. Isabella Clemens, head of investor relations of NL Chile. Please proceed.

Good morning and welcome to NL Chile 2024 first quarter results presentation. Thank you all for joining us today. My name is Isabella Clemens. I'm the head of investor relations team. Joining me this morning is our CEO and CFO, As announced on April 29, our shareholders meeting designated a new board of directors and I would like to thank the former members for their contributions to our company over the years and our best wishes for the new members that will be part of our new board. In the sector governance of our annex, you can find the new names and the ones designated the new chairman of our board and the chairman of the director's committee. Also on the same date, the board of directors, Isha Material Facts, nominated Giuseppe Cuccarelli as our new CEO. Up to the designation of a new CFO, Giuseppe will also hold in the interim the position of our CFO. Our presentation and related financial information are available on our website, www.anel.cl, in the investor section and in our app, Investors. In addition, a replay of the call will soon be available. At the end of the presentation, there will be an opportunity to ask questions via phone or webcast chat. Through the link, ask a question. Media participants are connected only in listening mode. In the following slides, Giuseppe will open the presentation with our key highlights of the period, then go through our portfolio management actions and regulatory context updates, and finally will give us a view of the business economic and financial performance. Thank you all for your attention, and now let me hand over the call to Giuseppe.

Thank you, Isabella. Good morning, and thanks for joining us. Let's start the presentation with our main highlights on slide two. In this quarter, our hydro generation portfolio continued to perform remarkably, a result of the exceptional hydrology seen last year, mainly due to El Niño phenomenon in 2003 and a better meltdown season. This performance gave us a strong start to be here in terms of efficient generation portfolio mix. Today, the CME will publish the last month's regulated edition cap price and all player offerings. Given this release, we will be able to confirm whether or not our offering was competitive. We will only know the winner name in the coming days. Still on the regulatory side, we have some important news to share. First, the Chilean Congress approved the law related to the stabilization mechanism, PEC 3, a very positive and important sign of stability in the energy market. Law 21667 has already been published last April 30th. Second, We continue to expect the new distribution tariff 2024 to enter into force in the second half of the year. The distribution tariff review 2024-2028 process has already started and we are expecting some updates in the few next months. We will dig into all topics later. In terms of our profitability, I'm pleased to announce that 2024 has started with solid results in terms of EBITDA and net income, which reflects our confidence in our guidance for this year. To conclude, the shareholder meeting approved the final dividend for 2023 of 4.58 trillion pesos per share. Now, in May, we will pay 3.98 trillion pesos per share, complementing the amount already distributed and paid as interim even during January this year. Now, let us move to slide three to review how we executed our goals and strategies toward a more efficient generation of polymers. The favorable hydrological condition during 2023 not seen since 2010, allowed us to have a more comfortable weather availability until the end of the first quarter of 2024. This effect, associated with the peace of the making season during 2024, resulted in a higher hydro generation of 0.9 terawatt-hours. Next, electricity generation totaled 6.1 TWh as of March 2024, exceeding by 19% the production during the first quarter of 2023, mainly due to higher hydro and renewable generation, resulting from the improved hydrology and the addition of new projects, respectively. This also offset the lower thermal dispatch mostly related to the better hydro situation of the period. Our energy sales totaled 8.5 terawatt-hours in March 2024, 0.8% higher than the level recorded in the first quarter of 2023, primarily due to higher sales to regulated customers. In terms of our balance, during this quarter, we increased our purchases from third parties by around 0.6 TWh. As a part of our continued effort to diversify our sourcing. As a result, our spot purchases have decreased by 0.9 TWh. Almost 60% of this reduction was in the no solar hours. A lot has been told regarding the potential of lamina for 2024. So we continue to have a conservative hydro projection for 2024 of 9.6 trela power. Limiting that even if we see a drier scenario for this year versus 2023, the big difference we see from the driest year occurred in the past is that now we have plenty of gas volume to fulfill our needs, thanks to Argentinian contracts and our long-term LNG contracts with Shell. For reference, we have already executed new firm agreements with several Argentinian gas suppliers for up to 2.6 million cubic meters per day from May to September 2024, and an additional 3.5 million cubic meters per day from October to December this year, giving us certainty to optimize our portfolio during 2024. Now, let's move to the next slide to review our main KPIs on slide four. In terms of renewable and best increased capacity, in this first quarter, we reached 6.5 gigawatts of net capacity. representing a 77% stake in our generation portfolio. This enables us to reach 76% CO2 pre-production, 11 basis points higher than in the first quarter 2013. Regarding NLX, an important complement to our integrated offering that supports the electrification of our clients we have improved the performance of several KPIs compared to 2023, as you can see in the slide. Regarding the distribution segment, the number of clients and distributed energy in our concession area continue to grow. For what concerns the quality of the KPI, looking at the last 12-month indicator, they have remained in line with the same period last year. On the next slide, let's look at some updates related to the regulatory context. As you may recall, last call we have indicated that in January this year, the Ministry of Energy presented a draft law related to the stabilization energy mechanism with the purpose of continuing the PEC mechanism and mitigating the projected tax increases to final customers. At the same time, they also aim to improve the client protection mechanism, known as the NPC mechanism, to allow gradual repayment of community debt to the generators and establish a transitory subsidy for the most vulnerable clients. This new law was discussed and approved by the Chilean Congress in April and published and coming to force last Tuesday, April 30. Now, we are waiting for two important steps. First, the publication of the sovereign's guaranteed decree needed to start the factoring process. This guarantee should be presented to investors that will be part of the decision coordinated by the ADB expected for the next month. Second, the publication of the PMP Decree, expected by the end of June. With the publication of these documents, the tariff on the regulated clients shall be updated. We expect that the clients shall receive the new tariff at the beginning of the second half of 2024. As of March 2024, we had an account receivable already met the factoring of $849 million. With the publication of the sovereign decree, we expect to execute the factoring of the current accounts receivable during the second half of this year, ranging from $450 to $600 million. We expect the By the end of 2024, the accounts received on net of factoring should range between $400 and $400 million. On the distribution tariff regime, the regulatory final report for the 2020-2024 cycle was published in early February, and the tariff decree for the same period of remuneration shall be published within the next few months. Regarding the 2024-2028 cycle, initiated in January 2024, we expect that the external consultant responsible for realizing the reference model in company studies has started work, and the final report is foreseen to be published early in Q4 2024. We expect that by the end of this year, the regulator shall be published the preliminary technical report of this new cycle. Even though the new cycle shall not have a relevant change in terms of modeling, we will continue our work within the association to address the changes in the regulatory model to match the needs we believe the distribution business requires to guarantee that the rectification and decarbonization required by the government and by the society, shall not be jeopardized by the lack of redistribution infrastructure. Now, let's review on the next slide how our earnings indicator performs. Our economic and financial performance for this quarter is very solid. Here is a quick summary of the main figures, which I will detail later. As you can see, this quarter EBITDA remains stable compared to the first quarter of 2023. Even though in the first quarter of 2023 we had an important contribution from gas trading activities. Our generation portfolio needs in the quarter explain largely this whole result. The net income improved by 6% compared to the same period last year. reaching $157 million for this quarter. This was mainly due to the recognition of tech-to-interest, which positively impacted the financial results. The FFO also showed an improvement of 34% in the period. It reached $114 million this quarter. The improvement, too, has been impacted by the tech accommodation and factors. We will see more details in the following slides. Now, on the next slide, let's review the progress on CAPEX. Our total CAPEX reached $179 million in this first quarter, which is 65% higher than the figures from the first quarter of last year. I would like to mention that 67% of our total capital equivalent to $120 million was related to renewable and storage, and 22% equivalent to $40 million was related to grid, mainly due to new customer connections as a result of the growth of our customer base. Regarding asset management capex, which represents 30% or $54 million of our total capex, it increased by around 50% compared to the last year's figures, mainly explained by increased maintenance activity in conventional generation plants and distribution business. Development capex reached $103 million, representing 58% of our total capex, an increase of 77% compared to the last year's figures, considering our renewable portfolio under construction and activity at some of our hydroelectric plants to improve their efficiency. In the next slide, we will review a summary of this first quarter EBITDA accounts. In the first quarter of 2024, our EBITDA reached $293 million, in line with the last three-year figures. Let me explain the main effects of this quarter. First, I would like to highlight the positive contributions from EBITDA sales equivalent $53 million, primarily due to higher volume, mainly in regulated market and indexation in the free market. Second, a positive effect of $40 billion of the industrial sourcing, mainly explained by lower variable costs, considering a better ideology scenario and a more efficient generation mix that enable to reduce our fuel consumption. Third, a positive contribution of $47 million related to commercial task sourcing, primarily due to lower purchases in the stock market in terms of lower volume and lower prices, partially offset by higher volume purchases from third parties. In addition, we had a positive effect of $4 million related to the grid margin, This variation is mainly explained by the grid remuneration, which is mainly associated with the bar 2020-2024 regulated report publication. The above mentioned effects were partially offset by, first, a negative effect of $118 million related to the gas trading activities carried out during the first quarter of 2023 for around $10 Second, we had the negative effect of $25 million related to the next TPA agreement signed in 2023. Let's move on to the next slide where we will review the net income evolution accounting for $157 million. Our net income increased by 6% versus last year's figures. Let me try you through the main effect. The BDA in line with the last figure, as I have already explained, higher depreciation amortization of $13 million, mainly resulting from higher depreciation in energy and power due to our new Green World project in operation and Canadian PEDOS devaluation in the period, which was partially offset by the change in the consolidation perimeter given the Acadia sales, partially offset by lower bed-debt accrual in grids and anorexia, due to a reduction in the commercial debt level as a result of the commercial agreement and cutting programs executed in the years. Regarding financial results and equity investment, we recorded a $19 million improvement primarily explained by $21 million related to higher interest and adjustment due to the PEC 2 recognition. Income taxes decreased by $2 million mainly due to penalty provision reduction from preliminary period. Moving to FFO analysis from the next slide. Let's review in detail our FFO for this period. This quarter, our FSO reached $114 million, representing an improvement of $29 million compared to the same period in 2023. Let me detail the main effects that explain our FSO in this period. $293 million coming from EBITDA is mainly thanks to our PPA sales and opposing the performance of industrial and commercial sourcing as explained previously. A negative effect coming from the cumulative stabilization mechanism effect in our receivable equivalent to $105 million this quarter. This negative effect is being partially offset by the execution of the IDB factor in relation to PEG-2, which amounted to $15 million this quarter. There is also a negative effect coming from the working capital that reached $29 million as a consequence of payments coming from 2023. In addition, income tax this quarter negatively impacted all hours. FSO by $26 million, mainly explained by tax payment and duration of interest in 2024. To conclude, in terms of financial expenses, we paid $34 million million in embedded debt interest. Making a comparison of the FSO between first quarter 2024 and first quarter 2023, you can see how the figures are very much in line. The only main difference is related to the net impact of the tax accumulation as you can see in this slide. Now let's take a look at our liquidity and leverage position. Our drop tax decreased around 1% to $4.4 billion by the end of March 2024 versus December 2023. that our net debt will continue to decrease by the second half of 2024, considering the execution of net working capital section expected for the period. Therefore, the current indefinite level is a temporary condition that will be recovered by the end of the year. The average of our debt maturity decreased temporarily 5.7 years as of March 2024 from 6.1 years as of December 2023. And the portion at the fixed rate is maintained at 88% of the total debt in line with December 2023. The average cost of our debt reached 4.83% as of March 2024 in line with December 2023. In terms of liquidity, we had a comfortable position to support upcoming debt maturity in 2024 and cope with possible headwinds in the debt market related to the economic situation. As of March 31, 2024, we had signed two new credit lines with third parties totaling $150 million and with AFI of $750 million. In terms of maturity for 2024, we have approximately $770 million maturing in 2024, including $400 million of the Yen-Ki bond in generation, final generation, which was successfully paid in April. The payment was realized using a short-term intercompany debt between Enel Generazione and NLCS using part of the revolving committee credit line available for NLCS. Now, I will close the presentation with some closing remarks. a strong start to the year in terms of operating performance, mainly in generation business. The better-than-expected hydrology in 2023 was reflected in a better reservoir level at the beginning of this year. The pace of the meltdown season and our generation mix also supported our solid results. put us in a comfortable position to support our short-term strategy and cover the maturity over the planned period as part of our de-risking and de-leverage strategy announced in our last capital market day. Finally, the next month will be very important in terms of regulatory updates for the sector, as the release of the sovereign guarantee decree that will support the start of the factory and the debt recovery as well as the publication of the 2020-2024 certificate of the distribution business. Let me now hand over to Isabella.

Thank you for your attention. Now let's begin with the Q&A section. We will receive questions via phone and chat in the webcast. The Q&A section is open. Operator, please, you may start.

Thank you, and at this time, we'll conduct a question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Once again, that's star 1-1. One moment for our first question. And our first question... Sorry, our first question will come from Lionel. Go ahead.

Okay, do we have a question from the line?

Yes, our first question will come from Javier Suarez from Mediobanca. Your line is open.

Hi, good morning and congratulations to Giuseppe for appointing a new CEO. Two or three questions. The first one is on the impact of the approval of the new stabilization mechanism. may have on the working capital improvement during 2024 and the next following years. I'm particularly interested in the period 2024 to 2026. This is approved now by the Congress, and that should have a positive impact on your cash flow generation. Second point is also on your latest expectations from the approval of the 2020 to 2024 electricity distribution tariff. The tariff decrease should be valid during the third quarter, but if you can share with us your latest expectations on what you see or quantify as possible upside from this new regulation. And the third comment is if you can share with us your latest expectation for the depth of the company by the year end. And the final comment is on the comment that you have made that you feel comfortable with current guidance for 2024. So my argument would be that taking into consideration that hydro production is higher or is likely to be higher than your assumption in the current business plan, taking into consideration that the new stabilization mechanism should allow for the collection of some pending regulatory receivables and there should be some upside from the new distribution framework, so then we see current target as conservative. If you can elaborate on that, that would be helpful. Thank you.

Thank you, Javier. Giuseppe?

Hi, Javier, and thank you for your congratulations. In terms of price stabilization mechanism, as I said previously, the law has been approved in public. So now we are waiting for several next steps. The most important step that we are waiting for are, first of all, the emission of the sovereign decree, that give us the guarantee that will cover 30% of our credit that we need in order to proceed with the factoring. And the second step is the publication of the PMP decree at the end of June. based on which we can define exactly the amount of factoring that is supposed to be done in the second half. Now, second half means between end of third quarter and beginning of fourth quarter. When we are talking about our estimation according to the information that we have, should be between $450 and $600 million. If we are able to proceed with this factoring, we are going to close the year with an account receivable that will be between $400 and $500 million. Consider that Most of this amount will be recovered between 2025 and 2026 with a small portion related to the PEC 1 that will be recovered in 2027 according to the law. So this was what was concerned in the first question. In terms of the impact of VAT in 2024, we have already included in our profit and loss, so we are talking about around $20 million, comparing with our previous assumption. In terms of debt at the end of the year, We're supposed to close the deal with a net debt around $3.6 billion. Let me say that clearly this amount that I'm giving you is based also on the possibility of performing this factor that we already mentioned. If everything is going well, we are going to close $3.6 billion net debt at the end of the year with a ratio net debt to be done lower than three times as our guidance and target already declared several times. The guidance, yeah. Apparently, with the results of the first quarter, clearly, there is expected better guidance. As I said at the beginning, we don't know yet how the rainy season will perform. So, basically, we prefer to be conservative and to confirm the guidance that we... declared in the capital market day clearly there could be some possible upside that is clearly to nationalize we probably give you a better or a more update guidance especially as we're going to close the second half because as you probably remember the remaining season used to start end of April beginning of May so for For the closing on June that will be public at the end of July, we are able to give a better view of the guidance. But as of today, we confirm with the guidance that we presented in the capital architecture.

And to be just 100% clear on your first answer on the amount of regulatory receivables by the year end, so you were mentioning that that amount of regulatory receivables by the year end should be along the lines of $400 million, and that should mean a reduction through the year between $400 to $600 million. Is this correct?

Yes, between $400 and $500 million will be the year-end credit receivable, depending on how much we're able to do in terms of factoring. Again, I will repeat it. The factoring, we're supposed to have between $450 to $600 in terms of factoring, and we are estimating to close the year with a credit between 400 and 400.

Fantastic. Many thanks.

Thank you, Javier. As we do not have another question from the line, let's go to the chat. The first question is coming from Fernan Gonzalez from BPG. Fernan is saying, Giuseppe, congratulations on your appointment. can we assume continuity from a strategic point of view, or is there something different that you'd like to focus on? What are the things that you will dedicate more time and that concerns you most in the company? Then, Fernando has other questions, so I'll go one by one.

Thank you, Thomas. Congratulations. In general, I can tell you that no change in terms of strategy. I mean, we are sticking with the strategy that we have already presented last year in our Capital Market Day. So the topics and the focus for the company are still the same. That means decarbonization in terms of clearly increase our capacity in terms of renewable with a special focus on the financial stability that we have as a pillar in our studies. So I don't see any kind of changes so far.

So let's go to the second question from Fernand. Could you please elaborate more on the $25 million negative impact on EBITDA from the Metica PPA agreement?

Yes. I mean, last year in the first quarter of 2023, we reached an agreement with our supplier of energy. We had a PPA buy with this company, Metica. And the PBA foreseen the start of the operation this year with a certain amount in a certain point of connection, the delivery. For several reasons, we negotiated with this company an update of the contract and the negotiations foreseen a different delivery point and the compensation regarding the new contract, the update of the contract with Meta was $25 million in 2023. So basically it's a one-off effect that we had last year that clearly is not going to be repeated this year. just a matter of very specific in a position with our supplier.

Okay. Then the final question for Naeem. What are your thoughts on the quotation regulatory change that is being discussed about the way the spot market works? Is this a change that you agree with?

Well, We are still evaluating the point.

Consider that the spot price, the impact on the spot price is very sensible So we are trying to figure out which is the best way of possible changes for athletes' energy. We are at the beginning of the talk and we are going to give you more updates in the following call.

Thank you, Giuseppe. Now we have a question also from the chat here from Florencia Mallorca from Matchlife. Florinza is asking if you could repeat again the outstanding about PEC, what we are expecting also for the end of 2024, and also if we have any updates about the prices from the recent regulated option.

In terms of account receivable coming from the PEC, We are assuming to have an amount of factoring that works between $450 to $600 million in the second half of this year. If this factoring will occur, we are going to close the credit receivable at the end of 2024 in the range between $400 and $500 million. For what concerns the regulatory standard, right now we are waiting for the release of the reserve price, the cap price that we mentioned before, and we believe that in a couple of hours, we are going to have some more information and we are going to evaluate in order to understand whether we won or not.

Okay, thank you, Giuseppe. So another question is coming from Ignacio Galvez from Santander. Good morning. Financial costs during fourth quarter 2023 and first quarter 2024 contain some costs related to... electrical buses accounts receivables. Are these non-recurring costs already over, or should we expect additional costs in the next quarters? Thank you. Thank you, Ignacio. Giuseppe, so we got the question.

Basically, the non-recurring effects related to the transaction that we had We sold the asset to third parties and we are not going to have any additional effect in the following months. It's just a matter of account impact, not a financial one. But the business of the electric bus works in this way with such an effect. once you sell the business.

Okay. Thank you, Giuseppe. Then let's go to the final question, the last one from Thomas Gonzalez from Scotiabank. Hi, Giuseppe. Hi, Isabella. Congratulations on your appointment to CEO. Well-deserved recognition. The question of Thomas is, can you give us an update in relation to the potential sale of up to 49% of renewable assets and if this sale could result in a higher dividend going forward? Thank you.

Thank you, Thomas. Well, we are going to add with the... potential sales of a minority state of our assets. We don't have, as of today, any kinds of data for you, but in the following months, in June, I hope to give you more color on that. In terms of additional dividends, we're going to see how the process and the price will be. As of today, it's really, really early to discuss about this topic.

Okay. Thank you, Giuseppe. So with this, we conclude our conference call. The Investors Relations team is available for any doubts you may have. Many thanks for your attention and have a great end of week.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.