Enel Chile S.A.

Good morning, ladies and gentlemen, and welcome to NL Chile's first half and second quarter 2024 results conference call. My name is Carmen, and I'll be your operator for today. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To participate, you will need to press star 11 on your telephone. You will then hear a message advising your hand is raised. To withdraw your questions, simply press star 11 again. Please be advised that today's conference is being recorded. During this conference call, we may make statements that constitute forward-looking statements within the meaning of the 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 NL Chile's press release reporting its first half and second quarter 2024 results, the presentation accompanying this conference call, and NL Chile's annual report on Form 20F included on the risk factors. You may access our first half and second quarter 2024 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 those forward-looking statements which speak only of their dates. 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 Ms. Isabella Clemes, Head of Investor Relations of NL Chile. Please proceed.

Buenos dias, good morning, and welcome to NL Chile 2024 second quarter and first half results presentation. Thank you for all joining us today. My name is Isabella Clemes, and I'm the head of investor relations. Joining me this morning is our CEO, Giuseppe Turchiarelli. Our presentation and related financial information are available on our website, www.nl.cr, in the investor section. and also in our app, Investors. In additional, a replay of the call will be soon available. At the end of this presentation, there will be an opportunity to ask questions via phone, 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 and regulatory context update. And finally, we'll give us a view of our business economic and financial performance. Thank you all for your attention. And let me now hand over to Giuseppe.

Thank you, Isabella. Good morning and thanks for joining us. Let's start our presentation with our main highlights of the period on slide two. During the second quarter, Our IDO portfolio performed outstandingly, repeating the good performance of the first quarter. This resulted from higher reservoir levels at the beginning of the year due to El Niño phenomenon last year, coupled with strong weather events during this quarter. This gave us a robust and efficient generation portfolio mix for the semester. We added approximately 250 MW of new renewable energy capacity and best projects. All this addition will support our long-term ambition of decarbonization and the ongoing optimization of our portfolio. Furthermore, I would like to mention that we have received the commercial operation date from the system operator for around 410 MW this year, totaling 1.6 gigawatts since January 2023. Moreover, during this period, Energeneration, a subsidiary of EnelChill, secured a 20-year term regulated PPA, representing a sales of around 3.6 terawatt-hours in the regulated option, starting to deliver around 1.5 terawatt-hours since 2027, and the remaining part to reach 3.6 TWh in 2028. This continues Enel Generación's goal to diversify its sales and include more long-term PPA in its portfolio. On the regulatory side, we have some important news to share. First, as you may know, the Chilean Congress approved the law related to the stabilization mechanism . In July, the decree which updated the regulated tariff was published. Now, we are awaiting the sovereign guarantee decree during the third quarter to enable to start the factoring process. Second, the distribution tariff for 2020-2024 came into effect in June of this year. The review process for the distribution tariff for 2024-2028 has already begun and is progressing as expected. I will give you more color on this topic later on. Regarding profitability, I am pleased to announce that the first half showed solid EBITDA and net income results. This reflects our confidence in our guidance for this year. We achieved a positive FSO despite the PEC RECEIVE report. As you know, We expect to recover a portion of it during the second half of this year. The positive effect of SFO reflects our solid operation performance during this semester. And finally, we have a solid level of liquidity to be used for future cash CAPEX deployments. I will provide more details on this later. Now, let's look at some updates on the hydrological situation on slide 3. Positive hydrological conditions during 2023 allowed us to have a greater water availability during the first quarter of this year. In addition, higher than expected rainfall during the second quarter of 2024 allowed us to increase our hydro production, exceeding by 72% the level recorded in the second quarter of 2023. Therefore, during the first half of 2024, we have accumulated 2.1 TWh of hydro generation compared to the last year. The hydrological situation in our reservoir is also very positive year to date, once compared to the last year figures, especially in the south. With the water accumulated in our reservoir to date, we have sufficient availability to supply our energy demand until the end of this year, even with the possibility of a weak laminar phenomena in August and September. Based on these results, we have updated our hydro generation estimate to approximately 12 TWh for 2024. We expect to complement this information once we know the results of the Ruta de Nieve studies, which will be carried out in the coming months, so that we can better estimate the snowmelt forecast for the fourth quarter. Now, let's move to the next slide to review how we continue improving our portfolio of generation apps. We continue developing our strategy towards a more efficient generation matrix, increasing our renewable capacity across different areas of the country, focusing on solar close to the center of consumption and incorporating more battery in our portfolio projects. During this first half, we reached a total net in soil capacity of 8.7 gigawatts. We connect almost 50 MW of additional net capacity, related to our solar plant with batteries, Don Umberto, located in the metropolitan region, and two more projects with batteries. These are El Manzano base, which is also in the metropolitan region, and La Cabana base, too, in the south part of the country. During this halt, we received authorization from the National Electricity Coordinator to begin began commercial operations for 410 MW released to the two solar plants. La Salina, in the north zone, a hybrid project that is located in the same field as Sierra Rolda Este, a 112 MW wind farm, and El Mantano, a solar plant located in the metropolitan region of Santiago, very close to the consumption center. And finally, our wind farm La Cabagna, located in south of Cina. In addition, let me inform you that we are concluding the Los Condores hydropower plant. In September, we will have the important milestone. We will start filling the tunnel with water to execute what we call the wet test. Following it, coordinated with the system operator, we will start the testing process of Los Condores. Our goal is to have the connection and testing concluding during 2024. The deployment of our renewable plants aims to increase the flexibility of our portfolio, which is today 77% renewable based. It should be noted that with everything mentioned above, we have completed the first wave of growth projects that were part of our plan. Now, on the next slide, we will review the performance of our generation KPI. Net electricity generation total 12.1 TWh as of June 2024, exceeding by 15% the production during the first half of 2023, mainly due to higher hydro and renewable generation. resulting from the improved hydrology and the operation of the new projects respectively. During the second quarter of 2024, net generation grew by 11% to 6.1 TWh, mainly due to higher hydro and wind generation. Our energy sales totaled 17 TWh in June 2024, higher than the level recorded in the first semester last year, resulting from higher sales to both regulated customers and fleet clients. It's worth mentioning that our commitments with our clients were fulfilled with a higher portion of our renewable generation, which also led us to lower energy purchases in the spot market, mainly in all solar hours. During the second quarter of 2024, physical energy sales grew by 11% to 8.5 TWh, mainly due to higher sales to regulations customers. In terms of our balance, during the first semester we increased our purchases from third parties by 1.5 TWh, as part of our continued effort to diversify our sourcing. On the next slide, we will review the performance of our main KPIs. In the generation business during this semester, we have seen relevant improvement in our KPIs. In terms of renewable and best increased capacity, reaching 6.8 gigawatts of net capacity, representing a 77% peak in our generation portfolio. This enables us to reach 74% CO2-free production, which is 13 basis points higher than in the first half of 2023. Additionally, the energy sold in the generation segment reached 17 TWh, representing an improvement of 10% compared to the last year. I would like to highlight now the great contribution that RLX is making intense of our that allow us to continue driving the electrification process we improved our figures in this semester compared to the last year period we have increased the number of public and private charging points for electric vehicles by 25 percent reaching almost 3 000 charging points regarding e-home services and electrification indicator We also improved our number by 40% and 60% respectively, compared to the last year. And regarding the public lighting, we reached 372,000 lighting employees, 1% higher than last year, mainly due to the maintenance contracts with La Poluida, Castro, and Huechuraba Municipality. Regarding the distribution segments, The number of clients and distributed energy in our concession area continues to grow by 2 and 3% respectively compared to last year. It is relevant to mention that this quarter we had some critical weather events with heavy rains and snow that affected the stability of the electricity supply, impacting our quality indicators such as SAIDI, SAIFI and LOSI. Regarding Staeli and Saifi, as a matter of comparison, the numbers presented on this slide do not include the impact of the mentioned events. Now, on the next slide, let's look at some updates related to the regulatory content. As you may recall, last call we indicated that in January this year, the Ministry of of energy presented the bill related to the stabilization energy mechanism, with the purpose of continuing the PEC mechanism and mitigating the projected tariff increase to final customers. At the same time, they also aim to improve the client protection mechanism, known as MPC mechanism, to allow gradual repayment of accumulated debt with the generator and establish a transitory subsidy for the most gold-numbered clients. This new law was discussed and approved by the Cheninan Congress in April, published and came into force last Tuesday, April 30. In June, the PNP decree was published, and with this publication, the tariff of the regulated clients started to be updated. depending on their location and monthly consumption. Clients with consumption below 350 kWh had their generation components of the stylus updated by inflation, and clients with consumption above 350 kWh felt for fee and higher amount increase of around 35% related to the starting to pay the real price of electricity, plus a new charge named MPC. We are now waiting for the issuance and publication of the sovereign guarantee decree, as well as a complementary set of rules and regulations to the new law, needed to start the factoring process. will be presented to investors as part of the issuance coordinated by the IDB expected in the next few months. As of June 2024, we had an account receivable related to the PEC already net of factoring of $904 million. Considering the readjustment and the interest of around $115 million, we reached an accrual of $1 billion approximately. With the issuance and publication of the pending regulation, we expect to execute the factoring of the current accounts receivable during the second half of this year, ranging from $550 to $650 million. We expect that by the end of 2024, accounts receivable net of factoring should range between $350 to $450 million. Now, all the discussions are centered on the subsidies in place, which could increase the number of families that will receive subsidies and avoid further tariff increases. According to the law approved today, $100 million are coming from subsidies paid by the consumer, particularly the free customer, and $20 million are coming from the Treasury of Chile. This $120 million would support around 1.2 million families. The family that will be beneficiary shall be known during September and the distribution company shall apply retroactively since July this benefit during October this year. Now, Congress is discussing with the executive authorities a potential increase of this benefit to increase the number of families supported by this subsidy to around 4.7 million families, increasing the total annual subsidy to around $300 million per year versus the current $120 million in place. The potential changes to increase the subsidy are still under discussion by the government and the Congress. We expect the final proposal to be submitted by the middle of August. On the distribution tariff review, the regulatory final decree for 2020-2024 cycle was published in early June and therefore the new distribution tariff will represent an increase in the tariff for the final customers in our concession area of around 5%. Regarding the 2024-2028 cycle, in July the consultant technical reportable review was received and is currently being reviewed by a committee. The final report is foreseen to be published early in the Q4 2024. We expect that by the end of this year, the regulator shall publish the preliminary technical report on this new cycle. We are more confident regarding this process, considering that the consultant who is working is the same one who worked in the previous cycle period. Therefore, we understand that some topics already discussed before the previous cycle shall be automatically applied to this process. Now, let's review on the next slide our earnings indicator performance. Our economic and financial performance was very solid in the first half and second quarter of 2024. As you can see on the slide, in the first half and second quarter of 2024, we had an important improvement in EBITDA and net income versus last year figures. This is mainly explained by the outstanding hydrological situation and a more efficient generation mix. In the first semester of 2024, the FFO also showed an improvement compared to last year, reaching $52 million. This is mainly explained by the improvement in the BDA, offset by a negative impact due to higher tax payments related to Arcade operations and a more significant PEG accumulation. Regarding the second quarter, FFO improved by $27 million in 2024 versus 2023 due to the same impact already mentioned in the summary. We will review more detail on the following slide. Now, on the next slide, let's review the progress on CAPEX. Our total CAPEX reached $290 million this first half, 9% lower than last year, considering the conclusion of several renewable and storage projects since the second quarter of 2023. 66% of our total CAPEX equivalent to $190 million was related to renewable and storage, and 22% equivalent to $63 million was related to grid, mainly due to new customer connections associated with the growth of our customer base and corrective maintenance of the network. Asset management capex reached $87 million, which represents 30% of our total capex. It decreased by around 22% compared to the last year figures, mainly explained by increased capex in the distribution business, mostly related to activities in the low and middle voltage and maintenance activity in our generation fleet, particularly in our hydro and gas facilities. Finally, development capex reached $167 million, representing 58% of our total capex, a decrease of 21% compared to last year figures, considering that we are finalizing our renewable and best portfolio under construction. Let's now move to the next slide where we have a summary of the second quarter BDA breakdown. In the second quarter of 2024, our BDA reached 301 million dollars. 6.4 times higher than the second quarter 2023. Let me explain the main effects on this course. I will start with the positive effects. First, I would like to highlight a relevant contribution from PPA sales equivalent to $150 million, primarily related to higher volume, mainly regulated market as We have view in the preliminary slide and indexation in the free market. Another relevant effect this quarter is related to industrial sourcing for $70 million, mainly explained by lower variable costs coming from lower commodity prices and thermal generation, considering this quarter hydrological situation and more efficient generation mix. There is a positive contribution of $60 million related to commercial sourcing primarily due to lower prices in the stock market, mainly explained by lower prices as a result of more significant higher generation in the period. In addition, we had a positive effect of 12 million dollars related to the grid margin, mainly explained by the grid remuneration associated with the BAD 2020-2024 regulatory report publication. Finally, we had a positive effect of 13 million dollars from OPEX and others. This is mainly explained by higher capacity payments coming from new projects, which more than offset higher OPEX related to these new renewable projects. The above-mentioned effects were partially offset by a negative effect of $7 million related to the largest gas activity carried out during the second quarter of 2023, and finally we had a negative effect of $10 million related to the MEDCA TPA agreement which was signed in 2023. Let's move on to the next slide to review the main impact on the BDA during the first half. In the first half, our BDA was 74% higher than last year, reaching $597 million. Let's start by explaining the positive effects. First, we had a positive contribution from PPA sales equivalent to $168 million. mainly related to higher volume in the regulated market and indexation in the pre-market, in line with the effects explained previously in the quote. Second, there is a relevant effect of $160 million related to industrial sourcing, primarily explained by lower variable costs due to lower settlement generation, as a consequence of the remarkable hydrology of the period and a more efficient generation mixed and by a positive effect of the AG instrument versus 2023. Third, there is a positive contribution of $108 million related to the commercial sourcing, primarily explained by lower prices and volume associated with the purchases in the spot market. This effect is partially offset by higher purchases from third parties. In addition, we had a positive effect of $16 million related to the grid margin, primarily explained, as in the quarter, by the recognition of the BUD 2020-2024 in the period. Now, on OPEX and others, we had a positive effect of $16 million from OPEX and others, which is mainly explained by the same effect as I already explained. mentioned in the quarter linked to the higher capacity payments coming from the new projects, which offset higher OPEX related to them and higher costs for contingency plans after the climate events during the second quarter of 2024. The above-mentioned effects were partially offset by, first, a negative effect of $124 million related to the remarkable gas trading activity carried out during the first half of 2023 for around 20 celibate youth. Finally, there was a negative effect of $35 million related to the MECCA EPA agreement signed in 2023. Let's move on to the next slide where we will review the net income evolution accounting for $267 million. Our net income increased by 2.2 times versus last year figures, mainly explained by the EVDA results. Let me drive you through the additional effects for the first half. Higher depreciation, amortization and bad debt of $3-4 million, mainly resulting from higher depreciation in energy and power due to the new renewable capacity coming into operation, higher debt accruing rates due to a higher credit loss is expected associated with the residential customer. Regarding financial results and equity investment, we recorded a $6 million reduction versus last year, mainly explained by higher interest related to the tax receivable offset by higher financial expenses and lower financial income linked to the lower average interest rate. Income tax increased by $57 million, mainly due to better results in the period. This was partially offset by a lower cost related to the reclassification of assets held for sale in 2023, specifically those related to Arcadia. Focusing on the quarter, our net income increased by $137 million. This increase is mainly explained by the rise in HBDA's contribution, which was partially offset by an increase in DNA and the debt of $21 million, primarily due to a $15 million link to the operation of new renewable capacity, but that increased by $6 million, primarily due to higher credit losses among residential customers in the distribution business. This dynamic, closely mirrored, does observe in the first half. Higher financial expenses and lower financial income linked to the lower average interest rate. An increase in tax of $58 million in the period, mainly due to debt. Earning before tax losses recorded in the second quarter of 2023 and positive EBITDA in 2024. Moving to FFO analysis on the next slide. Regarding FFO, the figures for 2023 have been adjusted by $310 million paid in taxes on capital gains obtained from the sale of energy transmission in 2022. The first half of 2024, our FFO reached $52 million, representing an improvement of $56 million compared to the same period in 2023. Let's see the comparison of our first half of 2024 with FFO and the balances versus 2023, starting with the VDA. $597 million coming from a VDA in 2024. and a variation of $254 million versus last year's euros, primarily due to higher PPA sales and positive performance of the industrial and commercial sourcing, as already explained. $260 million negative impact coming from the cumulative stabilization mechanism effects in our receivables. This negative effect is partially offset by the execution of IDB factoring related to the PEC, which amounted to $70 million this first half. Once compared with the last year figures, the net impact of the PEC, adjusted by factoring in the period, totalized $147 million, an amount of $13 million higher than the last year figures. Working capital reached a negative balance of $142 million, mainly due to the payment from 2023. Once compared last year figures, the working capital was $19 million lower, mainly explained by the sales of our sports and Santa Rosa building in 2023, partially affected by higher accumulation of VAT tax credits and payments associated with the Santa Rosa e-business lane. Income tax also negatively impacted our FFO, results by $137 million, mainly explained by higher tax payments in financial business in 2024 and taxes paid on the sales of Arcadia assets. Once comparing the income tax paid in the first half 2024 versus first half 2023, we see a negative balance of $135 million. The main differences come from the tax payments of Arcade operations, the recovery from previous periods obtained during 2023, and lower tax payments in Generation B. To conclude, regarding financial expenses, this first half of 2023 million dollar has a negative effect primarily explained by the payment of debt-related expenses. Once we compare these first half financial expenses with the last year figures, we see evidences of $32 million, mainly explained by lower financial income linked to both reduced cash level and lower average interest rate. Let's take a look at our liquidity and leverage positions. Our gross debt increased by 8% to 4.8 billion by the end of June 2024 compared to December 2023. This higher debt was mainly due to higher working capital and capex needs for 2024. This increase in gross debt should reverse during the second half of 2024, considering the seasonality of our generation business and the upcoming factoring under the PEC3 mechanism, which we expect to be carried out soon. The average term of our debt maturity is slightly decreased to 5.9 years by the end of the first half of 2024 versus the 6.1 years in December 2023. and the portion at the fixed rate was 76% of the total debt. The average cost of our debt reached 5% as of June 2024, slightly above the 4.9% recorded in December 2023, primarily due to the Enel Generación Yankee Bond maturity in April 2024, $400 million at 4.25%. Regarding liquidity, we are in a comfortable position to support our capital needs for the upcoming months and cope with the next year's maturity. As of June 2024, we have a variable committed credit line for $750 million and a cash and cash equivalent for $305 million. Now, I will conclude this presentation with some closing remarks. The first half of this year was very important regarding updates in the regulatory framework. The VAD 2020-2024 Decree and the approval of the PEC 3 were followed by the publication of the PMP Decree, which was a significant milestone for the generator starting to execute factory in the third quarter 2024. Today, the regulatory agenda is centered on the potential increase of subsidies for vulnerable families. We understand the importance of this moment and we are constantly monitoring the situation. We will provide any necessary feedback to the authority and association according to formal processes. However, we hope that the State of Chile will make the best decision for all, maintaining the security of the regulatory and market environment. An important message that I would like to leave here concerns the increase of flexible technology in our generation market. As you can see, all the committed megaliths of renewable generation and best were successfully delivered. As I mentioned before, we are also concluding the Los Condores hydropower plants by the end of this year. To conclude, in this quarter you can also see that we have been able to deliver a more than solid operating and financial performance in the first semester. These are the results of our action to unlock value and give us enough support to be confident about our 2024 guidance. Thank you, Giuseppe.