Enel Chile S.A. annual report, Q4 FY2020

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Enel Chile S.A. — FY2020 Form 20-F

Reporting period: Year ended December 31, 2020; this is an annual report, not a standalone Q4 filing. The consolidated statements were prepared under IFRS as issued by the IASB and are presented in Chilean pesos (Ch$). Amounts below are rounded.

Business context

Enel Chile is a Chilean electricity utility operating in generation and distribution, with transmission assets separated into Enel Transmission effective January 1, 2021. At year-end, it reported 7,200 MW of gross installed generation capacity, approximately 66% renewable, and about 2.0 million distribution customers. Enel S.p.A. held 64.9% of the company.

Financial and operating performance

  • Revenue and profit: Revenue and other operating income was Ch$2.585 trillion, down 6.7% from Ch$2.771 trillion in 2019. Operating loss was Ch$34.3 billion, versus operating income of Ch$526.1 billion; operating margin fell to -1.3% from 19.0%. Net loss was Ch$52.4 billion, compared with net income of Ch$316.1 billion. The loss attributable to Enel Chile shareholders was Ch$50.9 billion; EPS was a loss of Ch$0.74 per share.
  • Drivers and unusual items: Results included a Ch$697.9 billion impairment related to the accelerated closure of the Bocamina II coal plant. In 2019, results included Ch$121.1 billion of non-recurring income from early termination of Anglo American Sur supply contracts, as well as impairment charges for Tarapacá and Bocamina I. Net financial expense improved to Ch$112.4 billion from Ch$150.9 billion.
  • Cash flow and investment: Operating cash flow was Ch$755.9 billion, compared with Ch$743.7 billion. Investing cash outflow was Ch$554.7 billion, primarily reflecting capital investment; cash CAPEX for property, plant and equipment and intangibles was Ch$554.3 billion, up from Ch$321.1 billion. Financing cash outflow was Ch$127.7 billion. Year-end cash and cash equivalents were Ch$332.0 billion, up from Ch$235.7 billion.
  • Debt, liquidity and equity: Interest-bearing debt was approximately Ch$2.84 trillion in the financial statements (described elsewhere in the filing as approximately Ch$2.9 trillion), including about Ch$1.2 trillion owed to Enel Finance International and other related-company financing. Current assets were Ch$1.026 trillion and current liabilities Ch$1.045 trillion. Total liabilities were Ch$4.310 trillion; total equity was Ch$3.594 trillion. The company reported Ch$440 billion of committed, undrawn revolving facilities as of year-end.
  • Margins and operations: Generation revenue declined 8.6% and distribution revenue 2.2%. Electricity generation fell 8.1% to 19,331 GWh; electricity sales fell 2.4% to 22,960 GWh. Distribution sales declined 3.8% to 16,481 GWh, while customers grew 1.8%. Distribution energy losses rose to 5.2% from 5.0%.

Material changes versus 2019

  • The company moved from profit to loss, largely reflecting the Bocamina II impairment and the absence of 2019’s Anglo American contract-termination income.
  • Dry hydrological conditions reduced hydroelectric output; energy purchases to meet contractual commitments increased 46.8%, partly because of lower hydro and coal generation and the closure of Tarapacá.
  • COVID-19 restrictions reduced commercial and industrial demand and collections. Management attributed lower income partly to weaker energy demand and higher uncollectible receivables; the collection rate fell to 97.3% from 99.4%.
  • Enel Distribution’s transmission business was spun off effective January 1, 2021, with shareholders retaining the same ownership proportions in the separate companies.

Outlook, risks and contingencies

  • Investment outlook: Management estimated Ch$1.674 trillion of CAPEX for 2021–2023, including maintenance and projects under execution or evaluation. This is a plan, not earnings guidance; the filing provides no clear quantitative earnings forecast.
  • Projects and decarbonization: Management expected the 150 MW Los Cóndores hydro project to be completed by 2023. Bocamina I closed in December 2020; Bocamina II was authorized for closure by May 2022. The company also noted possible additional costs and execution risks for projects under construction.
  • Tariff stabilization: Chile’s price-stabilization mechanism defers amounts otherwise payable to generators. The resulting receivables are expected to be recovered by December 31, 2027; they generally do not earn financial remuneration until 2026. The mechanism increases funding needs and exposes the company to timing, regulatory and collection risks.
  • Key business risks: Hydrology and prolonged drought can lower hydro output and require higher-cost thermal generation or spot-market purchases. Other material risks include commodity and foreign-exchange volatility, changing tariffs and regulation, climate and environmental requirements, COVID-19 and economic conditions, customer credit, litigation, cybersecurity, and refinancing or covenant risk.
  • Contingencies and fines: The group recorded Ch$16.3 billion of provisions for legal and tax proceedings. Enel Distribution faced appealed or pending decisions on multiple regulatory fines, including a 22,000 UTM fine (about Ch$1.1 billion) and a 40,000 UTM fine (about Ch$2.0 billion); outcomes remained unresolved at the report date.
  • Financial reporting controls: KPMG issued an unqualified opinion on the IFRS financial statements but an adverse opinion on internal control over financial reporting. The disclosed material weakness involved IT general controls, including program-change controls affecting the distribution revenue process. Management said the weakness was not remediated as of the report date; no resulting financial-statement misstatement was identified.
  • Other subsequent item: A voluntary retirement program announced in April 2021 was expected to result in an approximately Ch$17.5 billion expense in 2021.

Important facts for investors to verify

  • Reconcile the Ch$697.9 billion Bocamina II impairment to the asset carrying values, closure schedule and expected future cash flows.
  • Review the amount, timing, financing cost and recoverability of tariff-stabilization receivables, including the 2021 sales of balances and their disclosed losses.
  • Track remediation and independent testing of the material weakness in distribution-revenue IT controls.
  • Confirm debt maturities, related-party funding terms, available committed facilities and compliance with covenants.
  • Monitor hydrology, spot-market purchases, customer collections, tariff decisions and the status and cost of major construction projects.