Enel Chile S.A. — FY2018 Form 20-F
Reporting period: Year ended December 31, 2018; filed April 30, 2019. This is an annual report, not a standalone fourth-quarter filing, so the supplied filing does not provide clear Q4-only financial results. Financial statements are prepared under IFRS in Chilean pesos (Ch$).
Business context
Enel Chile generates and distributes electricity in Chile. Its principal businesses are generation and distribution, and it reported 7,463 MW of installed capacity and approximately 1.9 million distribution customers at year-end. On April 2, 2018, a reorganization increased its economic interest in Enel Generación to 93.6% and brought renewable generation subsidiary EGP Chile into consolidation. Enel S.p.A. held 61.9% of Enel Chile.
Key financial and operating metrics
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue and other operating income | Ch$2,457bn | Ch$2,523bn |
| Operating income | Ch$671bn | Ch$579bn |
| Operating margin | 27.3% | 22.9% |
| Income before tax | Ch$566bn | Ch$667bn |
| Net income | Ch$413bn | Ch$523bn |
| Net income attributable to Enel Chile | Ch$362bn | Ch$349bn |
| Basic and diluted earnings per share | Ch$5.66 | Ch$7.12 |
| Net cash from operating activities | Ch$736bn | Ch$636bn |
| Capital expenditures | Ch$301bn | Ch$266bn |
| Cash and cash equivalents at year-end | Ch$245bn | Ch$419bn |
| Total assets | Ch$7,488bn | Ch$5,695bn |
Profitability and cash flow: Operating income improved while net income declined, reflecting a markedly higher net financial expense and much lower gains on asset sales. The reported financial result was a Ch$111bn expense, versus Ch$22bn in 2017; other gains were Ch$3bn, versus Ch$113bn. Operating cash flow rose 15.7%. Investing cash outflow was Ch$1,882bn, largely reflecting the reorganization, and financing provided Ch$967bn; cash fell by Ch$174bn before exchange effects.
Liquidity and debt: Current assets were Ch$997bn versus current liabilities of Ch$1,217bn. The company reported consolidated interest-bearing debt of approximately Ch$2,480bn, including about Ch$447bn owed by EGP Chile to a related company. Debt maturities included Ch$329bn in 2019 and Ch$170bn in 2020–2021. Undrawn committed credit facilities totaled approximately Ch$417bn at the report date. Management stated it did not anticipate liquidity shortfalls. The filing presents debt figures on different bases; verify their reconciliation to the audited statements.
Operating indicators: Electricity generation rose 17% to 20,046 GWh and sales rose 4% to 24,369 GWh. Hydro supplied 56.8% of generation, thermal 31.3%, and wind and solar 11.9%. Distribution electricity sales increased 2.1% to 16,782 GWh; customers reached 1.925 million and energy losses improved to 5.0% from 5.1%.
Material changes versus the prior year
- Revenue and other operating income declined 2.6%, while operating income rose 15.9%. Lower operating costs, including lower energy purchases and fuel costs, more than offset reduced revenue and higher selling and administrative expenses.
- Net income fell 21.1%, but parent-attributable income increased 3.5%. Non-controlling interest in earnings fell sharply after Enel Chile increased its ownership in Enel Generación.
- Financial costs rose to Ch$122bn from Ch$54bn, mainly due to debt raised for the reorganization and consolidation of EGP Chile debt. The Chilean peso depreciated 11.5% against the U.S. dollar at year-end.
- Assets rose substantially following the renewable-assets consolidation and tender offer. The transaction also increased weighted average shares to 63.9bn from 49.1bn, contributing to lower reported EPS.
- Revenue composition shifted toward unregulated generation customers; regulated generation sales volume declined. Lower regulated tariffs from prior tenders are expected to take effect in 2022 and 2024.
Outlook, commentary, risks and contingencies
- Investment outlook: Planned 2019–2021 capital expenditures are Ch$1,355bn, subject to commercial opportunities and financing conditions. Priorities include distribution reliability and technology, maintenance, and projects in progress. Los Cóndores, a 150 MW hydro project, was 65.6% complete at year-end, with completion expected in 2020.
- Generation and market outlook: Management expects renewable projects under development to add about 1.1 GW of capacity by 2021. New contracts awarded in 2016 and 2017 are expected to lower regulated contract prices from 2022 and 2024. The company expects continued competition and price pressure from renewable generation.
- Dividends: The 2018 payout was approved at 60% of annual net income. For 2019, the board communicated a proposed 65% payout, conditional on results and other circumstances; it is not a guaranteed distribution.
- Hydrology and commodities: About 48% of installed capacity was hydroelectric. Although 2018 hydrology improved against 2017, reservoirs remained affected by accumulated drought since 2010. Drought can increase thermal generation, fuel costs, spot purchases, emissions taxes and the risk of losses on contracted sales. Fuel and electricity prices remain volatile.
- Regulatory, environmental and operating risks: Tariffs and operations are heavily regulated; tariff changes may not fully reflect costs. The filing describes potential stricter emissions rules and taxes, water-rights reform, service-quality penalties, extreme-weather exposure, transmission constraints and cybersecurity risk.
- Litigation and unusual items: GasAtacama’s 2016 fine for alleged inaccurate operating information was reduced by a court in April 2019, but appeals were pending; competitors had sought substantial compensation, including claims disclosed at US$65.8m and US$160m. Enel Distribución faced fines and proceedings relating to 2017 storms and outages. Three archaeological-related charges concerning Cerro Pabellón were identified as material and could result in fines, permit revocation or shutdown. Provisions for legal and tax proceedings totaled Ch$17.4bn. The 2018 financial statements also consolidated EGP Chile for nine months and reflected Argentina’s hyperinflation accounting.
- Controls and audit: The auditor gave an unqualified opinion on the IFRS financial statements and internal control over financial reporting. EGP Chile, representing 26.3% of total assets and 7.4% of revenue, was excluded from management’s and the auditor’s 2018 internal-control assessment and was to be brought into scope in 2019.
Important facts for investors to verify
- Reconcile reported debt, related-party borrowing, maturities and available committed facilities to the audited debt notes and covenant definitions.
- Assess the earnings and cash-flow contribution of EGP Chile on a comparable full-year basis, including the effects of consolidation and intercompany eliminations.
- Review the pending GasAtacama claims, Enel Distribución weather-related cases and fines, and Cerro Pabellón archaeological proceedings for updated outcomes and potential exposure.
- Test the sustainability of operating cash flow and the proposed Ch$1,355bn investment plan against debt service, refinancing needs and dividend commitments.
- Monitor hydrology, fuel and spot prices, foreign-exchange exposure, and the timing and impact of lower-priced regulated contracts.
- Review the 2019 integration of EGP Chile into financial-reporting controls and any subsequent auditor or management findings.