Enel Chile S.A. current report, Q4 FY2017

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Enel Chile S.A. Form 6-K Summary

Business Context and Reporting Period

This filing covers the consolidated financial statements of Enel Chile S.A. for the twelve months ended December 31, 2017. The company operates in Chile's electricity sector through two primary segments: Generation (hydroelectric, thermal, and wind) and Distribution. The reporting period represents a full 12-month cycle, whereas the prior year (2016) included only 10 months of operations following the company's legal incorporation on March 1, 2016.

Key Financial Metrics

Amounts are expressed in millions of Chilean Pesos (Ch$) unless otherwise noted.

  • Revenues: Ch$ 2,529,347 million (18.4% increase vs. 10-month 2016; -0.5% vs. proforma 12-month 2016).
  • EBITDA: Ch$ 739,253 million (17.8% increase vs. 10-month 2016; -3.4% vs. proforma 12-month 2016).
  • Operating Income (EBIT): Ch$ 578,631 million (26.6% increase vs. 10-month 2016; +1.9% vs. proforma 12-month 2016).
  • Net Income (Parent Shareholders): Ch$ 349,383 million (10.0% increase vs. 10-month 2016; -9.1% vs. proforma 12-month 2016).
  • Net Financial Debt: US$ 537 million (mostly in the generation business).
  • Liquidity: Cash and cash equivalents of US$ 682 million plus US$ 324 million in undisbursed committed credit lines.
  • Debt Cost: Nominal average interest rate of 6.2%.

Material Changes vs. Prior Period

Comparisons are primarily driven by the shift from a 10-month to a 12-month reporting basis, though proforma 12-month comparisons reveal underlying trends.

  • Asset Divestitures: The company continued its strategy to divest non-strategic assets. In February 2017, it sold its entire stake in Electrogas S.A. for Ch$ 115,583 million, booking a profit of Ch$ 105,312 million. This followed the September 2016 sale of GNL Quintero.
  • Project Write-offs: Significant impairment losses occurred due to economic unfeasibility. In 2017, the Neltume and Choshuenco hydroelectric projects were written off for Ch$ 25,106 million. In 2016, write-offs included the Bardón, Chillan, Futaleufú, Huenchún, and Puelo projects (Ch$ 35,384 million) and the Tames 2 and Totoralillo thermal projects (Ch$ 1,096 million).
  • Operational Performance: Generation EBITDA decreased by 2.3% on a proforma basis due to lower physical sales and average sales prices. Distribution EBITDA decreased by 7.8% due to higher costs related to extraordinary climatic events (outages and emergency plans) and increased personnel bonuses.
  • Financial Results: While net income increased 10% on a reported basis, it declined 9.1% on a proforma 12-month basis, largely due to lower income from other investments (divestitures) and higher tax expenses.

Outlook, Risks, and Contingencies

Management Commentary: The company maintains a solid liquidity position with a current ratio of 1.29. The debt structure is heavily fixed (92%) to minimize interest rate volatility. The company actively manages foreign exchange and commodity risks through hedging instruments, including cross-currency swaps and forward contracts.

Risks and Contingencies:

  • Regulatory Risk: Operations are subject to Chilean tariff regulations and environmental laws. Changes in legislation could adversely affect future income.
  • Hydrological Risk: As a significant hydroelectric generator, the company is exposed to drought conditions. Management mitigates this by not contractually committing 100% of generation capacity.
  • Cross-Default Provisions: While Enel Chile S.A. has no standalone financial debt, its subsidiary Enel Generación Chile S.A. has debt subject to cross-default provisions. Non-payment of debts exceeding US$ 50 million could trigger acceleration of international credit lines and Yankee Bonds.
  • Environmental Provisions: The company has increased provisions for dismantling costs and fines related to the Superintendence of Electricity and Fuel (SEC).

Investor Verification Checklist

  • Verify the proforma 12-month comparison figures to assess true year-over-year performance, as the reported 10-month 2016 data inflates growth percentages.
  • Confirm the status of the Neltume and Choshuenco project write-offs and their impact on future capital expenditure plans.
  • Review the specific terms of the cross-default provisions in Enel Generación Chile's debt agreements, particularly the US$ 50 million thresholds.
  • Assess the sustainability of the 22.9% operating margin given the volatility in hydrological conditions and commodity prices.
  • Monitor the execution of the divestment strategy and the integration of remaining assets into the core generation and distribution portfolio.