Enel Chile S.A. current report, Q3 FY2017

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Enel Chile S.A. Form 6-K Summary

Business Context and Reporting Period

This filing covers the consolidated financial results of Enel Chile S.A. for the nine months ended September 30, 2017. The company operates in the electricity generation and distribution sectors in Chile. The reporting period includes a full nine months of 2017, compared to only seven months in 2016 due to the company's legal incorporation on March 1, 2016. The filing details a strategic shift involving the divestment of non-strategic assets, specifically the sale of Electrogas S.A. in February 2017.

Key Financial Metrics

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

  • Revenue: Ch$ 1,849,835 (20.6% increase vs. 7-month 2016 period; 4.6% decrease vs. proforma 9-month 2016).
  • EBITDA: Ch$ 503,679 (16.6% increase vs. 7-month 2016; 11.6% decrease vs. proforma 9-month 2016).
  • Operating Income (EBIT): Ch$ 384,765 (15.5% increase vs. 7-month 2016; 13.3% decrease vs. proforma 9-month 2016).
  • Net Income (Parent Shareholders): Ch$ 247,566 (0.3% decrease vs. 7-month 2016; 21.4% decrease vs. proforma 9-month 2016).
  • Net Financial Debt: US$ 846 million (as of September 30, 2017).
  • Liquidity: Cash and cash equivalents of US$ 427 million plus US$ 319 million in undisbursed committed credit lines.
  • Debt Cost: Nominal average interest rate of 6.3%.

Material Changes and Segment Performance

While reported figures show growth compared to the shorter 2016 period, proforma comparisons (9 months vs. 9 months) reveal a decline in profitability driven by market conditions and operational costs.

  • Generation Segment: EBITDA decreased 15.4% proforma to Ch$ 371,886 million. This was driven by lower average sales prices and reduced physical sales to regulated and spot markets, partially offset by increased sales to non-regulated customers. Fuel consumption costs rose 15.6% due to drought conditions in southern Chile necessitating greater thermal generation.
  • Distribution Segment: EBITDA decreased 2.7% proforma to Ch$ 140,300 million. Revenue increased due to higher customer consumption, but operating costs rose due to extraordinary weather conditions in June and July 2017, leading to higher emergency plan costs and compensation provisions.
  • Asset Divestitures: The company sold its entire shareholding in Electrogas S.A. for Ch$ 115,583 million, booking a profit of Ch$ 105,312 million. This follows the September 2016 sale of GNL Quintero S.A.
  • Non-Operating Results: Income from other investments decreased significantly due to the timing of asset sales compared to the prior year. Share of profit from associates turned into a loss of Ch$ 1,461 million, largely due to the divestiture of associates and losses at Hidroaysen.

Outlook, Risks, and Management Commentary

Management highlights a solid liquidity position with a current ratio of 1.50 and a debt ratio of 0.46. The company maintains a hedging policy to mitigate exchange rate volatility, utilizing cross-currency swaps (US$ 800 million) and forward contracts (US$ 229 million).

Key Risks Identified:

  • Regulatory Risk: Operations are subject to Chilean tariff regulations and environmental laws; changes could adversely affect income.
  • Hydrological Risk: Hydroelectric generation depends on water availability. Droughts force reliance on more expensive thermal generation, impacting margins.
  • Financial Risks: Exposure to interest rate fluctuations, commodity prices (fuel), and foreign exchange rates. The company manages these via derivatives and debt structuring (92% fixed interest rate).
  • Cross-Default Provisions: Certain debt instruments of the subsidiary Enel Generación Chile are subject to cross-default provisions triggered by non-payment or specific adverse events exceeding US$ 50 million thresholds.

Investor Verification Checklist

  • Verify the proforma comparison methodology, as the 2016 baseline was only 7 months due to incorporation, making year-over-year growth metrics potentially misleading without adjustment.
  • Assess the impact of the drought in southern Chile on future fuel costs and thermal generation reliance.
  • Review the details of the Electrogas S.A. divestiture and the remaining portfolio of non-strategic assets.
  • Monitor the company's exposure to cross-default provisions in its subsidiary debt structures.
  • Confirm the sustainability of the 20.8% operating margin given the decline in average sales prices and rising operational costs.