Enel Chile S.A. current report, Q2 FY2020

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Enel Chile S.A. Form 6-K Summary

Business Context and Reporting Period

This filing covers the consolidated results for Enel Chile S.A. for the six-month period ended June 30, 2020, and the second quarter of 2020. The company operates in the electricity generation and distribution sectors in Chile. A primary strategic focus during this period was the acceleration of the decarbonization process, including the early disconnection of coal-fired power plants Bocamina I and II.

Key Financial Metrics

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

  • Net Income (6M 2020): Ch$ (327,941) million loss attributable to shareholders, compared to a Ch$ 49,054 million profit in the same period of 2019.
  • Net Income (2Q 2020): Ch$ (398,934) million loss, compared to a Ch$ (125,487) million loss in 2Q 2019.
  • Adjusted Net Income (6M 2020): Excluding extraordinary effects, net income was Ch$ 155,785 million, stable compared to June 2019.
  • Operating Revenues (6M 2020): Ch$ 1,287,506 million, a 9.7% decrease year-over-year.
  • EBITDA (6M 2020): Ch$ 397,637 million, a 26.6% decrease year-over-year. Excluding extraordinary effects, EBITDA decreased 2.5%.
  • EBITDA (2Q 2020): Ch$ 202,295 million, a 3.5% increase year-over-year.
  • Gross Debt: US$ 4,152 million as of June 2020, an increase of US$ 398 million from June 2019.
  • Liquidity: Cash and cash equivalents of US$ 433 million plus US$ 481 million in undisbursed committed credit lines.
  • Average Cost of Debt: Decreased to 4.6% from 5.7% in June 2019.

Material Changes vs. Prior Period

  • Impairment Losses: The reported net loss was primarily driven by a Ch$ 695,826 million impairment loss related to the Bocamina II coal power plant as part of the decarbonization plan. This contrasts with 2019, which included a Ch$ 121,118 million extraordinary income from the early termination of contracts with Anglo American Sur.
  • Generation Performance: Net electricity generation decreased 13.9% year-over-year (6M) due to lower hydroelectric generation caused by adverse hydrologic conditions. Physical energy sales decreased 5.9% due to lower sales to regulated customers and the impact of COVID-19 lockdowns.
  • Distribution Performance: Physical sales in the distribution business decreased 4.1% year-over-year (6M), with a sharper 10.0% drop in the second quarter due to lockdowns in Santiago affecting commercial and industrial segments.
  • Cost Structure: Procurement and services costs increased 1.7% year-over-year (6M) due to higher energy purchases in the spot market to offset lower hydro generation.

Outlook, Risks, and Management Commentary

  • Decarbonization: Enel Chile aims to be the first electricity company in Chile to complete its decarbonization process. Bocamina I is scheduled for disconnection by December 31, 2020, and Bocamina II by May 31, 2022.
  • Renewable Expansion: Construction began on three new renewable projects (331 MW total capacity) in Q2 2020. The company also launched the Azabache hybrid photovoltaic plant (60.9 MW) and the Finis Terrae solar extension (126 MW).
  • Regulatory Environment: The "Tariff Stabilization Law" (Law 21,185) and "Distribution Short Law" (Law 21,194) impact future tariff setting and rate of return for distribution companies. The Tariff Stabilization Law creates a receivable for generation companies capped at US$ 1,350 million, recoverable by 2027.
  • COVID-19 Impact: Operations continue with remote work for 74% of the workforce and closed customer service offices. The pandemic has reduced energy consumption in commercial/industrial segments and increased credit risk monitoring, though no significant deterioration in receivables quality has been observed yet.
  • Risk Management: The company maintains hedging policies for interest rates (98% of debt fixed/protected) and foreign exchange (US$ 661 million in cross-currency swaps). Commodity risks are managed through swaps for coal, oil, and gas.

Investor Verification Checklist

  • Verify the timeline and regulatory approval for the disconnection of Bocamina I and II power plants.
  • Confirm the recovery schedule and valuation of the receivables generated under the Tariff Stabilization Law (Law 21,185).
  • Monitor the progress of the 2,000 MW renewable capacity expansion target set for 2022.
  • Assess the impact of continued hydrologic conditions on generation volumes and spot market purchase costs.
  • Review the credit quality of trade accounts receivable in the distribution segment as the economic impact of the pandemic evolves.