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Edited Transcript of ENERSIS-AM.SN earnings conference call or presentation 24-Feb-17 7:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Enel Americas SA Earnings Call

Vitacura Feb 25, 2017 (Thomson StreetEvents) -- Edited Transcript of Enel Americas SA earnings conference call or presentation Friday, February 24, 2017 at 7:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Luca D'Agnese

Enel Americas SA - CEO

* Javier Galan

Enel Americas SA - CFO

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Conference Call Participants

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* Enrico Bartoli

MainFirst - Analyst

* Miguel Rodriguez

Morgan Stanley - Analyst

* Arturo Mora

Santander - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Enel Americas 2016 results conference call. My name is Kailey and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session, and instructions will be given at that time. As a reminder, this conference call is being recorded.

During this conference call, we may make statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements could include statements regarding the intent, belief, or current expectations of Enel Americas and its management with respect to, among other things, Enel Americas' business plans; Enel Americas' cost-reduction plans; trends affecting Enel Americas' financial condition or results of operations, including market trends in the electricity sector in Chile or elsewhere; supervision and regulation of the electricity sector in Chile or elsewhere; and the future effect of any changes in the laws and regulations applicable to Enel Americas or its affiliates.

Such forward-looking statements reflect only our current expectations, are not guarantees of future performance, and involve risk and uncertainties. Actual results may differ materially from those anticipated in the forward-looking statements as a result of various factors.

These factors include a decline in the equity capital markets of the United States or Chile; an increase in the market rates of interest in the United States or elsewhere; adverse decisions by government regulators in Chile or elsewhere; and other factors described in Enel Americas' annual report on Form 20F included under risk factors.

You may access our 20F on the SEC's website, www.sec.gov. Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of their dates. Enel Americas undertakes no obligation to update these forward-looking statements or to disclose any development as a result of which these forward-looking statements become inaccurate.

I would now like to turn the presentation to Mr. Luca D'Agnese, Enel Americas' CFO. Please proceed.

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Luca D'Agnese, Enel Americas SA - CEO [2]

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Good afternoon, ladies and gentlemen, and welcome to our call on the full year 2016 results. I am Luca D'Agnese, CEO of Enel Americas, and here with me is Mr. Javier Galan, CFO of the company, and Mr. Rafael De La Haza, head of Investor Relations, who has taken over as Head of IR from Jose Canamero in January 2017. We welcome Rafael and thank Pedro for the work done, wishing the best in the new job.

Let me remind you that this call will follow the slides that have been already uploaded into the company's website, and at the end of it the usual Q&A session. This presentation shows the results of Enel Americas on a pro forma basis, which excludes Chilean activities.

In any case, let me remind you that in the documentation that was sent to the Chilean stock market regulator today, Enel Americas consolidates as discontinued operations Enel Chile results for the first two months of 2016.

Now, on slide number one, I will start by outlining the main highlights of the period and the recent events of the first two months of 2017. In 2016, Enel Americas' EBITDA reached $2.4 billion, 1.7% higher than previous year. This result was achieved despite an overall negative exchange rate impact on the region against the Chilean peso and one-off effects mainly in Peru.

On the other hand, EBITDA includes a significant operating growth in both generation and distribution activities compared to last year. Excluding the impact of this conversion of FX effect and the mentioned one-offs, the operating EBITDA would have increased by 16.1%.

Total net income of Enel Americas, including minorities without discontinued operations, totaled $844 million, with a decrease of 24.5% versus previous year. Excluding one-offs in both years, however, total net income without discontinued operations would have increased by 23.6%.

Attributable net income after discontinued operations decreased by 42.1%, reaching $566 million, mainly due to the fact that we are considering only two months of Chilean activities compared to 12 months last year.

In 2016, the reorganization process has been completed with the merger with Endesa and Chilectra Americas on December the 1st into Enel Americas, which has also changed its name from Enersis Americas to Enel Americas. The new merged company started trading on December 29, 2016.

The efficiencies announced in the plan were exceeded in 2016. The new structure will allow the company to continue on the same path of improvement achieved during 2016 in order to reach the targets announced in the strategic plan 2016-2019.

On February 14th, 2017, Enel Brasil, a subsidiary of Enel Americas, completed the purchase of the 94.8% of the share capital in Celg-D, distribution companies located in the state of Goias. With this acquisition, financed with the funds from a capital increase, Enel Americas becomes the second player in the distribution business in Brazil, reaching 12% market share.

Finally, I would like to point out that from February the 1st, a new tariff framework in Argentina is in place, establishing a structural change in distribution and improving profitability in generation. All these results were achieved in a market context still affected by an economic slowdown in the region, as you can see in the following slides.

Slide number three; GDP growth in 2016 was negative in Argentina and Brazil, with moderate growth in Colombia, lower than previous year, and robust growth only in Peru, above analysts' estimations of reaching a new record of 18 months of nonstop growth.

The energy demand in our concession areas has followed the general slowdown of the economies, although with differences, in Colombia on the negative side and Brazil with positive growth despite GDP reduction. Spot prices in Colombia were high due to El Nino, while in other markets were at significantly lowered levels. Hydro reservoirs in Colombia, however, returned at good levels, and prices at the beginning of 2017 have returned to [2013] US dollar range.

Finally, as you can see in the slides, currencies in all markets have depreciated towards Chilean pesos, with marked differences in the trend through 2015 and 2016. Colombian pesos suffered a sharp devaluation in the middle of 2015, stabilizing thereafter.

Peruvian sol slightly decreased during 2016. Brazil had also a devaluation that was recovered during 2016. In Argentina, the currency suffered an important devaluation after the liberalization of FX exchanges.

Let's now look at our operating performance in slide number four. Our net installed capacity increased by 1%, reaching 10.8 gigawatts in 2016, thanks to the 50 megawatt upgrade in El Guavio, Colombia, a hydro generation unit, and the new motor generation in Costanera, Argentina, which added another 35 megawatts.

Total net production was 4% lower compared to the previous year as a result of lower production in Argentina and Brazil, partially compensated by the full operation of El Quimbo, now operating for the entire year.

On the other hand, sales in our generation companies increased in all countries except in Argentina, totaling an increase of 43%, expanding our long position in Peru and Brazil.

The electricity distributed amounted to 62.7 terawatt hours, 0.5% higher than 2015, while at the end of the year our customers increased by a much bigger percentage, 4.7%, due to the combined effect of organic growth adding 350,000 clients and the merger of Cundinamarca in our distribution company in Colombia, Codensa. This operation is effective starting from October 1st, 2016.

Now I will hand over to Javier who will tell you about the financial results of Enersis/Enel Americas in slide number five.

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Javier Galan, Enel Americas SA - CFO [3]

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Thank you, Luca. Good afternoon. Let's have a look at the main key figures of 2016.

Revenues decreased by 2% compared to the previous year, mainly as a consequence of the FX conversion effect of the different currencies versus Chilean peso. EBITDA increased by 1.7% compared to 2015. It is important to notice that this EBITDA increase includes an overall negative FX effect of 11% and a negative one-off effect in Peru for $73 million.

Net income without discontinued operations decreased by 24.5%, amounting to $844 million, compared to $1.117 billion in 2015. Taking into account extraordinary effects, however, in both years we see a quite different picture.

In 2015, net income included $341 million of financial income in Argentina for revaluation of accounts payable denominated in US dollars, and waiving of interests in Edesur and Costanera. Net income in 2016, on the other hand, includes $115 million of one-offs, revaluation of accumulated fines in Argentina, write-off and provisions for legal expenses in Peru, partially offset by the gain on the sale of transmission lines also in Peru. Without these extraordinary effects, net income would have increased by 23.6%.

Attributable net income after discontinued operations was equal to $566 million, in line with the target announced for 2016. Net debt decreased by $279 million, 15.6%. We will see a more detailed explanation of this reduction in the analysis of funds from operations.

Now let me continue with EBITDA evolution, segmented by business and countries in slide number six. In the left-hand side of this slide, you can see that generation activities increased EBITDA by about 15.3%, excluding FX conversion effects and one-offs.

This operating performance has been achieved thanks to the following events; a higher price recognition in Argentina related to Resolution Number 22 and better capacity payments; higher volumes and energy prices in Colombia; higher sales and lower energy purchasing costs in Brazil; and stable margins in Peru offsetting deterioration of prices with the expansion of sales.

In distribution, EBITDA, excluding FX effects, increased by about 17% thanks to the higher energy margins in Edesur, Brazil, and Colombia, benefitting from higher consumer types.

Now I leave the floor to Luca, who is going to analyze the key financial and economic drivers on a country-by-country basis, beginning with Colombia in slide number seven.

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Luca D'Agnese, Enel Americas SA - CEO [4]

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Thank you, Javier. In Colombia, overall EBITDA increased by $54 million, so 5.1%, in 2016, including a negative foreign exchange conversion effect of $82 million. Excluding this effect, EBITDA would have increased by $136 million, or 13%.

In the generation business, Emgesa had a 6.1% decrease in EBITDA, mainly due to the contribution of additional energy generated in El Quimbo. In the distribution business, EBITDA in Codensa was 3.7% higher than in 2015, thanks to better margins and higher tariffs due to inflation, partially compensated by the slowdown in demand, which decreased by 2.3%.

CapEx in generation sharply decreased after the completion of El Quimbo while increasing distribution for the acceleration of our service quality program. It is important to highlight that since October 2016, we consolidated close to 300,000 new clients after completing the merger between Codensa and Cundinamarca.

Let's now analyze Brazil on slide number eight. In Brazil, overall EBITDA in 2016 increased 21%, or $110 million, despite a negative FX conversion of $7 million. Excluding this effect, EBITDA would have increased by $117 million, or 22%.

Generation EBITDA increased by 20%, or $45 million, thanks to higher unitary margins and additional volumes sold to free market clients in our subsidiary Cachoeira Dourada and lower operating costs in Fortaleza. Our EBITDA in the distribution business increased by 22%, mainly due to higher unitary margins and lower costs in power purchases.

CapEx increased by 8% in nominal terms and 13% net of FX effects for the acceleration of our investment in Ampla to recover quality of service and Coelce to reduce connection backlog. Our customer base increased by 189,000 clients during the period, surpassing 6.9 million in Brazil.

All these numbers, of course, exclude Celg-D, which we will comment about later, that will be consolidated starting from the first quarter of 2017.

Let's now move to Peru in slide number nine. EBITDA in Peru decreased by 16%, or $83 million, entirely due to one-off effects reaching $437 million. This has been the result of lower EBITDA in our generation company, Edegel, which decreased by 31%, or $86 million, mainly due to the write-off of Curibamba and Maranon hydro projects and some client related provisions for a total amount of $73 million, FX deterioration for $6 million, a slight increase in operating EBITDA for higher sales of 500 gigawatt hours in the free market, compensating volume reduction in regulated market.

Regarding our distribution business, EBITDA in Edelnor increased by 3%, mainly explained by higher sales of 120 gigawatt hours, reaching 7.8 terawatt hours in 2016, and higher sales prices. Total CapEx increased by $20 million, with an increase in generation for Malacas repowering compensating a reduction in distribution.

Let me now finish with the situation in Argentina on slide number 10. EBITDA in Argentina increased by 1%, reaching $308 million in 2016. Net of the FX effect which impacted the P&L by 35%, EBITDA would have increased by $172 million. The better performance is the effect of the rise in generation and distribution tariff and the step up in inflation, 36%, which had the full effect of revenues but a lower one on costs thanks to our efficiency actions.

Our CapEx has decreased by 34% in nominal terms, while remaining flat in local currency, with a major reduction in generation for the execution in 2015 of extraordinary maintenance in Dock Sud that increased, in local currency, distribution.

As mentioned at the beginning of this presentation, on February 1st the interval tariff revision process was settled in Argentina for the distribution business.

Let's have a look at our total CapEx allocation in slide number 11. Total gross CapEx for 2016 amounted to $1.2 billion, which represents a decrease of 23.9%, mainly due to the finalization of El Quimbo hydro plant in Colombia in November last year and conversion of foreign currencies. In 2016, growth CapEx represented about half of the total.

Distribution captures more than three-quarters of our total investments, amounting to $971 million during the period, including most of the growth expenditure targeting improvement of quality.

From a geographical point of view, 37% of the investments are devoted to our subsidiaries in Brazil. CapEx in Peru, Argentina, and Colombia have the same magnitude, capturing a share between 18% and 24%.

Let me now hand over to Javier to continue this section by showing you the distribution of the EBITDA and net income by geography and business in slide number 12.

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Javier Galan, Enel Americas SA - CFO [5]

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Thank you, Luca. As you can see in this slide, Colombia continued to be the most important country in terms of EBITDA and in income contribution, while in terms of business we see that both EBITDA and net income are balanced between distribution and generation.

Now let's have a look at the main factors that affected net income on slide 13. During the year 2016, the company registered a depreciation and amortization for an amount of $6 billion, reaching an EBIT of $1.8 billion. Net financial cost amounted to $4 billion, including a one-time revaluation effect of past fines in Argentina for an amount of $70 million.

Income tax registered in the period was $5 billion. The effective tax rate was 39%, in line with the average nominal tax rate.

Net pro forma income amounted to $0.8 billion. Adding back the effect of two months of Chilean operations and subtracting minority interest, we obtained an attributable net income of $0.6 billion.

With all these sentiments, let's analyze the cash flow and debt during fiscal year 2016 in the following slides, beginning with the cash flow evolution in slide number 14. Funds from operations amounted to $2.1 billion. This result includes the effect of an important reduction of working capital of $0.6 billion.

This was achieved in part for temporary effects like accumulation of CVAs in Brazil and for another part of a structural reduction of our net working capital needs through the optimization of our receivables and payables.

The free cash flow generated during the period, after maintenance and growth CapEx, has been $0.9 billion. This amount covered the payment of dividends, leaving a positive net cash flow of $0.5 billion for the period.

Now let me focus on the debt in slide number 15. Gross debt amounted to $4.3 billion, with an increase of $0.8 billion versus the previous year. This growth is explained by the increase of $1 billion in consolidated cash position, net of $0.3 billion reduction in net debt.

This increase in cash is attributable for about $0.5 billion to the increases in Enel Americas and Brazil. This amount will be deployed in acquisitions, either realized like Celg-D or potential other acquisitions. The remained cash increase was recorded in Colombia, where we are carrying out interest rate optimization actions, Peru, and Argentina, and will service short term payment needs or debt repayment.

The breakdown by country reflects country allocation of gross debt, with debt in Chile and partially in Peru being denominated in US dollars. The cost increase reflects unitary cost increases in Colombia, where interest rates are linked to inflation, and Brazil, where 2016 witnessed an exceptional level of real interest rates.

Now I give the floor to Luca, who is going to continue with the closing of the reorganization process.

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Luca D'Agnese, Enel Americas SA - CEO [6]

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Thank you, Javier. Our group reorganization is instrumental in accelerating our performance and improving our efficiencies through the separation of our operations in Chile from those in other Latin American countries and the simplification of our corporate structure.

We started from a complex network of cross shareholdings, with three net Chilean holdings having participation in various companies and in every country without a clear separation by either business or geography. Now we have completed the reorganization process at the holding level with the merger of Enersis, Endesa, and Chilectra Americas, which took place on December the 1st.

As a result, we have one holding for Chile, Enel Chile, and another for Americas, Enel Americas, all in participation in the other four countries. The following step will be the simplification at the country level, where we aim to reduce by approximately 50% the number of existing companies.

Markets reacted positively to these operations. As you can see in the graph, from the split up to yesterday closing, the price of the share of Enel Americas has increased by 33%. Also, the recent bond issue made by Enel Americas reflects the confidence in our company strategy and financial strength.

On October 25th, Enel Americas placed $6 million [sic -- $600 million], a 10 year registered with the SEC, in connection with a bond subscribed by high quality international investors with a 4% coupon and a 4.2% yield. A robust order book was more than 8 times oversubscribed.

The reorganization process is already creating value, as we can see the analysis of our efficiencies in the next slide. Our efficiency program is well on track. In 2016, we achieved more than $160 million cost reductions after the -- ahead of the initial estimates, led by efficiencies in the operating cost of the distribution business.

On the left side of the slide, in distribution Enel Americas has decreased by $77 million, or 8%, total OpEx. If we take into consideration a key indicator as OpEx per client, the efficiencies put in place by the company have allowed us to reduce cost per client by $9.50 per client, or 13%, in only one year.

The origin of the efficiency put in place in this side of our business are sharing of best practices, implementing global processes and technology, and functional convergence of our systems.

In terms of the efficiencies in generation, the company has reached savings for about $24 million, or 10%. Analyzing a key indictor for this business, which is OpEx per megawatt, we have reduced it by $2.30 by the application of common technical standards, the review of long term service agreements, and efficiencies in procurement.

Finally, in terms of staff and services, Enel Americas has obtained efficiencies for about $27 million, or 12%, by a higher focus of our structures.

After this good start, the company has announced, in its new strategic plan for the period 2016-2019, total savings of about $358 million by 2019, 10% more than we expected in the previous plan.

Now let me focus on our recent acquisition in Brazil, Celg-D, in slide number 18. On February 14, Enel subsidiary, Enel Brasil, has finalized the purchase of approximately 95.8% of Celg-D's share capital for a total consideration of BRL2.187 billion, approximately $640 million. The purchase of Celg-D increases Enel's Brazilian customer base up to 10 million from 7 million, making Enel Brasil the second largest power distributor in the country.

The acquisition is an important step for our growth strategy in Latin America, and in particular in Brazil. Enel Americas is fully committed to making very good work of sales growth potential through our technological expertise and our global best practice implementation.

The targets announced on December 1st, 2016 when Enel Brasil won the public tender for the privatization of Celg-D, are in the biggest part confirmed. And in some cases, we expect potential upside versus our initial assumptions, as we can see charted in this slide. The new Board of Directors of the company has already been appointed, and the management team is now fully operating.

Let me now continue this presentation by analyzing the new tariff scheme in Argentina, one of the pillars on which we have recently concentrated our efforts, in slide number 19. The electricity regulator in Argentina, ENRE, has published on February 1st a solid framework theme for distribution and generation business following a long process of reviews started in mid 2016.

I would like to highlight that the rationalization in the new framework has been possible due to the effort and commitment of the government, companies, and other stakeholders involved in the tariff revision. In this process of normalization, the increase in the price of electricity will be partially postponed in order to smooth these impacts on consumers.

In the business of distribution, the main objectives announced by the government are, one, to increase the current level of service in the province of Buenos Aires and, two, to allow the distribution companies to guarantee a good level of investment through an adequate remuneration scheme.

As far as the generation business is concerned, the main news is the progressive elimination of current subsidies to cap fiscal deficits. At the end of 2019, government is expected to completely eliminate energy generation subsidies currently assumed by the Tesoro Nacional.

Let's now go to analyzing the details of the new framework for the distribution business and the main impacts expected for Edesur in slide number 20. Resolution 64 of 2017 has approved a five year cycle, which has established a new methodology model. The new model is based in price cap.

Under this approach, the regulated price is periodically adjusted by the rate of inflation twice a year, and VNR, Valor Neto de Reposicion, is depreciated according to the lifetime of assets.

In terms of WACC, we move from an in existence remuneration to the new scheme with a WACC of 12.46% real before tax. This WACC is in line with the company's expectation. It is similar to the regulated rate of return recognized in the other three countries in Latin America in which the company is present.

Regulated asset base is higher than our initial expectations announced during the presentation of the company's strategic plan, and therefore close to the valuations presented by distributors in the negotiation process.

For Edesur, the Valor Agregado de Distribucion, representing the value-added that distribution companies can bill to their customers, will have a total value of about $0.9 billion. Valor Agregado de Distribucion is determined in real terms and is adjusted periodically with inflation and by some other factors like efficiency and investment. Delayed tariff increase not billed during 2016 will be collected in 48 months starting from February 2018, indexed to inflation.

Continuing with this focus on distribution, we move to slide number 21 where we analyze our investment that we are expecting to make, commitments on quality, and main economic and financial impacts.

Starting from investments, the company reaffirms the level of CapEx announced last year in the strategic plan, which means $0.9 billion. One of the main objectives of the new framework is to increase the low levels of quality in distribution in the province of Buenos Aires.

In order to ensure an improvement to the current situation, Edesur, our distribution company in Argentina, is committed to progressing key indicators, SAIDI and SAIFI, measuring respectively the duration of interruptions and the frequency of interruptions, and to reduce the current level of losses. The previous scheme did not allow the distribution companies serving Buenos Aires to make acceptable investments to ensure adequate levels of quality.

In terms of economic and financial impacts, based on our understanding of the new regulatory framework for distribution, we estimate a positive impact to EBITDA compared to the strategic plan announced in November, which is still early to quantify in full but might get above $300 million in the total period 2017-2019. Cash flow impact of this improvement will start to kick in later, presumably in 2018.

Just to finish this chapter devoted to the new tariff scheme in Argentina, we have assumed in the following slide the evolution of the average tariff to the final clients in Edesur. Through this slide, we would like to explain the evolution of the electricity tariff for the user as it is planned by the government from 2015 up to 2020.

In gray, you have the tariff component paid for generation cost, and in blue are the -- you see the distribution component. As you can see in the left-hand side of the slide, from 2016 [sic -- 2015] to 2016, tariff increased by 238% due to the onset of transitory regime introducing by the resolution made by ENRE in Resolution 01/19.

This was the first step to use subsidies and rationalize the previous framework. In 2016, subsidies to generation were partially reduced, and the distribution component was increased by $13.00 per megawatt hour.

As I said before, on February 1st, 2016 the Resolution ENRE 64/17 was approved, which introduced a fully rational, stable framework for remuneration of distribution companies, and there was also approved Resolution 19/2017, which approved a transitory regime for existing generation companies.

The combination of both resolutions has entailed a further increase in tariff in February by about 62%, or $29.00 per megawatt hour, compared to previous months. In November 2016 [sic -- 2017] and February 2018 are expected two further price adjustments that will bring an additional increase of 36%.

In order to smooth the effect of the new tariff, the government limited the value-added increase applied from February up to a maximum of 42%. The remaining value of the new VAD billed to the end user will be achieved in two different steps, first in November and second in February 2018.

Finally, let me finish this presentation by summing up the closing remarks on slide number 23. Let me start this slide highlighting that we have been able to achieve results in line with the full year financial targets announced last year thanks to the solid operating performance recorded in our business, despite the nonrecurring impacts already explained.

The reorganization process has been completed. We merged all Americas vehicles on December the 1st. A structured rationalization will allow us to ensure further efficiencies announced in the strategic plan of the company.

Delivery on growth is also solid, as shown by the closing of Celg-D distribution acquisition. This asset is a very good example of a company with good turnaround potential which perfectly fits with the strategy of Enel Americas. We have the best knowhow to ensure a drastic change in sales performance and to reach the targets previously announced.

Finally, we shall [ally] the tariff scheme in Argentina which is now in place. I would like to underline the commitment of the company with a country in which we have always believed. New opportunities of business of our sector are now becoming fact thanks to the efforts of the different stakeholders involved in the rationalization of the regulation scheme.

Well, now let me thank you for your attention. I now pass the call to the operator for the Q&A session. Operator, please proceed.

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Questions and Answers

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Operator [1]

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(Operator instructions.) Enrico Bartoli, MainFirst.

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Enrico Bartoli, MainFirst - Analyst [2]

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Hi. Good afternoon. Thanks for taking my question. I have three, actually. First of all, I have a question regarding Brazil. If I made the right calculation, there was a very significant jump in EBITDA contribution in the distribution business in Brazil. Could you give us some details of the reason of this increase? And remaining on Brazil, if you can give us an indication of the EBITDA that can be expected from Celg-D in 2017.

Then a question on Argentina, if you can possibly elaborate a bit more on the possible upside in EBITDA that can be starting in 2017 from the new regulatory scheme, possibly separated by distribution and generation.

And finally, a general conservation is possible on your $2.8 billion target for EBITDA in 2017. Considering some upside so that you are likely to do the representation and the evolution of the ForEx in the recent weeks, can we say that the guidance could be conservative? Thank you.

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Luca D'Agnese, Enel Americas SA - CEO [3]

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Well, thank you. Let me start with your question in Brazil. Our EBITDA in Brazil, as we said, increased in both our generation and distribution business.

In distribution, the EBITDA increase was a combination of the increased revenue by our distribution companies, driven by some volume growth that we expected, as we said, despite the economy still in contraction and growth in prices with inflation.

On the other hand, our cost has remained stable or has been reduced thanks to our efficiency efforts. And this has been driving the growth of our EBITDA margin.

Speaking about Argentina, it's a bit too early for us to make a specific analysis of the effect in each of the years of this new framework. As I commented before, we expect a total impact, on top of the numbers that we have announced in our strategic plan presentation, in the range of $300 million over the 2017-2019 period, which will be distributed broadly equally across the years. But we don't have a specific distribution of this number for 2017.

The same happens for generation, in which, as you probably know, the new framework has increased its remuneration, especially for thermal capacity. But the new remuneration is also connected to a plan of capacity commitment that greatly [announces] the remuneration of our generation plant. And therefore, the actual increase of our expected return in distribution will, of course, depend on the commitment plans that we will make with our thermal generation plants in the city of Buenos Aires.

All in all, of course we are not updating our guidance for 2017 EBITDA now. It's too early to tell. But we have actually from the first elements of this year, especially the Argentina review, very positive news. So, we are fully confident of being able to reach the targets that we have set.

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Enrico Bartoli, MainFirst - Analyst [4]

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Sorry, just a comment on the possible contribution from Celg-D. Last year, EBITDA was close to zero. Are we going to see the impact of the cost cutting already in 2017?

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Luca D'Agnese, Enel Americas SA - CEO [5]

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Well, of course we will start the program as soon as we have taken control of the company. The impact of cost cutting, of course, will be both on reducing costs but also in probably having some restructuring costs. We didn't disclose any specific numeric target for year 2019.

The thing that we can say is that actually we can fully confirm the $250 million target for 2019, and we, of course, expect this to start to come early. Probably 2017 is too early, given the fact that, of course, this is full year in which we take control of the company.

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Enrico Bartoli, MainFirst - Analyst [6]

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Thank you very much.

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Operator [7]

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Miguel Rodriguez, Morgan Stanley.

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Miguel Rodriguez, Morgan Stanley - Analyst [8]

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Hello. Thank you very much for the call. So, I have two points. First in Brazil, I'd like to hear about the growth plan after the acquisition of Celg-D. Will you still be looking for acquisitions in distribution? And in terms of size, do you still have appetite for larger acquisitions or not? You'll be looking for smaller more assets.

The second point is in Argentina. I would like to know if you have any update on the discussion with the government regarding the debt balance with CAMMESA. So, these are the two points. Thank you.

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Luca D'Agnese, Enel Americas SA - CEO [9]

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Well, in Brazil, yes, we are continuing to monitor the privatization program that's taking place from Eletrobras as well as other potential acquisitions. We are targeting companies and -- analyzing more than targeting companies of different sizes.

And yes, Brazil remains still an area for growth. We have a 12% market share there. We have consolidated our position, but we have room for growth.

In Argentina, the distributions with the government are to be paid under the framework of a decree, which we expect the government to come out quite soon. That will set the framework for this discussion.

As you probably know, funds have already been set by the Parliament to allow CAMMESA to actually make a transaction on the credits that CAMMESA has towards the company, which are a debt for us, of course. And this discussion is likely to take place in the following months and most probably to be closed in the last quarter of 2017.

This is the framework that we expect. The framework will be set by the government decree that we are -- we have been discussing, of course, with the Ministry of Energy. But it will be made public, of course, quite soon.

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Miguel Rodriguez, Morgan Stanley - Analyst [10]

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Perfect. Thank you very much.

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Operator [11]

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(Operator instructions.) [Arturo Mora], Santander.

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Javier Galan, Enel Americas SA - CFO [12]

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I'm sorry, but we can't hear you.

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Arturo Mora, Santander - Analyst [13]

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Hello?

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Luca D'Agnese, Enel Americas SA - CEO [14]

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Hello.

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Javier Galan, Enel Americas SA - CFO [15]

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Hi, Arturo.

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Arturo Mora, Santander - Analyst [16]

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Sorry, I have some problems with the phone. Could you give us a bit of color about the merger between Codensa and Cundinamarca, if you're expecting any financial impacts regarding with this merger?

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Luca D'Agnese, Enel Americas SA - CEO [17]

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Well, the merger is not a major effect, of course, because Cundinamarca is a company with 300,000 clients. So, it is adding 2% of our customer base, roughly the size of our organic growth every year.

We, of course, are targeting efficiency in this company, which will bring, of course, some positive effect on Codensa. But, as I said before, this company represents roughly 10% of our distribution business in Colombia, so the benefit of these efficiencies will not be material to our overall business of distribution in Latin America.

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Arturo Mora, Santander - Analyst [18]

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Okay, thanks.

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Operator [19]

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Thank you. And I am showing no further questions at this time. I'd like to turn the call back to Mr. D'Agnese for closing remarks.

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Luca D'Agnese, Enel Americas SA - CEO [20]

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Okay. So, if -- well, there are no more questions for the moment. I conclude this conference call. I remind you that our Investor Relations team will be glad to assist you with any further question you may have. And have a nice evening.

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Operator [21]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a wonderful day.