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Edited Transcript of ENERSIS-AM.SN earnings conference call or presentation 31-Jul-19 4:00pm GMT

Q2 2019 Enel Americas SA Earnings Call

Vitacura Aug 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Enel Americas SA earnings conference call or presentation Wednesday, July 31, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Aurelio Bustilho de Oliveira

Enel Américas S.A. - CFO

* Maurizio Bezzeccheri

Enel Américas S.A. - CEO

* Rafael de la Haza Casarrubio

Enel Américas S.A. - Head of IR

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Conference Call Participants

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* Charles J. Fishman

Morningstar Inc., Research Division - Equity Analyst

* Henrique Peretti

JP Morgan Chase & Co, Research Division - Research Analyst

* Rodrigo Mora;Moneda Asset Management;Senior Investment Analyst

* Rodrigo Mugaburu;Newfoundland Capital Management;Investment Professional

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to Enel Americas First Half 2019 Results Conference Call. My name is Tiffany, and I will be your operator for today. (Operator Instructions) As a reminder, this conference is being recorded.

During this conference call, we will 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 statements 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 and are not guarantees of future performance and involve risks 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 the government, regulators in Chile or elsewhere, and other factors described in Enel Americas' annual report on Form 20-F, including under risk factors.

You may access our 20-F 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 America 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 over to Mr. Rafael de la Haza with -- Enel Americas' Head of Investor Relations. Please proceed.

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Rafael de la Haza Casarrubio, Enel Américas S.A. - Head of IR [2]

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Good afternoon, ladies and gentlemen, and welcome to our first 2019 results presentation. (foreign language) I am Rafael de la Haza, Head of Investor Relations. And here with me is Maurizio Bezzeccheri, our CEO; and Aurelio Bustilho, our CFO.

Let me remind you that this presentation will follow the slides that have been already uploaded into the company's website. Following the presentation, we will have the usual Q&A session.

And now let me hand over the call to Maurizio, who will start by outlining the main highlights of the period in Slide #2.

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Maurizio Bezzeccheri, Enel Américas S.A. - CEO [3]

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Thank you, Rafael. Good afternoon, everybody. It's a pleasure for us to be here in the New York Stock Exchange. We are celebrating that our company has been listed in the stock exchange for 25 years, being one of the first Chilean companies in ADR program in USA. This has allowed us to expand our shareholder base, increase the liquidity of our stock and to have access to the main financial market in the world. Today at 4 p.m., we will be closing the bell to celebrate this important milestone.

Let's focus now on our results for the first half of 2019. Enel Americas' EBITDA for this period reached USD 2,070 million, an increase of 25% compared to the same period of 2018 despite the currency devaluation in the 4 countries where we operate, especially in Argentina and Brazil. Without the negative FX impact, EBITDA would have increased by 59%. During this period, we were able to reduce our OpEx by USD 57 million. This reduction is mainly explained by efficiency in Brazil and Argentina.

Total net income increased by 25%, while group net income increased by 35%, reaching USD 544 million. This is explained by better operational results, partially offset by higher financial expense in connection with the purchase of Enel Sao Paulo. We continue with our focus on sustainability, aiming to improve on our United Nations goal and create long-term value.

Let's now take a look at our CapEx for the period in Slide #3. Total gross CapEx for the period amounted to USD 705 million, an increase of 8.5% compared to same period of last year. CapEx is well balanced between asset management, asset development and customers, with 39%, 31% and 30% respectively. Distribution captures most of our CapEx with an 88% share.

Within distribution business, we have to mention the effect of the consolidation of Enel Sao Paulo in Brazil, which represents 18% of our total distribution CapEx. From a geographical point of view, 50% of the investment are devoted to our subsidiaries in Brazil.

Now let's analyze the main operating indicators on the following slide. On generation business, our net production reached 19.3 terawatt hours, a 2.6 reduction compared to the same period of 2018. From this amount, 62% corresponds to hydro generation, and we can see that we have been able to increase hydro production and reduce thermal production in a significant manner in line with our sustainable strategy.

Despite lower production, our energy sales increased by 9.3%, reaching 34.8 terawatt hours. This is explained by energy purchase contracts in Brazil that allow us to improve our margins.

Let's analyze distribution business in the coming slide. Distributed energy increased by 45%, reaching almost 60 terawatt hours, from which 21.8 terawatt hour are explained by Enel Sao Paulo. In homogenous terms, our sales slightly increased compared to last year.

Regarding number of customer, we had an increase of about 100,000 despite the client reclassification process that we have been doing in Brazil and Argentina.

I would like to mention that at the beginning of this month, we concluded the tariff revision process in Enel Sao Paulo, which we will analyze later on in this presentation.

Let me now comment the operating highlights of Enel X and retail business in Slide #6. In Enel X business, you can see that regarding e-City, public lighting points remained almost flat, reaching 406,000. We had an important growth in photovoltaic and storage business in e-Industry. Regarding e-Home, we had a significant increase in the transaction of third-party billing and collection services, while the level of contracts of micro-insurance was slightly lower. Finally, in e-Mobility, the number of charging stations increased from 10 to more than 100, especially in Argentina and Colombia.

Regarding energy free market business, the number of customers increased by 11%, reaching 1,534 clients, and the energy sold amounted to 7.4 terawatt hours, 6% lower than last year.

Looking at our gas free market business, the number of customers increased by 15% and the gas sold increased by 49%, reaching an amount of 0.5 terawatt hours. The competitive advantage of Enel America due to its presence in the major urban areas of the different countries in which the company operates will offer us the possibility to rapidly expand these businesses.

Let's have a focus now on our efficiency of the period in Slide #7. Starting from USD 801 million of OpEx reported on June last year, we have to add the OpEx of the first 5 months of 2018 of Enel Sao Paulo in order to properly see the efficiencies gained in the period. This way we get to a pro forma OpEx of USD 1,085 million for first half 2018. From this amount, we obtain efficiencies for USD 57 million mainly due to lower OpEx in Enel Sao Paulo and lower personnel expenses in Argentina. In addition to this, we see a reduction of USD 91 million explained by FX, reaching a final OpEx of USD 937 million, which represents a reduction of 14%.

On the following slide, we will make a focus on sustainability. As we have said many times before, Enel Americas' strategy is based in our sustainability commitment. Enel Americas promote economic development in the communities where the company operates, taking action to improve share value creation with this community. In this way, the number of beneficiaries have increased since 2015, totalizing 4.1 million of beneficiaries on SDGs 4, 7 and 8.

Enel America has also contributed to SDGs 9 and 11 related to build a sustainable industry infrastructure and cities. In this way, Enel America relies on its value-added products and services, where the smart meters and the Enel X business are relevant to the development of urban areas.

In addition, in order to prevent cybersecurity incidents, we covered all of our web application exposed to Internet with advanced cybersecurity solutions. In climate change, Enel Americas has contributed to fight against this by generating 62% of its energy with hydroelectric asset during this period.

Let's move to financial summary for the period on Slide #10. EBITDA of the period reached USD 2,070 million, a 25% increase compared to the same period of last year. Once we exclude the extraordinary effect of the positive impact from resolution of pending regulatory issues in Argentina, EBITDA increased by 8% to USD 1.8 billion.

Group net income came in at USD 544 million, 35% higher versus last year, explained by better EBITDA, partially offset by the increase in financial expenses mainly related to the acquisition of Enel Sao Paulo.

Funds from operation, FFO, stood at USD 378 million, 40% lower versus last year. This result includes a negative net working capital in the period for an amount of USD 1,123 million mainly due to the payment of activities implemented at the end of 2018 in Brazil and Colombia and to the impact of the regulatory asset resolution in Argentina.

Group net income reached USD 7.9 billion, increasing 19% versus the end of 2018, mainly explained by lower cash availability in Enel Americas Holding and then increase in net debt in Enel Sao Paulo, Codensa, Enel Rio, Enel Goiás.

Moving to the detailed analysis, let's take a look at the main global business line drivers for EBITDA on Slide 11. In this slide, you can see a performance summary of our businesses. It is worth to highlight that large hydro and networks account for 78% of overall EBITDA after the consolidation of Enel Sao Paulo, confirming the well balanced risk/return profile of our business model. It is also worth to mention the great performance in our retail business in Argentina, Brazil and Colombia, reaching an EBITDA increase of 155% versus the same period of 2018 or 210% net of FX effect.

Deep diving on the different countries, let's move to Argentina on Slide #12. EBITDA in Argentina increased by 59% or USD 253 million, reaching USD 402 million. In operational terms, EBITDA increased by USD 523 million, partially offset by a negative FX impact of USD 374 million. This important increase in EBITDA is mainly explained by the positive effect coming from the agreement reached with the government in connection with past liabilities, which entitle a positive impact of USD 279 million at EBITDA level.

In generation business, EBITDA increased by 1%, reaching USD 111 million. Without considering FX effect, EBITDA would have increased by USD 84 million or 75%. This is mainly explained by higher margins as payments in generation are lowerized, partially offset by lower physical sales due to lower demand. In Distribution business, EBITDA increased by 104% or USD 149 million, mainly explained for the already mentioned one-off effect.

Demand in our concession area was 9% lower compared to last year, while the number of clients slightly decreased due to a reclassification process of our customer base. CapEx increased by 51% compared to last year, mainly as a consequence of the investments made in distribution business due to the quality plan in Edesur.

On the following slide, we will see the impact of the agreement reached with the Argentinean government regarding regulatory liabilities. As you can see here, from the total debt that amounts to ARS 19,700 million, 52% was offset. From the remaining 48%, 21% has to be invested during the next 5 years, and only 27%, which correspond to final client, has to be actually paid.

As a consequence of this agreement, we had a positive impact of USD 279 million at EBTIDA level and USD 146 million at group net income level. We are very satisfied with the agreement that completes the tariff revision process started on February 2017. With this positive effect on our results, we will be able to partially compensate the negative impact coming from the devaluation of Argentinean peso that we have suffered during the last years.

Let's move to Brazil on the following slide. In Brazil, overall EBITDA in the period increased by 50% or USD 254 million, including USD 95 million negative impact coming from FX. EBITDA in generation business increased by 6% or USD 17 million, which is explained by better results in Fortaleza due to higher sales revenues.

Our EBITDA in distribution business increased by 67% or USD 244 million, mainly explained by the consolidation of Enel Sao Paulo, which contributed with USD 255 million, and better result in Enel Goiás and Enel Rio mainly due to the new tariff to final client at the tariff review in October and March 2018 respectively. This was partially offset by a reduction in Enel Ceará due to the higher costs mainly in connection with the action to control energy losses and bad debt.

CapEx in Brazil increased by 5% compared to last year reaching USD 351 million, mainly explained by investment in Enel Sao Paulo, partially offset by a reduction in Enel Goiás due to higher level of investment reached last year due to the tariff revision occurred in 2018.

In addition regarding Enel Distribution Sao Paulo, ANEEL has published the final resolution for the new tariff adjustment. We will analyze it in detail later on in this presentation.

Let's move to Colombia on the following slide. EBITDA in Colombia increased by USD 14 million or 2% compared to last year, despite a negative impact of USD 76 million due to currency devaluation. Without FX impact, EBITDA would have increased by 14%.

In generation business, EBITDA was flat. But in operational terms, we had an increase of 11%, mainly due to higher sales revenue due to higher price. This was offset by negative FX impact of USD 43 million. In distribution business, EBITDA increased by 6% or USD 16 million, mainly explained by higher demand and higher tariff. This was partially offset by FX impact of USD 32 million negative. It is important to highlight that distribution business results also include the contribution coming from Enel X, which in Colombia showed an important increase in public lighting, insurance services and electric infrastructure project to big client. CapEx in Colombia decreased by 8% due to negative FX impact. In local currency, CapEx slightly increased compared to last year.

Now let's analyze Peru on Slide #16. EBITDA in Peru increased by 1% or USD 3 million, reaching USD 281 million. In generation business, EBITDA decreased by 10% or USD 70 million, from which USD 3 million are explained by negative FX impact. The decrease is mainly due to the positive one-off effect that we reduced last year in connection with the insurance compensation due to El Nino Costero flood. This was partially offset by higher energy sales and higher average sales price.

In distribution business, EBITDA reached USD 133 million, USD 20 million or 18% higher than last year. Sales increased by 3.5% compared to last year and average sales price was also higher. The number of clients increased by more than 22,000. Total CapEx was in line compared to last year both in generation and in distribution businesses.

Let me hand over to Aurelio to comment our financial performance in the following slide.

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Aurelio Bustilho de Oliveira, Enel Américas S.A. - CFO [4]

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Thank you, Maurizio. Starting from USD 2,070 million EBITDA, the company registered depreciation and amortization for an amount of USD 604 million, 50% higher than the last year, mainly as a result of the consolidation of Enel Sao Paulo and an increase in Argentina due to hyperinflation, reaching an EBITDA -- an EBIT of $1,466 million.

Net financial results amounted to minus USD 266 million, which represents a higher cost of $49 million. This is mainly due to higher financial expenses in Enel Brazil related to financial expenses coming from the purchase of Enel Sao Paulo and higher expenses in Enel Sao Paulo.

Income tax in the period was USD 374 million, similar to the amount that we had last year. So effective tax rate during the period decreased from 36% to 31%, mainly due to the reduction in income tax rate in Colombia. Total net income amounted to USD 827 million, while attributable net income reached $544 million, a 35.2% increase compared to the previous year results.

With all these elements, let's analyze the cash flow in Slide #18. FFO amounted to $378 million. This result includes a negative net working capital in the period for an amount of $1,123 million. The increase is mainly due to payments of activities implemented in 2018 in Brazil and Colombia and due to noncash impact of the regulatory asset resolution in Argentina. Most of these negative net working capital will be recovered during the second half of this year.

Taxes paid during the period amounted to $381 million, while net financial expenses amounted to $188 million, mainly related to our activities in Brazil and in Colombia.

Net cash flow amounted to minus $975 million during the period after investing $705 million in maintenance and growth CapEx, as indicated in the previous slides. Dividends paid by the company amounted to $647 million. Extraordinary operations amounted to $5 million, while the FX effect amounted to USD 259 million. Without this effect, total net debt increased $1,266 million compared with December 2018.

Let me now analyze the debt of our company in the following slides. Gross debt amounted to $9.45 billion, an increase of $732 million versus December 2018. This growth is mainly explained by an increase of financial debts in Enel Rio, Enel Sao Paulo, Goiás, Enel Ceará and Codensa, partially offset by a decrease of financial debts in Endesa.

In terms of currency, most of our debts is in Brazilian reais mainly as a consequence of the acquisition of Enel Sao Paulo. The same reason explains that 64% of our debts is allocated in Brazil. We registered an increase of 15 basis points in the cost of debt since December 2018, mainly explained by higher average rate in Enel Brazil, partially offset by lower cost of debt mainly in Codensa, Enel Goiás and Enel Rio.

Finally, let me highlight that on July 2 we paid a debt that we had with the FE, Enel Finance, for the purchase of Enel Sao Paulo. This payment was financed through a bridge loan that we will fully prepay in the next few days with the proceeds obtained by the capital -- from the capital increase.

Let me now continue with the focus in our last 2 acquisitions in Brazil in distribution business. Starting with Enel Sao Paulo. We are very satisfied with the performance of the company during the first half of this year. EBITDA reached $255 million at Enel Americas level. If we compare the numbers in reais and Brazilian GAAP, we see that EBITDA increased by 77% as a consequence of higher revenues due to higher sales and lower OpEx.

At net income level, we had a positive result of BRL 200 million, while last year the company reported a loss of BRL 161 million in Brazilian GAAP. Gross CapEx reached $108 million and it was mainly allocated to digitalize and modernize the distribution network.

OpEx decreased by 14.6% as a reduction [sic] [result] of the deepening of the integration optimization process of Enel Sao Paulo in the Enel Americas group, which started on July last year and has allowed us to reduce the operating cost. Debt profile has improved compared to a good liability management made by the team.

Regarding the operational performance, distributed energy has increased with respect to last year and the energy losses decreased from 9.6% to 9.5%.

We can see that quality indicators, SAIDI and SAIFI, have improved on a significant manner, reducing by 8% and 9% respectively as a result of the investments that -- in the company's distribution network. We are very confident that we'll continue to add value in line to what we announced on our strategic plan.

On the following slides, we'll see the main indicators from the new tariff revision concluded this month. As you can see, gross RUB approved for the new tariff cycle is BRL 15.9 billion, while net RUB was set at BRL 8.6 billion. These numbers include all the investments that we made until January 31 of this year. And thanks to our significant CapEx invested, the final RUB was higher than our initial estimations announced on our strategic plan last year. WACC remained at the same level of the previous cycle as it was already known. And regulatory OpEx was defined at BRL 1,764 million per year.

Quality indicators were in line with what we expected, at the very similar levels compared to our real quality indicators. While regulatory losses were defined at 9.35%, very close to our current 9.5% level. As a consequence of all of these new indicators, final customers will have an impact on tariff of 7.03% as an average, as you can see.

Now in the next slide, let me highlight the performance of Enel Goiás during this period. Enel Goiás improved its EBITDA by 16.1% compared to the same period of last year despite a negative FX impact of minus $15 million. Without this negative effect, EBITDA would have increased by 30%. Net income decreased 36.9%, explained by higher tax paid. As last year, we had a tariff benefit due to previous year losses.

Gross debt profile is better than first half of last year, thanks to a good debt management by the company. The company added almost 93,000 clients during the last 12 months and its energy distributed was higher than first half of last year, increasing by 5.1%. Energy losses showed a significant reduction of 1.3 percentage points, reaching 11.2%.

Regarding quality indicators, just in Enel Sao -- as in Enel Sao Paulo, we see a solid decrease in SAIDI and SAIFI, which is explained by our strong CapEx plan focused in infrastructure and network. Both indicators were reduced by 28% and 29%, I mean SAIDI and SAIFI.

I would like to highlight that the association of distribution companies in Brazil, known as ABRADEE, awarded Enel Goiás as the winner in the category of Performance Evolution for the second year in a row for the best performance in quality indicators included in this prize. We are very happy with the successful turnaround process that we are having being able to do in this company, Enel Goiás.

Finally, regarding the news published yesterday, we have not received any notification from the federal government regarding the concession of Enel Goiás. Since we took control of this company, Enel Goiás has been investing 3.5x more than the historical level before the privatization, with significant improvements in the quality indicators measured by ANEEL, as we previously mentioned.

Now I would like to give you an update regarding -- an update regarding the capital increase process approved on April 30. Last Friday, we concluded the first preemptive rights period of our capital increase with a very successful level of subscription that reached 97.3% of the new shares of an amount of USD 2.95 billion. We are very happy to see that our shareholders trust on our strategic plan and are willing to continue with us on this growth path.

It is also important to mention that recently Standard & Poor's reaffirmed our rating, highlighting our comfortable debt structure after the capital increase. As you can see on the timetable, the second preemptive rights period will begin in August 6 in Chile and August 7 in U.S. and it will last for 24 days and 17 days respectively. After that, depending on the final subscription level, we'll decide if the process is finished or we should make an open auction for the remaining share.

Let me hand over to Maurizio to conclude this presentation with some closing remarks on the following slide.

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Maurizio Bezzeccheri, Enel Américas S.A. - CEO [5]

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Despite the significant currency devaluation that we have seen in the region, we were able to have a very positive result in this period thanks to better operational performance, the contribution of Enel Sao Paulo and the impact of passed liability resolution in Argentina.

Regarding Enel Sao Paulo, we continue showing important improvements at every level and we are very satisfied with the final resolution for the new tariff cycle, which is better than our initial expectation.

Regarding Enel Goiás, our performance has also improved significantly and we were recently awarded by the ABRADEE as the best performer for second consecutive year.

The first preemptive right period of our capital increase concluded with an extraordinary subscription level of more than 97%. This shows the confidence that our shareholders have on our company and paves the way for continue with our growth strategy.

Finally, all our business continues to have sustainability as a key pillar, which is reflected in the international recognition that we have received in this field and by the impact in our financial results.

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Rafael de la Haza Casarrubio, Enel Américas S.A. - Head of IR [6]

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Well, thank you for your attention. I will 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)

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Rafael de la Haza Casarrubio, Enel Américas S.A. - Head of IR [2]

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Also questions from the audience.

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Henrique Peretti, JP Morgan Chase & Co, Research Division - Research Analyst [3]

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Henrique Peretti at JPMorgan. I would like to ask a question regarding your growth strategy, also the capital increase and an update on the M&A opportunities in the region?

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Maurizio Bezzeccheri, Enel Américas S.A. - CEO [4]

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The capital -- just to recall, the capital increase has been aimed to make a better situation in our balance sheet in Brazil, and as a consequence of this, reshaping of one the items to improve the EBITDA, FFO conversion.

Of course we will get then -- we will -- are finalizing -- if you recall, our road show, the terms of financial cost was one of the items. And for this reason, we will go to repay. We have already repaid the funds from the operation of Sao Paulo. Now we are going ahead with the pension fund in Sao Paulo resolution. We are progressing quite well in this direction as well.

And we said that in this situation, we will get the possibility to major indebtedness -- sorry, more debt for future M&A acquisition. And of course, we are doing -- since many years we analyze and explore opportunities in -- for example, in distribution sector in all the countries where we are and we will continue to push the growth of Enel X and retail business, as we saw before.

So we are continue -- we are -- right now, with the capital increase, we'll be in a position to continue our growth strategy. Where? Of course in the countries we stay, excluding Argentina of course. But we are looking distribution essentially, possibility asset, analyzing this target.

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Henrique Peretti, JP Morgan Chase & Co, Research Division - Research Analyst [5]

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If I may ask another question. The press reported in June, if I'm not mistaken, that you guys made a nonbinding offer for Luz del Sur in Peru. So I'd like to know if there are any developments in that sense?

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Maurizio Bezzeccheri, Enel Américas S.A. - CEO [6]

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What I can tell you that Luz del Sur in this analysis looks like an interesting asset. Why? I just recall the fact that we –- the expansion in distribution company will follow the criteria of mega city in the area. Why mega city? I just recall the fact that right now -- today in Latin America, 80% of the population lives in mega city -- or not technically mega city, maybe big city. And we are distributing energy in the mega city -- or on the big city of the continent, we are distributing in both Bogota, Rio, Sao Paulo, Lima, Buenos Aires and with Enel Chile in Santiago. So what I can tell you right now that Luz de Sur in the analysis we are doing on distribution company looks like an interesting asset.

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Rafael de la Haza Casarrubio, Enel Américas S.A. - Head of IR [7]

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I think that we have a question from Morningstar. Operator?

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Operator [8]

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We have a question here from Charles Fishman with Morningstar Research.

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Charles J. Fishman, Morningstar Inc., Research Division - Equity Analyst [9]

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Just long term with respect to generation, you have PPAs that are rolling off. You show that in -- well, that's -- I'm looking actually back at the strategic planning slides back last year. But the PPAs are rolling off. A little over -- around 60%, let's say, of your generation capacity is hydro. With the growth you're experiencing, you're going to need more generation either PPAs or build it yourself. Do you see yourself maintaining roughly 60% hydro, let's say, over the next 5 to 10 years as part of your sustainability effort?

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Maurizio Bezzeccheri, Enel Américas S.A. - CEO [10]

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Let's say that usually we are -- we do as well trading activity in the sense that usually we sell more energy than we generate. Of course regarding conventional generation in Enel Americas, we are focused on efficiency of the asset. You can generate more energy, for example, making more availability of the plan, making a better dispatch of the units, making improvement in terms of digitalization of the plant. So you can do many things. And on the other hand, you have, let's say, the possibility to do proper trading operation.

I just recall that, for example, recently we bought Volta Grande. That is a 380 megawatt hydro plant. So we consider that going into the direction more green energy. Really, we have portfolio generation mainly in hydro plant. This is our focus.

So our capability to generate efficiency, better availability of the plant is likely to increase your generation, and as a consequence, your margin in the existing asset. And for example, the example of Fortaleza is one of the examples in which we are reducing a little bit the generation of the plant itself and we are using coverage of forward contract we did last year just to have a plan B in case the contract of gas was not supposed to be sold. And finally, the resolution -- the solution was there. But nevertheless, we are using our capability of trading.

So for us, more sustainable energy means as well more hydro. But on the other hand, improving the efficiency of the thermal power plant in Argentina, in Colombia and in Brazil lets us to get margin as well from -- better margin as well from generation.

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Charles J. Fishman, Morningstar Inc., Research Division - Equity Analyst [11]

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Now the 62% hydro is your generation mix in the first half. That includes the PPAs, correct?

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Maurizio Bezzeccheri, Enel Américas S.A. - CEO [12]

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In general, why -- as always we -- we say you have a rolling PPA depending from the country where you are in -- for example, in Colombia, you have a 2 years PPA rolling. And for example, just focusing on Colombia, we use the energy to sell in spot market. So if you improve the efficiency, you have an extra energy to be sold outside from PPA.

So in general, our generation business has got stability. Why? Because it's covered by PPA -- rolling PPA depending from the country. But on the other hand, we have, as I told you, an extra capability to do proper trading, and as a consequence, to sustain our business.

I understand the rationale behind your question you say: "If you are covered" -- "you sell through PPA, you have no extra energy to be sold in the market." And the reply is partially true, because on the other hand, we have the possibility to -- with the availability to increase -- to have spare energy to be sold on the free market, as you saw from the number of free-market energy that is growing. And on the other hand, we have trade capability to sell it to the market.

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Operator [13]

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(Operator Instructions) Our next question comes from Rodrigo Mora with Moneda Asset Management.

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Rodrigo Mora;Moneda Asset Management;Senior Investment Analyst, [14]

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Congratulations for the capital increase result. My question is related to the situation in Enel Distribution Goiás. Could you please give us more details about the situation related the noise that -- about the concession? I saw the page that you explained the -- all the capital expenses during the 2.5 years and I would like to ask you some comments about the situation please?

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Maurizio Bezzeccheri, Enel Américas S.A. - CEO [15]

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Yes. The governor of Goiás, Mr. Caiado, is a former senator of Goiás that was against privatization in the past. When he was appointed governor of Goiás -- his own view -- for example, he was just limiting the possibility through -- access to the funds from [Funac] that was a special fund to solve some issues, a contingency of the past. And what he did, he -- through a law, he canceled the possibility to have access to these funds to recover these losses of the past.

We had recourse to the justice, to the tribunal and we won it. Recently, the tribunal of Goiás said that the law was unconstitutional. Of course, there would be recourses, et cetera. That means that this is a normal and usual dialectic that is established right now in Goiás. The resolution of the tribunal makes clear that there is respect of laws. Otherwise, without respect of laws, any process of privatization is put at risk.

Regarding the performance of Goiás, if you look at the news and the analysis made by the analysts on this aspect -- today I was reading a report that says, "Okay" -- correctly it's reporting that previous the privatization process, the SAIDI -- that means the duration of the shortcut for a client in a year was 36 hours and it was mentioning that now the result was 26 hours. This was the result of March. The result reported in this paper was the result of March. You have seen that today the result is 24%. So we -- in a few months, we reduced additionally 4 hours in terms of duration of the shortcut.

What we are doing, we are concentrating in the area where there are the majority of the population. You know that Goiás is a very large area around Brasilia. And when you need to reestablish a proper service, as we did in Argentina, you need to just attack the most critical issues. And we are doing -- for example, we are improving strongly the performance in Goiania, where there's major population over there.

And of course, some areas that are not connected to the main grid can suffer larger shortcuts. But in terms of average, you get an improvement in the performance of Enel Distribution Goiás, a substantial improvement. And this was exactly the reason why we got this recognition for the second year in a row regarding the improvement or the rapid improvement of the quality of the service.

Of course, as usual, we continue to invest and improving the quality of service in Goiás. We were accepted yesterday in the office of the Ministry of Energy to discuss on other topics and they confirmed that no issue comes from the Ministry of Energy, neither from ANEEL. Of course, ANEEL, as all the regulators in the world, needs to do its own work. We have a continuous dialog with ANEEL that push us of course to improve even faster the quality of the service in Goiás.

And of course, now, due to the fact that we have solved the issues of the area in which there are the majority of the population, we are focusing on innovative solution as well to solve the issues related to the area far from the major network of the system.

So I can say regarding these issues, the number is there, the criteria and the rules of law are there, and we are sure that in Brazil we'll continue to stay in the rules of law to allow -- to continue the process of privatization in the country. And of course, we are always open to listen our stakeholder and just understand exactly what they are -- their needs and just to make a solution to the problem. Of course, we make open continuous dialog directly as well with the governor. And we will continue to respect the opinion of everybody independently by the position he occupies. But we are sure the rules of law or rules of the game are there to ensure that everything is made in a transparent and consistent way.

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Operator [16]

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And our next question comes from Rodrigo Mugaburu with Newfoundland Capital.

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Rodrigo Mugaburu;Newfoundland Capital Management;Investment Professional, [17]

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Just a quick follow up on a comment that you made on M&A in the region. You mentioned distribution companies except Argentina. That's what you said. I just wanted to confirm that.

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Maurizio Bezzeccheri, Enel Américas S.A. - CEO [18]

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Yes, I confirm.

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Operator [19]

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Thank you. And at this time, I'm showing no questions on the phone lines. I'd like to turn the call back over to Maurizio Bezzeccheri for further marks.

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Maurizio Bezzeccheri, Enel Américas S.A. - CEO [20]

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Well, as there are no more questions, I conclude the result conference call. Let me remind you that the Investor Relation team is available for any doubt that you may have. Thank you very much for your attention.

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Operator [21]

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Ladies and gentlemen, thank you for your participation in today's conference. You may now disconnect. Everyone have a great day.