BALANCE SHEET ANALYSIS
ASSETS
|
Assets
|
|
|
Change
|
|
Change
|
|
Mar-19
|
|
Dec-18
|
|
|
|
%
|
|
(Million Ch$)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
1,134,260
|
|
996,948
|
|
137,312
|
|
13.8%
|
|
Non current Assets
|
6,477,900
|
|
6,491,072
|
|
(13,172)
|
|
(0.2%)
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
7,612,160
|
|
7,488,020
|
|
124,140
|
|
1.7%
|
•
13
•
|
ENEL CHILE
FINANCIAL STATEMENTS ANALYSIS
AS OF
MARCH
31, 2019
|
|
Total assets of the Company as of March 31, 2019, increased Ch$ 124,140 million when compared to total assets as of December 31, 2018, mainly due to the following:
Current Assets
increased
Ch$ 137,312 million
as of March 31, 2019. The variations in the main categories are presented below:
·
Cash and cash equivalents
decreased
Ch$ 54,303 million
, explained by cash disbursements related to
(i)
dividend payments for Ch$ 31,698 million,
(ii)
purchase of property, plant and equipment for Ch$ 90,510 million,
(iii
) income tax payments for Ch$ 17,754 million,
(iv)
employee-related payments for Ch$ 35,729 million,
(v)
capital and interest payments on loans for Ch$ 89,257 million,
(vi)
insurance policy payments and collections for Ch$1,918 million
(vii)
net payments of forward contract liquidations for Ch$ 911 million,
(viii)
loans to related companies for Ch$ 31 million,
(ix)
payments of financial leasing liabilities for Ch$ 1,663 million. All the above was offset by
(i)
other operational cash inflows for Ch$ 212,120 million, primarily from customer collections net of payments to suppliers,
(ii)
loans from related companies for Ch$ 868 million,
(iii)
interest collected for Ch$ 1,916 million, and
(iv)
other cash inflows related to financing for Ch$ 264 million.
·
Other current non-financial assets increased Ch$ 10,606 million,
mainly
due to (i) an increase in anticipated expenses for Ch$ 7,480 million and (ii) an increase in IVA tax credit of Enel X Chile for Ch$ 3,503 million.
·
Trade accounts receivables and other current accounts receivables increased Ch$ 210,760 million,
mainly due to
(i)
receivables generated as a result of the early termination of three energy supply contracts with Anglo American Sur for Ch$ 121,118 million,
(ii)
a Ch$ 62,687 million increase in the generation segment’s energy sales accounts receivables,
(iii)
a Ch$ 25,269 million increase in the distribution segment’s sales accounts receivables, mainly due to pending customers billings for Ch$ 31,038 million, offest by a Ch$ 4,855 million increase in revenue collections during the period and a Ch$ 1,181 million increase in accounts receivable provisions,
(iv)
a Ch$ 2,189 million increase in trade accounts receivables from Enel X Chile.
·
Current related party accounts receivables decreased Ch$ 16,584 million,
mainly :
(i)
lower
Enel Global Trading SPA
receivables for Ch$ 12,096 million related to gas and commodities purchases,
(ii)
lower
GNL Chile
accounts receivables for Ch$ 3,091 million due to advance payments for gas purchases, and
(iii)
lower
Enel Finance International NV
accounts receivables for Ch$ 895 million.
•
14
•
|
ENEL CHILE
FINANCIAL STATEMENTS ANALYSIS
AS OF
MARCH
31, 2019
|
|
·
Inventories decreased by Ch$ 4,522 million,
mainly due to
(i)
a Ch$ 7,357 million reduction in coal inventories,
(ii)
a Ch$ 2,982 million decrease in the level of inventories of Enel X Chile related to the leasing of assets related to the electric mobility project, and
(iii)
a Ch$ 3,248 million decrease of electric supplies and materials, offset by (i) an increase in gas and oil inventories for Ch$ 9,065 million.
·
Current tax assets decreased Ch$ 9,472 million
mainly due to refunds of 2018 provisional monthly tax payments from the internal revenue service (SII in its Spanish acronym) to Gas Atacama for Ch$ 8,208 million.
Non-Current Assets
decreased Ch$ 13,172 million as of March 31, 2019. The variations in the main categories are presented below:
·
A Ch$ 6,989 million decrease in Other non-financial non-current assets,
mainly due to
(i)
the use of the remaining sales tax credit of the EGP group for Ch$ 10,084 million, offset by
(ii)
transferring Gas Atacama´s inventory of spare parts programmed to be used in more than a year for Ch$ 2,869 million.
·
Trade accounts receivables and other non-current accounts receivables increase Ch$ 4,557 million,
mainly related to higher Enel X Chile leasing receivables booked for Ch$ 4,892 million.
·
Intangible assets other than goodwill decreased Ch$ 1,725 million
, due to
(i)
new investments, mainly software for Ch$ 1,580 million, offset by
(i)
amortization for the period amounting to of Ch$ 2,164 million and
(ii)
the effects of exchange differences for Ch$ 1,141 million.
·
Goodwill decreased Ch$ 698 million,
due to a negative change of the exchange rate on the goodwill of Empresa Eléctrica Panguipulli S.A., Parque Eólico Talinay Oriente and Geotérmica del Norte.
·
Property, plant and equipment decreased by Ch$ 6,975 million,
mainly due to (i) depreciation of Ch$ 55,747 million during the period, (ii) Ch$ 512 million in asset retirements, (iii) reductions due to currency translation effects for Ch$ 38,905 million. This was offset by (i) acquisitions made through business combinations for Ch$ 55,743 million, (ii) the effect of the application of IFRS 16 “Leasing” for the first time that amounted to Ch$ 29,162 million, (iii) other variations for Ch$ 3,028 million and (iv) a Ch$ 256 million increase as a consequence of the application of IAS 29 on our Argentine affiliates.
•
15
•
|
ENEL CHILE
FINANCIAL STATEMENTS ANALYSIS
AS OF
MARCH
31, 2019
|
|
LIABILITIES
|
Liabilities and Equity
|
|
|
Change
|
|
Change
|
|
Mar-19
|
|
Dec-18
|
|
|
|
%
|
|
(Million Ch$)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
1,120,437
|
|
1,217,464
|
|
(97,027)
|
|
(8.0%)
|
|
Non Current Liabilities
|
2,615,612
|
|
2,596,392
|
|
19,220
|
|
0.7%
|
|
Total Equity
|
3,876,111
|
|
3,674,164
|
|
201,947
|
|
5.5%
|
|
attributable to owners of parent company
|
3,612,345
|
|
3,421,229
|
|
191,116
|
|
5.6%
|
|
attributable to non-controlling interest
|
263,766
|
|
252,935
|
|
10,831
|
|
4.3%
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
7,612,160
|
|
7,488,020
|
|
124,140
|
|
1.7%
|
Total liabilities
of the Company as of March 31, 2019, including Equity, increased
Ch$ 124,140 million
when compared to total liabilities as of December 31, 2018, mainly due to the following:
Current liabilities
decreased
Ch$ 97,027 million
. The variations in the main categories are presented below:
·
Other current financial liabilities decrease Ch$ 78,599 million
, mainly
(i)
debt amortization payments made on bank loans for Ch$ 78,000 million,
(ii)
a reduction in the valuation of liabilities due to hedging derivatives for Ch$ 14,431 million, and
(iii)
lower exchange differences on US$ loans for Ch$ 1,655 million. All the above was offset by
(i)
interest accruals and payments on bonds for Ch$ 13,207 million, and
(ii)
an increase in financial liabilities due to the effect of applying IFRS 16 “Leasing” for the first time amounting to Ch$ 2,280 million.
·
Trade accounts payable and other current accounts payable
decreased Ch$ 13,773 million
, mainly due to
(i)
lower accounts payable related to the electricity mobility project of Enel X Chile for Ch$ 23,616 million,
(ii)
lower accounts payable to suppliers of goods, services and fixed assets for Ch$ 16,291 million in the generation business, (iii) lower dividends payable to third parties for Ch$ 20,158 million, and (iv) lower personnel accounts payable for Ch$ 12,905 million. The above mentioned was partially offset by (i) greater debt from the purchase of energy and fuel for Ch$ 58,274 million.
·
Related party accounts payable
decreased Ch$ 4,468 million
, primarily due to
(i)
lower accounts payable to
Enel SpA
for Ch$ 19,900 million, mainly due to dividend payments,
(ii)
lower accounts payable to
Enel Global Trading
for Ch$ 2,028 million, mainly commodities and other services. The above mentioned was partially offset by
(i)
greater interest accounts payable on loans from Enel Finance International for Ch$ 8,783 million,
(ii)
greater accounts payable to GNL Chile S.A. for Ch$ 7,263 million for gas purchases,
(iii)
greater accounts payable to Enel Green Power SpA for Ch$ 1,085 million,
and
(iv)
greater accounts payable to Enel Global Thermal Generation SRL amounting to Ch$ 482 million for other services.
•
16
•
|
ENEL CHILE
FINANCIAL STATEMENTS ANALYSIS
AS OF
MARCH
31, 2019
|
|
·
Current tax liabilities increased Ch$ 18,534 million
, mainly due to increased income tax provisions.
·
Other non-financial current liabilities decrease Ch$ 18,714 million,
primarily a reduction in sales tax debits.
Non-Current Liabilities
increased
Ch$ 19,220 million
as of March 31, 2019, which is explained by the following:
·
Other non-current financial liabilities
decreased Ch$ 7,147 million
, mainly due to
(i)
the effect of exchange rate differences on debt in US dollars for Ch$ 29,459 million, and
(ii)
the effect of hedging derivative on liabilities for Ch$ 2,318 million. The aforementioned is partially compensated by a Ch$ 24,630 million increase in financial liabilities due to effect of the application of IFRS 16 “Leasing” for the first time, of which Ch$ 20,945 million come originate in Grupo EGP Chile.
·
Non-current accounts payable to related parties decreased Ch$ 11,248 million
mainly explained by the exchange differences generated by the debt that Enel Green Power de Sur, subsidiary of EGP Chile, owes Enel Finance International.
·
Deferred tax liabilities increased Ch$ 36,876 million
mainly originating in Enel Generación Chile for Ch$ 32,702 million, due to the differed tax booked as a consequence of the extraordinary income generated by the early termination of three energy supply contracts with Anglo American Sur.
Total Equity amounted to Ch$ 3,876,111 million as of March 31, 2018
Equity attributable to shareholders of Enel Chile
amounted to Ch$ 3,612,345 million
, comprised of the following: Issued capital for Ch$ 3,954,491 million, Own share repurchases reducing equity in Ch$ 72,388 million, Retained earnings for Ch$ 2,089,339 million, and Other reserves for Ch$ -2,359,098 million.
Retained earmings increased during the period explained by the positive Ch$ 174,541 million net income. Other reserves presented a positive variation that amounted to Ch$ 16,574 million, mainly explained by reserves of cash flow hedges for Ch$ 37,087 million, offset by lower translation reserves for Ch$ 21,756 million.
•
17
•
|
ENEL CHILE
FINANCIAL STATEMENTS ANALYSIS
AS OF
MARCH
31, 2019
|
|
Equity attributable to non-controlling shareholdings
amounted to Ch$ 263,766 million
, which considers an initial Ch$ 252,935 million balance, plus the transactions booked throughout the year up to March 31, 2019, related to net income of the period for Ch$ 11,673 million and other increases for Ch$ 79 million. The aforementioned was offset by lower Other comprehensive income for Ch$ 921 million due to reserves of cash flow hedges.
The performance of main financial ratios is the following:
|
RATIO
|
Unit
|
|
Mar-19
|
|
Dec-18
|
|
Mar-18
|
|
Change (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity
|
Liquidity
|
Times
|
|
1.01
|
|
0.82
|
|
-
|
|
23.2%
|
|
|
Acid-test *
|
Times
|
|
0.96
|
|
0.77
|
|
-
|
|
24.7%
|
|
|
Working capital
|
MMCh$
|
|
13,823
|
|
(220,516)
|
|
-
|
|
(106.3%)
|
|
Leverage
|
Leverage
|
Times
|
|
0.96
|
|
1.04
|
|
-
|
|
(7.7%)
|
|
|
Short-term debt
|
%
|
|
30.0%
|
|
31.9%
|
|
-
|
|
(6.0%)
|
|
|
Long-term debt
|
%
|
|
70.0%
|
|
68.1%
|
|
-
|
|
2.8%
|
|
|
Financial expenses coverage**
|
Times
|
|
9.99
|
|
-
|
|
13.40
|
|
(25.4%)
|
|
Profitability
|
Op. income / Op. Revenues
|
%
|
|
36.6%
|
|
-
|
|
24.3%
|
|
50.6%
|
|
|
ROE
|
%
|
|
13.6%
|
|
-
|
|
10.1%
|
|
34.7%
|
|
|
ROA
|
%
|
|
6.8%
|
|
-
|
|
7.3%
|
|
(6.5%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) Current Assetes net of Inventories and prepayments
|
|
|
|
|
|
|
|
|
|
|
(**) EBITDA/ Financial Costs
|
|
|
|
|
|
|
|
|
|
The current ratio
as of March 31, 2019, reached 1.01 times, which represents a 23.2% increase compared to December 2018. This increase is mainly due to the increase in the account receivable generated by the early termination of three energy supply contracts with Anglo American Sur.
Acid test or quick ratio
, as of March 31, 2019, was 0.96 times, which represents a 24.7% increase when compared to December 31, 2018, which is also due to the aforementioned early contracts termination.
•
18
•
|
ENEL CHILE
FINANCIAL STATEMENTS ANALYSIS
AS OF
MARCH
31, 2019
|
|
Working capital
, as of March 31, 2019, amounted to Ch$ +13,823 million, which represents a Ch$ 234,339 million positive variation when compared to December 31, 2018, also due to the aforementioned early contracts termination.
The debt ratio
was 0.96 times, which means that the level of commitment of Enel Chile equity was 0.96 times for the first quarter of 2019 , versus 1.04 times as of December 31, 2018. The improvement in this index is explained by an increase in equity, mainly due to the results of the year, and a decrease in liabilities, due to the cancellation of a financial credit and lower exchange rate differences.
The financial expenses coverage ratio
for the period ended March 31, 2019, was 9.99 times, which represents the ability to cover all financial expenses with the EBITDA margin obtained during the period ended March 2019. Without considering the effect of the early termination of the contracts with Anglo American Sur, the financial expenses coverage ratio would have reached 6.5 times.
The profitability index
, calculated by dividing operating income by operating revenues, increased 50.6% when compared to the same period of the previous year, reaching 36.6% as of March 31, 2019, due to higher operating income booked this period when compared to the same period of last year. Without considering the effect of the early termination of the contracts with Anglo American Sur, the profitability index would have increased by 2.8%.
Return on equity of the owners of the controlling shareholder (dominant)
was 13.6% for the three-month period ended March 31, 2019. Without considering the effect of the early termination of the contracts with Anglo American Sur, the return on equity would have reached 11.3%.
Return on assets
was 6.8% for the three-month period ended March 31, 2019. Without considering the effect of the early termination of the contracts with Anglo American Sur, the return on assets would have reached 5.7%.
MAIN CASH FLOWS
The net cash flow of Enel Group Chile reached a negative Ch$ 54,370 million as of March 31, 2019, which represents a Ch$ 48,132 million reduction when compared to the same period of the previous year. The main factors that explain this cash flow, classified as either operating, investing, or financing activities, compared to March 2018, are presented below:
•
19
•
|
ENEL CHILE
FINANCIAL STATEMENTS ANALYSIS
AS OF
MARCH
31, 2019
|
|
|
Net Cash Flow
|
|
|
Change
|
|
Change
|
|
Mar-19
|
|
Dec-18
|
|
|
|
%
|
|
(Million Ch$)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Operating Activities
|
157,586
|
|
166,717
|
|
(9,131)
|
|
(5.5%)
|
|
|
|
|
|
|
|
|
|
|
From Investing Activities
|
(89,536)
|
|
(1,038,220)
|
|
948,684
|
|
(91.4%)
|
|
|
|
|
|
|
|
|
|
|
From Financing Activities
|
(122,420)
|
|
865,265
|
|
(987,685)
|
|
(114.1%)
|
|
|
|
|
|
|
|
|
|
|
Total Net Cash Flow
|
(54,370)
|
|
(6,239)
|
|
(48,132)
|
|
(771.5%)
|
Net cash flow from operating activities
amounted to a Ch$ 157,586 million
for the three-month period ended March 31, 2019, which represents a 6% reduction when compared to March 2018. These cash flows come primarily from
(i)
sales and other revenue amounting to Ch$ 750,290 million,
(ii)
revenue from leasing and asset sales for Ch$ 1,843 million,
(iii)
other operational revenues for Ch$ 411 million,
(iv)
cash inflows from insurance policy premiums and services, annuities and other insurance benefits for Ch$ 87 million, which were partially offset by cash outflows related to
(i)
supplier payments for Ch$ 474,899 million,
(ii)
employee payments for Ch$ 35,730 million,
(iii)
payments for making or acquiring assets for lease and later sale for Ch$ 25,079 million,
(iv)
income tax payments for Ch$ 17,754 million;
(v)
other payments related to operational activities for Ch$ 38,610 million,
(vi)
insurance premium payments and other payments related to insurance policies for Ch$ 2,006 million and
(vii)
other cash outflows for Ch$ 967 million.
Net cash flow used in investing activities
amounted to Ch$ 89,536 million
for the three-month period ended March 31, 2019. These cash flows are mainly comprised of
(i)
Ch$ 90,510 million to purchase property, plant and equipment,
(ii)
loans to related parties for Ch$ 31 million, and
(iii)
payments of futures, options and swaps for Ch$ 1,002 million. These cash outflows were partially compensated by
(i)
interest payments received amounting to Ch$ 1,916 million, and
(ii)
cash inflows originating from futures, options and swaps for Ch$ 91 million.
The positive variation of Ch$ 948,684 million in the investment flow compared to the same period of the previous year, is mainly explained by an investment in a restricted use deposit for Ch$ 974,596 million made during the first quarter of 2018 for the timely payment of the obligations related to the Public Tender Offer (“PTO”) over Enel Generación Chile.
Net cash flow from financing activities
amounted to Ch$ 122,420 million
for the three-month period ended March 31, 2019, which represents a Ch$ 986,818 million negative variation when compared to March 2018. These cash flows are comprised of
(i)
payments of a Bridge loan for Ch$ 78,000 million,
(ii)
dividend payments for Ch$ 31,698 million
(iii)
interest payments for Ch$ 11,257 million, and
(iv)
financial leasing liability payments for Ch$ 1,663 million The aforementioned was offset by
(i)
loans from related companies for Ch$ 868 million, and
(ii)
other cash inflows for Ch$ 198 million.
•
20
•
|
ENEL CHILE
FINANCIAL STATEMENTS ANALYSIS
AS OF
MARCH
31, 2019
|
|
The negative variation of Ch$ 987,685 million in the financing flow compared to the same period of the previous year, is mainly explained by a bridge loan for Ch$ 940,414 million taken during the first quarter of 2018 for the payment of the PTO over Enel Generación Chile.
The following table presents the cash disbursements related to additional Property, Plant and Equipment and its Depreciation for the three-month period ended March 31, 2019 and 2018.
|
INFORMATION FOR ASSETS AND EQUIPMENTS BY COMPANY
|
|
3 months ended March 31, 2019 and 2018
|
|
(Million Ch$)
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
Payments for Additions of Fixed Assets
|
|
Depreciation
|
|
|
|
Mar-19
|
|
Mar-18
|
|
Mar-19
|
|
Mar-18
|
|
Generation business in Chile
|
|
76,431
|
|
52,430
|
|
48,804
|
|
28,182
|
|
Distribution business in Chile
|
|
14,079
|
|
21,875
|
|
8,599
|
|
8,770
|
|
Other entities (business different to generation and distribution)
|
|
0
|
|
907
|
|
509
|
|
221
|
|
Total Consolidated ENEL CHILE Group
|
|
90,510
|
|
75,212
|
|
57,912
|
|
37,173
|
The most relevant cash outflows originate in the generation business and correspond to investments in power plants and major maintenance that amounted to Ch$ 76,431 million as of March 31, 2019. In the distribution business, cash disbursements amounted to Ch$ 14,079 million and are basically investments in network operational optimization to increase the level of efficiency and service quality.
•
21
•
|
ENEL CHILE
FINANCIAL STATEMENTS ANALYSIS
AS OF
MARCH
31, 2019
|
|
MAIN RISKS ASSOCIATED WITH THE ACTIVITY OF ENEL CHILE S.A. GROUP
The Group’s activities are subject to a broad set of governmental regulations, and any changes in them could affect their activities, economic situation and operating income.
The Group’s operating subsidiaries are subject to a wide range of tariff regulations and other aspects that govern their operations in Chile. Consequently, the introduction of new laws or regulations, or the modification of current laws and regulations, could affect their operations, economic situation and operating results.
These new laws or regulations, on occasion, modify regulatory aspects that may affect existing entitlements; which, as the case might be, may adversely affect the Group’s future income.
The Group’s operations are also subject to wide-ranging environmental regulations that Enel Chile continuously meets. Eventual modifications introduced to such regulations could affect its operations, economic situation and operating income.
Enel Chile
and its operating subsidiaries are subject to environmental regulations which, among other things, require the preparation and submission of Environmental Impact Studies for projects under study, obtaining licenses, permits and other mandatory authorizations and complying with all the requirements imposed by such licenses, permits and regulations. Just as with any regulated company, Enel Chile cannot guarantee that:
§
Public authorities will approve such environmental impact studies;
§
Public opposition will not lead to delays or modifications to any proposed project;
§
Laws or regulations will not be modified or interpreted in a manner that leads to increased expenses or that might affect the Group’s operations, plants or plans.
The Group’s commercial operations have been planned in order to mitigate possible impacts as a result of changing hydrological conditions.
•
22
•
|
ENEL CHILE
FINANCIAL STATEMENTS ANALYSIS
AS OF
MARCH
31, 2019
|
|
The operations of Enel Chile Group include hydroelectric generation, and therefore, depend on actual hydrological conditions throughout a broad geographical area where the Group’s hydroelectric generation facilities are located. Should the hydrological conditions lead to droughts or other conditions that might negatively affect hydroelectric generation business, our results could be adversely affected, which is why Enel Chile has established, as an essential part of its commercial policy, to refrain from contractually committing 100% of its generation capacity. At the same time, the electricity business is also affected by meteorological conditions, such as temperatures, that affect consumption. Our margins may be affected by weather conditions depending on the different climate conditions.
The financial situation and the results of our operations may be negatively affected if the exposure to interest rate fluctuations, commodity prices and foreign exchange rates are not effectively managed.
Risk Management Policy
The companies of Enel Group in Chile are exposed to determinate risks managed through the application of identification, measurement, concentration limits and supervision systems.
Some of basic principles defined by the Group when setting their risk management policy include the following:
·
Comply with good corporate governance standards.
·
Strictly comply with all of the Group’s regulatory systems.
·
Each business and corporate area must define:
I. The markets in which it can operate based on the knowledge and skills that would ensure effective management of the risk.
II. Criteria of counterparts.
III. Authorized operators.
-
For each market in which they operate, business and corporate areas establish their risk adversity within the defined strategy.
-
All corporate areas and business operations are carried out within the limits approved in each case.
•
23
•
|
ENEL CHILE
FINANCIAL STATEMENTS ANALYSIS
AS OF
MARCH
31, 2019
|
|
-
Businesses, corporate departments, business lines and companies establish the risk management controls require to ensure that transactions carried out in the markets in accordance with the policies, rules and procedures of Enel Chile.
Interest Rate Risk
Interest rate variations modify the fair value of interest bearing at a fixed rate assets and liabilities, as well as future flows of assets and liabilities indexed at a variable rate of interest.
The aim of managing the interest rate risk is to reach a debt structure balance that would enable to minimize debt costs while reducing Income Statement volatility.
The debt structure according to interest rate, measured as the percentage of fixed debt and/or protected above total gross debt,
is the following:
|
INTEREST RATE (%)
|
March 31,
2019
|
December 31, 2018
|
|
|
|
|
|
Fixed Interest Rate
|
74%
|
71%
|
Depending on the Group’s estimates and on the objectives of its debt structure, various hedging operations are carried out via contracting derivatives to mitigate such risks.
Foreign Exchange Rate Risk
Foreign exchange rate risks are primarily inherent to the following transactions:
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Debt contracted by the Group’s companies denominated in currencies than those in which their cash flows are indexed.
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Payments in currencies other than those in which their cash flows are indexed, for example, payments for material purchases associated to projects and payment of corporate insurance policy premiums.
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Income of the Group’s companies directly linked to the fluctuation of currencies other than the currency of their own cash flows.
In order to mitigate the foreign exchange rate risk, the hedging policy of the Enel Chile aims at maintaining a balance between US$-indexed flows or local currencies
flows if they exists, and the level of assets and liabilities denominated in such currency. The aim is to minimize the exposure of cash flows to foreign exchange rate variations.
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24
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ENEL CHILE
FINANCIAL STATEMENTS ANALYSIS
AS OF
MARCH
31, 2019
|
|
The instruments currently used to comply with the policy are foreign exchange forwards and currency swaps.
Commodity Risk
The Enel Chile Group is exposed to the risk of price variations of certain commodities, primarily the following:
-
Fuel purchases for the process of electricity generation.
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Purchase and sale of energy carried out in the local market.
In order to reduce the risk under extreme drought conditions, the Group has designed a policy that defines sale commitment levels in line with the capacity of its generating facilities during a dry year, by including risk mitigation clauses in some contracts with unregulated clients and, in the case of regulated clients subject to long-term tender processes, by establishing indexing polynomials to reduce commodity exposure.
In consideration of the operational conditions Chile is facing in the electricity generation market and the drought and commodity price volatility in international markets, the Company is continuously reviewing the convenience of hedging the impact of these price variations on its net income.
As of March 31, 2019, the Company held swaps for 658 kTon of Coal API2 to be settled in 2019 and 126 kTon of Coal API2 to be settled in 2020, for 480 kBbl of Brent oil to be settled in 2019 and 259 kBbl of Brent oil to be settled in 2020, 75 kTon of BCI7 to be settled in 2019, and for 5.5 TBtu of Henry Hub gas to be settled in 2019.
As of December 31, 2018, the Company held swaps for 432 kTon of Coal API2 to be settled in 2019, for 994 kBbl of Brent oil to be settled in 2019, for 225 kTon of BCI7 to be settled in 2019, for 0.2 TBtu of Henry Hub gas to be settled in 2019 (amounts consider net position covered).
According to the operating conditions that are updated permanently, these hedges may be amended, or include other commodities.
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25
•
|
ENEL CHILE
FINANCIAL STATEMENTS ANALYSIS
AS OF
MARCH
31, 2019
|
|
Liquidity risk
The Group maintains a liquidity policy that consists of contracting long-term credit commitment facilities and temporary financial investments for amounts sufficient to support the forecast needs in a given period which, in turn, is a function of the overall situation and expectations of the debt and capital markets.
The above-mentioned forecast needs include maturities of net financial debt, that is to say, net of financial derivatives. For additional information regarding the characteristics and the terms and conditions of such financial debt and financial derivatives see Notes 19 and 21.
As of March 31, 2019, the liquidity of Enel Chile Group was Ch$ 190,869 million in cash and cash equivalents and Ch$ 271,412 million in committed long-term credit lines
.
As of December 31, 2018, the liquidity of the Enel Chile Group was Ch$ 245,172 million in cash and cash equivalents and Ch$ 416,862 million in committed long-term lines of credit.
Credit risk
The Enel Chile Group continually monitors in depth all credit risks.
Commercial Accounts receivable:
In relation to the credit risks of accounts receivable from commercial activities, this risk has historically been quite limited given that clients cannot accumulate significant amounts due to short collection terms. The foregoing is applied to both our electricity generation and distribution lines of business.
In our electricity generation line of business, in some contracts with unregulated clients, it is possible to cut off supply when there are payment defaults, and almost every contract includes non-payment as a reason for contract termination. To that effect, we continuously monitor the credit risk and measure the maximum amounts exposed to payment risk; which, as stated earlier, are quite limited.
In the case of our electricity distribution companies, such companies are authorized to cut off the supply in the case of non-payment by our clients in accordance with current regulations which helps to guarantee that amounts subject to credit risk evaluation and control process are also limited.
Financial assets:
Investments of cash surpluses are made with both national and foreign first-class financial entities with limits set for each entity.
Investment banks selection considers those with Investment Grade rating, considering the three major international rating agencies (Moody's, S&P and Fitch).
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26
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|
ENEL CHILE
FINANCIAL STATEMENTS ANALYSIS
AS OF
MARCH
31, 2019
|
|
Investments may be guaranteed by treasury bonds of Chile and/or paper issued by first class banks, giving priority to those offering the best returns (always within the current investment policies).
Risk Measurement
The Enel Chile Group prepares a Value at Risk measurement for its own debt positions and financial derivatives, with the purpose of monitoring the risk taken on by the company, thus circumscribing Income Statement volatility.
The portfolio of the positions included for the purposes of calculating the present Value at Risk, is comprised of:
-
Financial Debt
-
Derivatives for debt hedging.
The calculated Value at Risk represents the possible value variation of the above-described positions portfolio within a quarter and with 95% certainty. To that effect, we have studied the volatility of the risk variables that affect the value of the positions portfolio in relation to the Chilean peso which includes:
-
The US$ Libor rate of interest.
-
The exchange rates of the different currencies involved in the calculation.
The Value at Risk calculation is based on the extrapolation of future market value scenarios (one quarter out) of the risk variables based on real observations for the same period (quarter) through a 5-year period.
The Value at Risk for the next quarter, with 95% confidence level, is calculated as the percentile of the most adverse 5% of the possible quarterly changes.
Considering the assumptions described above, the Value at Risk at one quarter out of the foregoing positions corresponds to Ch$ 300,913 million.
This value represents the potential increase of the debt and derivatives portfolio, therefore this value at Risk is intrinsically related, amongst other factors, with the value of the portfolio at the end of each quarter.
Other Risks
As is common practice in bank credit facilities and capital market operations, a portion of our financial debt, is subject to cross-default provisions. If certain non-payments are not corrected, they could result in a cross-default and eventually
certain liabilities of Enel Generación Chile or Enel Chile could become enforceable, as appropriate.
•
27
•
|
ENEL CHILE
FINANCIAL STATEMENTS ANALYSIS
AS OF
MARCH
31, 2019
|
|
Non-payment – after any applicable grace period – of Enel Chile’s debts, with an outstanding individual balance exceeding the equivalent of US$ 100 million, and whose amount past due also exceeds the equivalent of US$ 100 million, could lead to the advance payment of the bank credit under New York State law, which was drawn in March 2018. Furthermore, this credit line contains provisions under which certain events other than non-payment, at Enel Chile, such as bankruptcy, insolvency proceedings, and adverse judicial sentence rulings for an amount greater than US$ 300 million, and expropriation of assets, among others, could lead to the acceleration of this debt.
Additionally, non-payment – after any applicable grace period – for any debt of Enel Chile or any of its Chilean subsidiaries, with a principal amount that exceeds US$ 150 million, or its equivalent in other currencies, could lead to the mandatory advance payment of its Yankee bonds. The acceleration of the debt due to cross default does not occur automatically, but must be demanded by the holders of at least 25% of the bonds of a certain Yankee Bonds series.
There are no credit-agreement clauses stating that changes in the corporate or debt rating of Enel Chile or its subsidiaries’ debt, performed by credit-rating agencies, would result in the need to make prepayments of debt.
BOOK VALUE AND ECONOMIC VALUE OF ASSETS
The following are the most important assets:
Property, plant, and equipment are valued at their acquisition cost, net of the corresponding accumulated depreciation, and impairment losses. The property, plant, and equipment, net of their residual value, depreciate by distributing the cost of their different components linearly over the years of the estimated useful life of the asset, which is the period in which the companies expect to use them. The estimated useful life of the asset is revised periodically.
Goodwill (lower value of investments or commercial funds) generated in the consolidation, represents the excess acquisition cost over the Group’s participation in the fair value of assets and liabilities, including contingent liabilities and any non-controlling, identifiable shareholdings in a subsidiary, as of the date of acquisition. Goodwill is not amortized, but at the end of each accounting period an estimation of any impairment that might reduce its recoverable value to an amount below the recorded net cost is calculated, in which case an adjustment is made for the impairment. For additional information see Note 3.e. of the Financial Statements.
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28
•
|
ENEL CHILE
FINANCIAL STATEMENTS ANALYSIS
AS OF
MARCH
31, 2019
|
|
Throughout the year and, primarily at its closing date, an evaluation is carried out to determine whether any asset might have suffered an impairment loss. In the event that there is an indication of such loss, an estimate of the recoverable value of such asset is made to determine the amount of the impairment. In the case of identifiable assets that do not generate cash flows independently, an estimate is made of the recoverable amount of the cash-generating unit to which the asset belongs, which is considered to be the smallest group of assets that generate cash inflows independently.
Assets denominated in a foreign currencies are presented at the exchange rate prevailing at the end of the period.
Accounts and notes receivable from related companies are classified according to their maturity in short-term and long-term. Transactions are adjusted to conditions prevailing in the market.
In summary, asset values are determined according to the International Financial Reporting Standards, whose criteria are included in Notes No. 2 and 3 of the Financial Statements.
•
29
•
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Enel Chile S.A.
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|
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By: /s/ Paolo Pallotti
|
|
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--------------------------------------------------
|
|
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Title: Chief Executive Officer
|
Date: May 7, 2019
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