Enersis S.A. (HTS)

Q2 2010 Earnings Call

July 28, 2010 12:00 pm ET

Executives

Alfredo Ergas - CFO

Analysts

Leandro Kappa - Deutsche Bank

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Half 2010 Enersis S.A ADS Earnings Conference Call. My name is Jasmin, 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. As a reminder, this conference is being recorded for replay purposes.

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 Enersis and its management with respect to among other things, Enersis business plans, Enersis cost reduction plans; trends affecting Enersis financial condition or result 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 Enersis affiliates.

Such forward-looking statements reflect only our current expectations and are not guarantees for 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 government regulators in Chile or elsewhere and other factors described in Enersis Annual Report on the Form 20-F, including under risk factors. You may access our 20-F from 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 the dates. Enersis 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.

At this time, I would now like to turn the conference over to your host for today Mr. Alfredo Ergas, Regional Chief Financial Officer. Please proceed.

Alfredo Ergas

Thank you very much. You are very welcome to this conference call. Today, we’re going to review the performance of the Enersis Group over the first half of this year. My name is Alfredo Ergas, CFO of Enersis. And here with me is Mr. Ricardo Alvial, Investment and Risk Director and Rodrigo Perez, our Head of Investor Relations. As customary, we’ll receive all the questions at the end of this conference call and we’ll be glad to answer all the questions you may have.

Before we start, I will highlight a couple of important things. First of all, as anticipated, at the end of June, Chile began to experience the first signal of a strong recovery. We have seen a big increase in consumption, new jobs and growing and fixed capital increase and we are very sure that we will have growth in demand. Increased demand is positively in part of the electricity business during the rest of the year and we have seen all the signals that we have mentioned.

Secondly, the higher demand has been seen in most of the distribution concessionaries where we operate. We’re reaching a 5.7% in physical sales on average, if we are taking in account all the concessionaries where we operate. And this increase, we will perceive it as reinforcing the necessity of incorporating additional capacity, opening opportunity and new projects.

Regarding our performance during the first half, let me start with distribution and then we will move to generation. Let me say that our operating results coming from this line of business increased 5.1%, it is basically for our better outcome in Brazil and in Colombia. And the result of that in terms of EBITDA is that we received a 7% higher EBITDA compared with the first semester of last year. The main reason behind this improvement were 5.7% increase in physical sales, as I mentioned before and the addition of 391,000 new clients as part of our natural growth.

As part of a country-by-country analysis, let me highlight the following. In Brazil, we experienced an increase of 40% in EBITDA, basically explained by an increase in the demand during the first half of 2010 of 6.7% in Ampla and an impressive 16.8% in COELCE. In COELCE, they are mainly explained by the lack of energy demand experienced in 2009 due to economic downturns in the region. Additionally during the first half of this year our distribution subsidiaries experienced a better sales mix and better average prices.

In Peru, EBITDA increased by 2%, a 7.2% higher energy demand due to increasing economic activity in the country and let me say that this effect will partially compensate by relatively worse sales mix. In Columbia, our EBITDA was in line with our 2009 results. However, our operating results was affected by a lower sales margin resulting from the new clustering of distribution company, the typical area as part of our regulatory change that’s starting application in January 2010, which resulted in a momentarily lower VAD at Codensa. This change is in line with the aim of the regulator to ensure supply to all of the customers.

However, during the second half of 2010, the sales price of Codensa would experience a recovery in order to be aligned with the other distribution companies group in the new distribution area. Additionally, in Colombia, the change in the business model of Codensa Hogar resulting in its disconsideration, reduced operating revenue of Codensa. Remember that we sold Codensa Hogar at the end of the last year. All these effects were partially offset by higher demand on Cundinamarca and lower maintenance costs.

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