Earnings Call: Q1 2021

Apr 28, 2021

Good afternoon, everyone, and welcome to NG Energia Chile's First Quarter 2021 Results Conference Call. If you need a copy of the press release issued last Wednesday, it is available on the company's website at www.ng energia.co. Before we begin, I would like to remind you that this call is being recorded and that information discussed today may include forward looking statements regarding the company's financial and operating performance. All projections are subject to risks and uncertainties, and actual results may differ materially. Please refer to the detailed note in the company's press release regarding forward looking statements. We would like to advise participants that this call is dedicated to investors and market analysts, not for the press. We ask all journalists to contact NG Energy Chile's PR department for details. I will now turn the call over to Mr. Eduardo Milligan. Please go ahead, sir. Thank you. Good morning to everyone and you for joining us today. As usual, I'm here today with Bernardo de Infante, Head of Corporate Finance and Marcela Munoz, our Investor Relations Officer. And considering our recent announcements today, I am also glad to welcome Axel Levesque, CEO of our company, who will join us to explain the additional phase of the transformation plan that we recently announced. We are pleased to share this time with you today to convey our main messages of the quarter, which in some cases are not what we would have liked to communicate as well as some interesting announcements concerning the evolution, scope and speed of our transformation plan. I am now on Slide 3. Just a few words on the ENGIE Group, which now holds 60% of our company after the group bought an additional 7% stake at the end of last year, demonstrating, of course, the commitment of the group to our operation in Chile. ENGIE is a global reference in the transformation of the energy business. And today, the group is organized along 4 global business lines, renewables, networks, thermal and client solutions. In Chile, we are working in organizing ourselves function along these business lines. ENGIE has a new CEO, Catherine McGregor, who took office at the beginning of this year and who has virtually come to Chile these days to communicate together with the Chilean President Mr. Pinera and the Ministries of Energy and Environment, the 2nd phase of our transformation plan. On Slide 4, which you all know pretty well, please note the generation pie for the industry. In the Q1, hydro generation represented just 22% of the generation in the system, down from 26% in the same quarter of last year. Renewables increased their stake reaching 20%. Thermal generation covered 58% of demand, but as we will discuss later, unfortunately many efficient thermal plants were out of service as their maintenance outages were rescheduled from 2020 to 2021 due to the COVID situation that we are currently facing. Also there was no gas from Argentina and LNG arrivals were delayed and more expensive due to weather issues in the U. S. So while a high thermal generation is normal in the Q1 of any year, it was the drier hydro conditions together with the high cost of this thermal generation which basically stressed the system during this year. Let's move please to Slide number 6 which shows the 4 main messages for this call. First, we will talk about these challenging Q1 after demonstrating resilience to live through the COVID pandemic in 2020. We reported an R18 million net loss, mainly explained by a R33 million decrease in EBITDA and 1 shot financial expenses of $41,000,000 related to the sale of accounts receivable generated as a consequence of the price stabilization loss. This is, of course, bad news. The good news is that most of the factors behind the EBITDA will be improving during the rest of the year with higher availability of efficient thermal units and the start of the hydrologic year during the second half. While we do not expect another financial discount of this magnitude during the rest of the year. 2nd, in next place, we'll give you an update of our projects under construction. In 1 year, we'll be we will have completed 70% of the first phase of our transformation plan of 1 gigawatt. The 150 Megawatt Kalama wind farm is on track and we expect it to achieve COD during the Q3 of this year as we had previously informed. The energization process will start in some weeks. Unfortunately, this is not the case with 95 Megawatt Capricornio PV project, which is suffering delays attributed to archaeological permits for track prints, also known as huellasroperas frequently found in the Atacama Desert and the second impact is related to contractors' financial issues. Our project teams of course are working on different solutions to bring the project back on track and COD is now scaled between the last quarter of this year and the Q1 of 2022. The 114 Megawatt Tamayo PV plant should be commissioned in 2 stages in the 3rd and 4th quarters of this year. Finally, earthmoving works have started at the almost 200 Megawatt COYA PV, which should be ready in the Q1 of 2022, totaling almost 600 Megawatts of new green sources. And if we add the additional assets that we acquired, we will almost be completing 70% of the 1 gigawatt that we announced back in 2019. 3rd, what you may have heard about the message that our CEO has conveyed to the Chilean government and to all our stakeholders. ENGIE is accelerating and enhancing its transformation in Chile. Along these lines, Engie will completely exit coal in Chile by year end 2025 and it is going to develop an additional 1 gigawatt renewable energy plan during the next years. And finally, the full coal exit requires the conversion of our newest and most efficient coal plants. IEM will be converted to gas while CTA and CTH power plants will change their fuel to biomass as their boilers are already suited for biomass. And 4th, our transformation plans are supported by a robust and flexible capital structure with a low leverage, a flexible dividend policy and available credit lines such as the innovative BRL125 1,000,000 financing we announced last quarter with IDB Invest, which as of today remains fully available to be drawn for our CapEx needs. Finally, in this section, we will talk about the sale of long term receivables from distribution companies related to the price stabilization law. While this transaction explains the heat on financial expenses in the Q1, it has strengthened our liquidity as we received BRL100 1,000,000 from this true sale, which does not represent financial debt in our balance sheet. On Slide 7, I would like to point out a couple of things. First, the importance of securing power supply sources while we build the renewable projects. This is what we call our physical hedge. We still have 0.7 gigawatts of efficient coal units. We have LNG supply agreements for our combined cycle units and we have backup PPAs and are trying to sign more with other generation companies. In the chart at the right side of the page, you may see a slight decrease in our physical energy sales, mainly due to 4 factors: the COVID effect the end of the Saliva PPA a lower pro rata in the PPAs with the distribution companies and the fact that in 2020 was a leap year. So the Q1 this year had one day less than last year. Slide number 8. In this slide, it shows the power sources to meet the demand from our clients as well as the resulting average realized prices and direct supply cost. This is a graphic explanation of what happened in the Q1. Our IEM, CTA and CTH plants continued to operate as base load units. However, CTA was only available for a few days in March after being out of service for almost 4 months as the turbine had to be repaired at the workshops in Europe, the variable cost of our coal plants in general was higher because of higher coal prices and technical limitations and intermittence, which caused them to operate less efficiently. As we move to the right, we see that our 2 combined cycle units running with natural gas represented 21% of our energy supply. The rest of our coal units, which last year were marginally dispatched because of their higher production costs, had to be often dispatched this quarter representing 10% of our power supply. As I mentioned earlier, this was the result of the systems supply issues in terms of low hydro and lower availability of efficient coal plants. Finally, we were able to supply 37% through purchases from both the spot market and the supply agreement with another generation company. Our physical energy purchases decreased compared to last year, but spot prices increased significantly. The result was that our average direct supply cost increased from 59 to 68 as we can see in the graph. If you multiply that difference by the total energy sold of almost 3 terawatts hour, you get to around BRL26 1,000,000 and there you have most of the explanation of the quarter's results. In Slide number 9, we see that we continue our commercial efforts to attract new clients with whom we are signing green PPAs in line with our transformation strategy. This also seeks to maintain and extend the current 11 year average remaining life of our PPA portfolio. Last year, we signed the PPA renegotiation with Antofagasta Minerals, while we working with Codelco to reach an agreement to decarbonize its 150 Megawatt PPA, which is the only large PPA left to complete our PPA greening process with mining clients. In Slide 10, we provide a view of our contract portfolio of about 12 terawatts hour per year through 2:30. Now on Slide 11, to complete this section on where we stand today, we provide a quick update of Phase 1 of our transformation plan. On the upper section of the slide, we see the progress of the 1 gigawatt investment in renewables as the Kalama wind farm and the 3 PV projects under construction begin operations between the Q3 of this year and the Q1 of next year, we will have completed 0.7 gigawatts including the acquisitions that I mentioned before and then investment of about BRL500 1,000,000. We have other wind projects for over 300 megawatts in our development portfolio and we expect to announce their construction soon. Below, we can see the coal plant disconnection scale, which has already represented impairments for around $187,000,000 between 2018 2019. We have disconnected 171 megawatts and will disconnect another 268 at the end of this year. Once we close 2 coal units in Mexiones with 3 34 megawatts at year end 2024, we will have closed 0.8 gigawatts of the 1.5 gigawatts we had at the beginning of the transformation process. Now let's move to the next section for some details of the first quarter results. Slide number 13 shows our financial highlights for the quarter with operating revenues decreasing 1% and EBITDA falling 33% to BRL66 1,000,000. As explained before, this was mainly due to higher costs. The entire electricity system in Chile was stressed and reported higher costs because of the low hydro generation, the reduced availability of efficient coal plants and the absence of gas from Argentina to mitigate this unavailability. Our own generation was more expensive as CTA was out of service most of the period and our oldest coal units were dispatched. In terms of our energy purchases, we bought less energy, but at higher prices. The lower EBITDA added to BRL41 1,000,000 in costs and discounts applied to the sale of accounts receivable related to the price stabilization law costs an 18,000,000 net loss in the quarter. In Slide 14, we can see details of the factors behind the higher generation costs reported by the industry in the Q1. If we move now please to Slide 15, you will see the challenging industry environment, which included the dispatch of expensive diesel plants and flows of expensive thermoelectric generation from the north to the south of the country during the night to basically compensate for the lack of backup hydro and gas generation in the south. The red line representing the marginal cost was very volatile with lows around 30 during the day and highs of over 160 at night. Now on Page 16, after this Q1, our results are below our guidance. In our last quarterly call, we said that we had to keep an eye on the marginal costs as we had already begun to see an increase explained by higher commodity prices and the unfortunate lack of gas from Argentina. This is an important variable we need to have in mind since in the short term we will continue supplying part of our clients' needs with around 30% purchases in the spot market. Now we are making our best efforts to meet the lower range of our initial EBITDA guidance at 460,000,000. On the positive side, our CTA plant is back in service and we are working on the insurance arrangements while there is now more gas available in the system, all of which should contribute to stabilize marginal costs. On the negative side, the delay in our PV projects will prevent us from reducing the amount of energy purchases from the spot markets. So we will have to wait a little longer to replace spot purchases at let's say $40 to $50 with our all renewals production at let's say $5 Slide number 17. For 2021, we have updated our CapEx forecast for 2021 and we expect investments for approximately $350,000,000 mainly focused on our renewable and transmission projects as well as maintenance. In this forecast, we are including the 4 renewable projects under construction as well as 2 wind projects to complete the 1 gigawatt capacity of Phase 1 of our transformation. This should represent total CapEx of $290,000,000 for 2022 without including any expenditures related to Phase 2 of our transformation. We plan to finance these capital expenditures with a mix of internal cash generation and bank finances. Our net debt to EBITDA ratio increased to 2 times and it could continue increasing in the following years to optimize our capital structure. We intend to keep our leverage ratios not exceeding 3 times on a structural and regular basis during this transformation process. Our liquidity is strong since we recently received BRL100 1,000,000 for the sale of the accounts receivable from distribution companies. And this transaction should allow us to raise funds for an additional €90,000,000 between now and 2023 without affecting our leverage ratios. Also, we signed, as you know, the €125,000,000 loan agreement with IDB Invest, which is today available to finance the CapEx of the Kalama wind farm. On Page 18, we are sharing the main regulatory topics that will be in the agenda for the medium and long term. There are no relevant changes compared to the main topics we presented in our last quarter. Now the following section includes details and pictures of the renewal projects under construction, which we have already talked about. Once they start operations between the Q3 of this year and the Q1 of 2022, we will have completed an approximate BRL500 1,000,000 investment and 0.7 gigawatts of the 1 gigawatt we announced for our first phase of transformation. With Kalama on Page 21 has a global advance of 92%, up from 75% last quarter. We maintain its full commercial operation date target in the Q3 of 2021. In fact, we are planning to start the energization process in the upcoming weeks. Capricornos Valor plant has shown very limited progress due to issues related to the delay in the attention of certain archaeological permits for some ground trucks known as huellas troperas as I mentioned at the beginning of the call as well as we went through problems and financial issues with the main contractor. The COVID pandemic of course has influenced both. And now as I said at the beginning also our teams are doing our best efforts to come back on track. The Tamayas solar plant has a global advance of 83%, up from 78% the previous quarter. We expect it to start commercial operation in 2 phases, 1 in the 3rd quarter and the 2nd phase in the Q4 of this year. And earthmoving works began at the Koya solar plant, which reports a 5% global advance. Koya is the largest of these 3 PV projects with almost 200 megawatt capacity and representing an estimated CapEx of BRL117 1,000,000. Its COD is scaled for the Q1 of 2022. Regarding the 4 transmission projects described on Page 25 with a total investment of BRL53 1,000,000, dollars 2 of them Nueva Chiquikamata and El Rosal substations were completed. The other two projects and the Nueva ChuChicamata transmission line will be ready in May November of this year. 5 of the 6 additional projects awarded in 2020 described on Page 26 are ready to start construction since their corresponding decrease were issued by the authority. The Roncato substation is still awaiting the decreations. These six projects will require a total investment of BRL43 1,000,000 and have an estimated commercial operation date for 2023. This means between 20 21 20 23, we will be adding to our portfolio of regulated transmission assets all these projects which required a total investment of approx 100,000,000. Now let's move to the following section to present the 2nd phase of our transformation recently announced the day before yesterday with the President and the ministries. And for that, I'm glad to invite Axel Levesque, ECL's CEO, to present the next section of our presentation. Welcome, Axel, and the floor is yours. Sorry operator, he's not connected. Yes, it looks like his line is disconnected. Please stand by while we reconnect. Let's give him 10 seconds. If not, I will continue. Okay, we will continue. Okay, I have the speaker to rejoin. Is Sachse back? Yes, I'm back here. Okay, great. So I got disconnected. Nothing personal, I suppose, no? Perfect. The floor is yours, Axel. Okay. Thank you, guys. And thank you, Eduardo, for the time. Thank you to all of you. Good afternoon. Another afternoon that I join you guys to this kind of meeting. So I'm very pleased to be with you today. And today, we'll focus on presenting the transformation plan that we announced just on Wednesday, together with the President Pinera and 2 of its ministers. So I suppose that we should go on Slide 28, if I'm getting right. And then on that slide, we present you our transformation that is globally two aims. The first would be the coal exit, and that's a great news because now we have a date that's going to be by the end of 2025. And secondly, that we will recover through this transformation of our asset base in we will recover the competitiveness, and we will be able in the close future to capture again new PPAs and provide close to the company. So I'd like presenting all this transformation to 4 pillars. And some of them, you know them. And probably the third one is a new one. So if you look at the first two, as you know, we have already made a lot of progress in the first two, these 2 of them, which are the greening our PPAs portfolio and the closing of 800 Megawatt of Gold stations between 2019 2024. The 3rd pillar is new. I just mentioned that. And it's related to our newest and most efficient coal plants with an aggregate capacity of 700 megawatts and to fully leave coal by end of 2025, which was the greatest announcement by converting this newest coal station to alternative fuels. We think that this is probably that was a little bit our conclusion that this organic transformation of ECL was the best for the value protection and the feasibility of the implementation of the plan. And so on this conversion, accordingly, I would say that the IEM coal station will be converted into a natural gas plan, while the CD and CTH redesigned bed already partially designed to burn biomass will be converted to the full biomass operations in the future. And so conversion will not deeply affect the power islands themselves, but much more the ancillary systems such as the common facilities of the coal stations as a fuel yard, the unloading port, the conveyor belts and the burners of the IAM. And technically, these units will not lose in technical efficiency, but will have rather, I would say, an higher variable cost during the operation. And so accordingly be located lower in the dispatch merit order used to by the ISO to dispatch the units. And so this means they will act in the future much more as a backup facility to support the renewable fleet, in particular the intermittency of that renewable fleet. And then we have the 4th pillar, which is well known. We already announced 1,000 megawatts of renewable, of additional renewable capacity, if you like, to cope with the first step of the coal closing, the 6 unit coal closings. And the day before yesterday, we added 1,000 megawatts or 1,000 additional megawatts to this plant to get to 2,000 megawatts in total for the full transformation. So going on Page 29, I will dig a little bit into details on each of these pillars. So on 29, and getting directly to the PPAs, it shows the PPA extension and the concept of the greening process that we have been through during the few last years with the main customers of ECL. We can see here how we are gradually lowering prices and changing indexation from gold prices to CPI. And this is in line with our customer needs. Obviously, we had tough requests from this guy because obviously they have their own agenda of getting carbon neutral as soon as possible. And well, to be complete, obviously, in order to maintain the value of all these PPAs, we reduced prices, we changed indexation, but at the same time, we extended the maturity of these PPAs in order to keep it out of the contracts. And so at the time being, in a nutshell, I would say between 75% 80% of the free customers' PPAs have been negotiated into Green Corporate PPAs. There is one pending that is the last PPAs we have in force with Codelco, supplying electricity to Chukhika Mata and to Gabi. So that's next in row, and it's going to come the course, let's say, of the year. And once we have been or say that the renegotiation of all these PPAs is over, we will get, let's say, back on track on further development in terms of new PPA and growth in other type of infrastructure. So then to Slide 30, there is a snapshot there on the all the tariff indexation mix of our portfolio will change between now and end of 2025. This only considers the PPA that have already been renegotiated. So by 2025, you see that 78% salary of our portfolio will be indexed by CPI, 11% to natural gas and rehab. And mainly, our contracts with distribution companies in the north will be indexed to gas and 11% related to remaining coal indexation, which is basically today, or as of today, the PPA with Codelco. But bear in mind that this will be negotiated in the close future. And then we will have the remaining indexation with gas, with coal, sorry, that is the 2nd regulated PPA, the one that is center south of the country. So coal indexation will not go to 0. And then on Slide 31, it points out an instrumental snapshot of an OECL generation portfolio will evolve between 'eighteen and 'twenty five. As you can see, in 2018, core power plants represented 58 percent of the total installed capacity of ECL and renewable, just a tiny 1%. By 2025, only 7 years later, we should reach 58%, by chance, it's the same figure, of installed capacity in terms of intermittent renewable. And basically, there, it's the wind, the sun and some and then gas representing another 29% of the installed capacity. And so basically then you will have the 10% of CT and CDH converted into biomass. And so in a nutshell, you can see that basically more or barely 3 quarter of the company will be totally green and the rest will be based on natural gas. So how do we get there? Well, just look at the different house in between those graphs. You see the 2,000 megawatt of renewable that will be added into the portfolio during this time frame. We will be closing the 6 coal stations, 800 megawatt of all those units and then the famous conversion of 700 megawatts of the newest coal stations, CVA, CDH, WTI to biomass, the IEM to natural gas. So getting to Slide number 32 32, sorry. We have another view of our investment in just snapshot on the renewable this time by technology, by capacity. And you see the expected CapEx on a basis. And as you can see, well, it's well defined on the first 1,000 megawatts. The last part of the transformation plan will still be depending on the evolution of the market, the transmission, maybe some investment from competitors. So the idea of us is not especially to rush into expanding all that CapEx, but to be sure that each part of the CapEx meets the profitability thresholds that we are going to force in the company. Going on to Slide 33, this talks about the conversion of our newest coal units to the gas and biomass. So the plan, as explained, is to perform these works as much as possible without interfering with the normal operations on the plant because these plants are very efficient at the time being, so needed by the system. And make, obviously, the use of the scheduled downtime for many of this plan. You have just an idea of what this is expected to be as of today. This might grow, obviously, according to the system operation. So in the case of I'm the existing coal fired boiler will be converted to gas. This represents CapEx of around $50,000,000 As I said, due to the lower efficiency compared economical efficiency compared to the typical CCGT, The unit will be less dispatched in the mail order. It will provide a natural edge in case of high marginal cost to the portfolio. And for the future and depending on the technologies and the breakthrough of different technologies existing today, the evolution of the industry. We will study other type of conversion and repowering of IEM. So today, we just convert the boiler to natural gas. But I do not close the door that in any future, we'll be converting the unit to a full CCGT. Again, we do not rush to the decision. Today, it's not viable because of the size, because of where the CapEx to be, that would have to be invested into the CCGT. But I do not again close the door that anytime soon there might be the possibility according to the gas price as well, etcetera, the transmission that the CCGT gets viable in the North. Key here is keeping options open and to adapt to the evolution of the market. You know that it's also hopeful at the time being some ideas on thermal storage, the famous cargo batteries, again, not viable today, but might show up in the future. And obviously, at some point in time and depending upon the evolution of the system and investment, there might be hydrogen. So that's not going to be on the close future. But I would bet that by 2,030, the IEA might have a good chance to use the hydrogen. In Chile, it's evolving into the direction that we expect, being a net producer of hydrogen or derivative of hydrogen. So that's the IEM. Then in the case of CDAM CDH, I think that has already been said at some point, the units will require only limited modifications as they are a free design debt. And I'm not going to say by chance, but it was like that in the adventancy of the development of CTH, CTH. The flexibility of fuel was already a design parameters, and these units can burn biomass today. It's a limited amount, a certain percentage, if you like, of biomass, not every percent. So the conversion will push the units to be able to burn 100% of biomass. But at the end of the day, it's not affecting the boiler itself, but just the ancillary systems like the courtyard, like the few silos and things like that. So there, we will need a little bit less than 2 months probably during 1 of the year, the overall in 2022, where we will tackle this or part of these modifications. There is also a plan to build up the biomass stock needed for the plants to be ready to generate biomass end of 2025, early 2026. We plan to use black pellets. Black pellets will be imported. Why black pellets? Because they are much more resistant and can be stored outdoor. That's very important. So we do not anticipate to drive a full coverage of the pellet here. And biomass is at an higher cost compared to coal. So the units, once converted into biomass, will be displaced in terms of priority of dispatch and they will remain as a backup fuel as 2 of them both of them will remain as backup units into the portfolio generation. And so providing the physical edge to the operations of our portfolio And the CapEx needed to adapt these plants to full operation with biomass is around €25,000,000 which is quite clear actually. So that's what this is about, and I was willing to tell you guys. So I will leave you now with Bernie to cover the following sections with the financial government. Thank you. Well, thank you, Axel, and good afternoon to everyone. Now please turn to Slide 35 for some details about our Q1 financial evolution. So here, the $33,000,000 decrease in EBITDA when comparing to the Q1 of last year is made up of positive and negative effects. So among the positives, we can mention $10,000,000 explained by the decrease in spot electricity purchase volumes since our own generation increased. We also reported a €5,000,000 insurance recovery from our past loss at IEM. And finally, our operating and administrative expenses decreased by $7,000,000 Among the negatives, we reported a decrease in volume sales due to COVID, a lower pro rata of the PPA with distribution companies and the end of the Salt Diva PPA. This decrease in physical sales had an estimated impact of $100,000,000 Now average realized prices decreased due to PPA renegotiations with an $8,000,000 estimated impact. But by far, the most significant impact amounting to €23,000,000 was the increase in marginal costs. So we had an €11,000,000 also reduction in gas and transmission, largely because of cancellation fees paid for the deviation of an LNG shipment. And finally, fuel costs increased due to the increase in generation and also because of higher fuel prices. Now we turn to Slide 36. This shows the evolution of net results, which went from a BRL 26,000,000 net income in the Q1 of 2020 to an BRL18 1,000,000 net loss in the Q1 of this year. In the Q1 of last year, we recorded nonrecurring expenses of BRL 10,000,000, which were related to the premium paid on the early redemption of a 400,000,000 144A bond, which we refinanced with a new $500,000,000 bond in January 2020. So our net recurring income in the Q1 of last year was BRL 36,000,000. Now apart from the EBITDA decrease that we just explained, in the Q1 of 2021, we reported BRL 41 1,000,000 in 1 shot financial expenses, which turned our results into a $17,600,000 net loss. These financial expenses, as Eduardo explained earlier, were because in February March, we sold at a discount almost EUR140,000,000 in long term accounts receivable from distribution companies related to the price stabilization law. We sold these receivables to a company called Chile Electricity PEC. This last company issued a 144A Regas bond to finance the purchase of accounts receivable from generation companies. Now on Slide 37, we can see our net debt, which by BRL34 1,000,000 from year end 2020. In the first place, we reported a BRL66 1,000,000 net operating cash outflow, mainly because we paid in early January some fuel and other expenses accrued in December of last year. We reported $40,000,000 in CapEx, mostly in our renewable projects, and we paid $17,000,000 in income taxes. Now our gross debt remained unchanged, except for a $7,000,000 increase in leases that qualify as financial debt under IFRS 16. The main cash inflows that we reported in the Q1 were an $8,000,000 payment from our 50% owned subsidiary, PEN, and $98,000,000 in proceeds from the sale of accounts receivable to Chile Electricity PEC. On Slide 38, we provide an overview of our ratings and debt details. Our net debt to EBITDA ratio increased from 1.8 to 2x, mainly because of the EBITDA decrease in the Q1 because gross debt remains virtually unchanged. This is a strong position, which gives us room to finance our planned investment in renewables this year and the next one. In terms of ratings, we have split international ratings of BBB plus by Fitch and BBB by S and P, while our local AA- rating by seller was given a positive outlook in January of this year. If we move to Slide 39, this summarizes our financing activity in the last 12 months. In January 2020, we issued the €500,000,000 144A regas bond to refinance the old €400,000,000 bond with maturity in January 2021. So this allowed us to extend our average debt maturities to 7.7 years and to lower our average interest rate. Last December, we signed an up to 12 year $125,000,000 loan with IDB Invest, which has an innovative structure. The loan has 2 tranches, a $110,000,000 loan to be funded by the IBB and China Fund and a $15,000,000 loan from the TIM Technology Fund. This loan will finance the construction of the Kalama wind farm, and it includes an incentive to accelerate the closure of coal plants. The idea is to monetize the actual displacement of CO2 emissions from coal plants whose generation will be replaced by the Kalama wind farm through a lower interest rate. We have not yet drawn this loan, so it remains fully available. Finally, last January, ICL, together with the other 3 main generation groups in Chile, signed agreements with Goldman Sachs and the IDB Invest related to our financing operation for the accounts receivable related to the tariff stabilization law. So under this transaction, as said earlier, we sold without recourse accounts receivable from distribution companies. The sales of receivables are being perfected in groups once the C and E publishes each average note price decree, including the corresponding chart with the balances owed by distribution companies to generation companies. In the Q1, we sold the receivables for a total nominal amount of BRL139 1,000,000 corresponding to the first two decrease. We estimate we could sell up to an additional BRL127 1,000,000. This amount will, of course, depend on the evolution of exchange rates and other variables between now 2023. This transaction will help us enhance our liquidity and ensure financing for our investments in renewables without increasing our debt. On Slide 40, we talk about our dividend distribution that accounted for 72% of our 2020 net income, but this is equivalent to 65% of our recurring net income, which reached BRL 181,000,000 in 2020. So we are distributing BRL118 1,000,000 in dividends in 2 payments, the first one corresponding to a provisional dividend amounting to BRL67 1,000,000 paid last November and the final dividend for BRL51 1,000,000 to be paid on May 20 this year. Over the last 12 months, our stock price fell 13%, while the Ipsa showed a 40% recovery over the same period. You can see there that beginning September 20 20, the ENGIE stock decoupled from the Ipsa. NGSA purchased an additional stock package in our company last December, which allowed it to increase its share to almost 60% as a demonstration of trust in our country and the long term strengths provided for our PTA reprofiling and decarbonization strategy. Well, this is all on my side. And now I will leave you with Axel and Eduardo for the final remarks and of course, our Q and A session. Thank you. Yes. Thanks Thanks a lot, Bernie. And I will take it up here. And well, to conclude, I just want to summarize now some main takeaways, and we'll provide you on the slide for them. First, as Eduardo explained at the beginning of the call, the Q1 has been extremely challenging, but I must say that we have passed for improvements. We have identified the action items, and we do expect some recovery in the following months. And so I would say that we are doing our best at the time being to get to the low end of our EBITDA guidance. Secondly, we are expanding our renewable asset portfolio and also we are reporting some delays in a couple of PV stations. We do feel confident that by the end of the Q1 of 2022 next year, we will have completed 700 megawatts of the 1,000 megawatts of renewable plant that is under development or finance development. And this is consistent with our commercial strategy of greening the different PPAs we have been discussing and preparing our organization for future and further growth. Thirdly, I would say that we just announced the second phase of our transformation plan, which will allow for full exit of coal by end of 2025 with clear priorities for sustainable and long term value creation. And this includes the conversion of the newest coal assets to other fuels, namely the CDACDH to biomass and the I'm to natural gas, plus an additional 1,000 megawatt on top of the other 1,000 megawatt of new renewable power stations. And 4th, last but not least, all this transformation remains supported by a solid balance sheet with liquidity enhanced by 2 innovative financing structures, a true sale of long term accounts receivables and a green financing from IDB. So I think that's a fair summary of what we expect today. Eduardo, anything to add from your side? Perfect. Well, thanks, Axel. So with these final messages, I think we're finalizing our Q1 presentation. As always, we hope the presentation was helpful, that you have a good time with us. Thank you. And now we are ready for any questions, recommendations or comments you may have for us. Thank you. Thank you. The floor is now open for questions. Our first question comes from Mariano Rossini with Santander. Please go ahead. Hello, everyone. Thanks for the call. Trying to understand the economics of the announcement, could you tell us what is the expectation of the value creation with the conversion of the plants? Or if this is much more related to the mitigation of future risks for the company? The second one, how do you expect to manage the spot exposure in the coming years and also the current PPAs, mainly those indexed to the coal prices? And finally, regarding your financial position, looking to the announcement of the €51,000,000 dividend distribution, how do you plan to fund the renewable capacity CapEx? And how should we expect the management between these investments dividend payments in the future? Okay. Thank you, Burillo. I think I can take the three questions. I will start with the number 2 in terms of portfolio, how we expect to cover our contracted PPA portfolio over the next 10 years and basically I will start between 2021 and 2025. Basically we'll keep our 3 newest coal units running with coal and at the same time we will start seeing the COD of the renewables that we have announced. So next year, we'll have 700 megawatts of renewals. Even on top of that, we will continue having our coal units. And on top of that, we'll continue having our combined cycles running with natural gas. So I think we are pretty covered between now and 225 with a portfolio that we currently have. It's important to have them available of course under normal circumstances our physical hedge should be there and our combined cycles running with natural gas should also help to cover any intermittence or any unavailability of our coal units. Now after 2/25 when we will convert the CTH, CTH and IEM to other technologies and these plants will be displaced in the merit order of the system. We need to consider that in 2026 an important PPA will end, a PPA in the north will end with a total demand of almost let's say 2 terawatts hour per year. So that means that we will need to cover not anymore a 12 terawatt hour portfolio, but a 10 terawatt hour portfolio of PPAs. And with 2,000 megawatts of renewables, we'll be able to cover half of this portfolio with our physical hedge, while the other half should be covered by the PPA backups by the PPAs that we have signed with other generation companies. There we will have around 2.5 terawatts hour per year covered with these contracts and the other 2.5 should be covered with our existing combined cycles running with gas and combining them with the renewals that we will have in our portfolio. So the conversion will reduce our physical hedge or efficient physical hedge at the current cost, but we will add more renewables to basically replace this physical hedge that will be displaced in the merit order. And this is how our portfolio will evolve over the next years. In 2026, it's a tipping point because in 2026, we will have the renewals, we will convert the others and we will still have the PPA in the north. So we have some years to find probably a hedging structure for that year and probably with additional backup PPAs. Then in terms of valuation, as we were probably explaining or we mentioned in the presentation, the conversion response to basically mitigating some risks for our portfolio instead of keeping coal units. What we are doing is converting them to other technologies and basically changing the profile of the company and having the opportunity then to add more renewables to replace them and becoming a more sustainable company for the long term because as you know coal units probably have a limited life in this system at least. And by the chance that we convert these units, then we trigger automatically the investment in additional renewables. And then we will be able to compete with other generation companies in the country to capture more regulated and unregulated demand with a more balanced portfolio between gas, renewables and why not in between probably adding some storage to. And finally, in terms of funding, today, our balance sheet should be able to finance 100% of the plan without putting at risk our net debt to EBITDA or rating. And this is because the renewables that we are building will add an additional EBITDA. And by this, I mean, if we should have an average EBITDA of €500,000,000 let's say under normal circumstances in 'twenty one or in between 'twenty, 'twenty one or close to 'five 100, the additional renewables will probably add between 'fifteen 100,000,000 of additional EBITDA, of course, with an important investment in CapEx in this period. And this should also allow us to raise additional debt in our balance sheet. And together with that, we still have a strong cash flow generation during this period. So we are planning to keep the same combination that we have been using so far, 50% internal cash flow and 50% additional debt. And with that combination, we should be able to finance the whole plan and we will still have some additional room for additional debt in case we win additional PPAs and we add more renewables on top of the 2,000 megawatts that we have announced. Did I answer your 3 or am I missing something? That was very clear. Thank you, Eduardo. Great. Thank you, Bruno. Our next question comes from Andrew McCarthy with Credicorp Capital. Please go ahead. Good afternoon, everyone. Thanks very much, Axel, Eduardo, Bernadita for the presentation. I had a couple of questions. The first one, a more general one. Obviously, the announcement of the group the ENGIE Group exiting coal came to the market at the end of February, and thereby you had to obviously take a decision as to what to do about the remaining efficient coal plants you had. You've gone down this obviously, the roots then of pursuing a reconversion of those funds. I'm just wondering if you could maybe help us or maybe take us a little bit through sort of the decision making process there in terms of why you went down that route, why not, for example, a sale of the plants maybe tied with some of the PPAs you have? Or why you didn't just simply shut down the plants? It would just be helpful to understand that, if possible. And the second question, a bit more of a specific one. You mentioned that obviously with the reconversion of the plants that their position on the merit order will obviously change. I was just wondering if you could provide a bit more information or color on your expectations on what that sort of variable cost of those plants should be sort of post 2025? And also what your expectations are on the reduction in terms of the sufficiency payments those plants may be receiving also post 2025? That will be great. Thank you, Andrew. I think those are also very good questions. In terms of decision process, what we have announced this week is not something that was triggered by the recent announcement of ENGIE to exit coal by 2025 in Europe and by 2027 in the rest of the world. I think or to give you some insight, this is something that we have been working on since 2018. When we started with this transformation process for the company and probably we were 1st movers in renegotiating some PPAs and transforming them in the long term. And I think that was also a good move because things changed since then. So we were ready sometime ago to go in this direction. I think what we have announced now is that we will start the implementation phase, but the development phase of this plan started, as I said before, some time ago and is in line with our purpose and is in line with the DNA of the company and what we are planning to execute worldwide in relation to people, planet and profit. So I think what we are doing today will become more sustainable business. And we are, of course, probably 1st movers again or very close or at least we are in the pole position to go in this direction. And we will see and I'm sure that in the long term, this is something that will be positive. Then in terms of the cost or the Yes. You skipped the second question. I think this is actually an extremely good question. And I can assure you that all options actually have been analyzed. And you can imagine what it means, all options from the standpoint of ENGIE. And so actually, everything has been analyzed in the deepest detail. And the strategy that is on the table today is a strategy that is allowing the best value creation for the minority shareholders and for the main shareholders. And you might be thinking that at some point, the visions could have been not that aligned, but it has not been the case. We've been tried at some point to investigate into market if selling down, for instance, 1 of the coal station with 1 of the PPAs was a solution. And at some point, we asked the market. We've been engaged in discussion on that. But we realized very quickly that it was considered as a fire sale, that it was considered as obviously, ENGIE is saying so many things on the market that we should obviously be careful. And they have to get between brackets to get rid of the core assets. And so the beauty of this strategy is to show that actually the organic transformation of ENGIE and ECHILE is trading value because we realize that being a pure coal player, your results will erode over time. It's a matter of time because financing will get more expensive, because insurance will get more expensive, because your customers will push you into the green market. And I would add that if you sell and if you get rid of one of your assets in PPA today, obviously you lose market share and you lose position in the market and you lose a certain capability to grow in the future. At this case, in my perspective, the beauty of this plan is that CL back on track in competitiveness at the same time and being based on a green story, it means that at the same time, you can recover the confidence of your customer and have again a growth platform for the future. Because let's face it, today, if you like to participate to some of this of the newest BBAs showing on the market, like big American players like Walmart, like, I don't know, Microsoft, Apple, whoever you like, you have to be green. Because this guy in a couple of years, they will not contract someone with coal assets. Being their PPA attached or not to the coal assets. And so I think that all together, we shaped, if you like, the market, the visions, the risk, etcetera. And I think that the plan that is on the table that has been digested by the different teams. And when I'm discussing about different teams, this is probably, and Eduardo, stop me if I'm wrong, but this is all in all more than 100 people between the regional office of ENGIE, between Paris, between the people of ECL to attack and tackle all the options. And I think that what is on the table we're getting today has been so digested that it makes sense. It makes sense. The company will have a new profile by 2025. It's going to be totally different from what it is today. Obviously, it's going to be challenging to implement that transformation because it's not a walk in the park, let's say. But it's this is the new aim and the new vision of the company. And I'm pretty sure that we will attract a lot of customers behind us. And the future of the mining industry in Chile will be green. And they know that. And so the closest we are from being totally green, the best place we are to keep growing with the mining industry. And you can go a little bit, sorry. Great. Thanks. So yes, indeed. If we continue with the next one, Andrew, you were asking about the variable cost of these plants. And I will start with efficiency to explain you a little bit how it will change. In terms of efficiency, currently, the efficiency is close to around 41% LHB and the efficiency of the conversion from coal to biomass or to gas will not change. Basically, the efficiency will be the same. What will change is that the fuel costs will increase. And in the case of CTA and CTH with probably a current cost of around 40 to 50 will double with biomass and with the and for IEM with a cost of around 35 to 45 will probably increase to 55 to 70 range depending on the cost of gas of course. Why in the case of CTA and CTH, we don't see any impact there is because after 226 and with the penetration of renewals that we expect during the next years, the dispatch of these units would have been marginal using coal. And in the specific case of IEM, what we are doing is to convert or converting this unit to natural gas, which is the type of fuel that today should be there to join renewables in our portfolio, providing a hedge during nights probably and this will allow us to reach a 20 fourseven production cost for our clients. And in terms of and this is today for IEM, considering IEM in simple conversion, let's say, or this light gas conversion because we will continue using the same turbine. But in case IEM is converted in a second stage to a combined cycle, but adding more CapEx, probably €250,000,000 more, then you will have not 41% efficiency, but you will have a 53% or 54%, 55% efficiency. And then your production costs could go down again with the current LNG price to the current price of this unit running with coal, so to the 35 to 45 range. But this decision will of course need to be taken in the future considering how the market evolves, how other technologies evolve and are available to be combined with renewables. But this is an optionality that today we have. And that's a second probably stage for IEM that could happen or not and that will depend on, as I was saying, on how conditions in the market evolve. And in terms of capacity, well, these units today running with coal are not flexible because coal is not flexible as you know, you need several hours to run these units and for the ramp up. Now changing them to biomass will not change their current condition. And in the case of IEM, converting IEM from coal to gas will probably improve a little bit its flexibility. So in terms of sufficiency or capacity payments, we don't expect any change. In terms of flexibility, I'm opens a new option in the future. Our next question comes from Juan Carlos Peterson with Invercianes Chiquan. Please go ahead. Good morning or good afternoon. Can you hear me well, Eduardo? Hello, Juan Carlos. Thank you very much for the I have a question related to what Axel just explained very well, and it's linked to Page 31 and 32. As Axel explained very clearly, it seems that being greener is a ticket to play. There's no option not to do this. But I would like to understand 2 things, Axel or Eduardo. In terms of generation, you are your aim is to be not only growing capacity in generation capacity to 3.4 gigawatts, but of course, being cleaner and greener. In terms of EBITDA, if the company today has an EBITDA in the range of or in the vicinity of $500,000,000 per year, what would be at that time, in 2025, the new EBITDA of the company? And related to that, would it be possible to understand from you, Axel, if, yes, the company will be greener? And could we also say that the company will be also will not only be greener but also more profitable? Or being greener will be at the expense of being less profitable? My second question is regarding the projects related to hydrogen. We have seen on the news certain initiatives that the company is promoting, which is, which looks very interesting. What, can we have a guess or a guidance, not guidance, a range of the magnitude of those green hydrogen projects in terms of EBITDA, if possible? And lastly, my third question, Eduardo, is related to the flexibility of your balance sheet and the implications on dividends. For instance, for this 2021, could we say that the last 2 or 3 years dividend policy should not be exposed given the flexibility of the balance sheet that you do have and, of course, in view of the CapEx projects that you do you have announced recently? Thank you very much. Thank you. Look, I will start with the first one to give you a view on what we expect in terms of EBITDA. Then I think, Axel, you can explain how we are becoming greener and more profitable with this strategy and the sustainability of our business in the long term. And also the third one in relation to hydrogen and what we expect in Chile and the pilots that ENGIE is developing. And at the end or at the beginning, I will go through the 4th one in relation to the flexibility of our balance sheet. So because I think it's related to the first one. In relation to the first one, which is related to the EBITDA that we could expect, We should expect an increase in our EBITDA between 2021 2025, which is basically explained by the fact that we will start replacing spot purchases at $40, dollars 45, dollars 50 during this period with our own production with renewables at almost 0 or let's say $5 So that means that if we are adding 2,000 megawatts of renewables equivalent to let's say 4 terawatts or 5 terawatts hour, let's say 4 terawatts hour on average during this period, we should be adding between €150,000,000 €200,000,000 EBITDA to our P and L. It's a simple math. We need to multiply 4 or 5 times the 40 or 50 and then we will reach between 150,000,000 to 200,000,000 additional EBITDA for our P and L. And this additional EBITDA will, of course, add additional flexibility to our net debt to EBITDA. Now this is to 2025 and to 2026 probably. In 2027, as I was mentioning before, we will have the end of an important PPA in the north, a regulated PPA with almost 2 terawatts hour of total demand. It's a bit lower, but let's round the figure and with a margin of probably $40 to $50 So that means that the additional 200,000,000 after 226 should go down in between €70,000,000 to €90,000,000 after this PBA ends. And this is probably what we expect today without doing anything else. But of course, Axel, Bernadita, Marcela and we all are here to bring more PPAs and to grow during the next years because this is of course the most let's say important objective of what we're doing today. And in relation to the flexibility and the dividends, of course, with an additional EBITDA, we will have more balance sheet to finance this expansion plan. And we should expect that the current and I'm using the current because it could be around 50% dividend policy should remain stable during this period assuming that our free cash flow during this period remains stable at the current levels or as we should expect under a base case. And of course, if we can or if we have additional CapEx needs in this period, we have some additional flexibility without putting at risk or reducing the dividend policy that I was mentioning. But in any case, at some point, if we have more and more CapEx, then we will have some tools by probably reducing again to 30%. But this is not in our base case. In our base case, I think we have enough cash generation to do everything at the same time. And then we can go, Axel, to the other 2. Yes. Well, to the question is greening the company destroying value or destroying profitability of the company? Definitely no. And why no? Because I think what has happened, it's actually a disruption at the level of the industry. And when you realize at some point that variable costs of operating coal and the monomeric price, including investment of new portfolio of renewable assets is actually cheaper, it means that your legacy business has been disrupted. And at the same time, your customers, they can, let's say, pick the best options because the market has evolved, provides more alternatives on green energy. And so if you do not react, you are just out of the market. So I think that, no, it's not destroying value because what we are doing at the end of the day, to say it on another way of what Eduardo just explained, we replace fuel price by depreciation, if you like, because the renewable will create much more EBITDA because there is no more fuel, natural gas remaining. But at the end of the day, we will not have more coal. And the fuel cost is one of the biggest costs of the company, obviously. So I think it makes sense from the asset standpoint. It makes sense to the customer with the customers because what we have been doing in the different PPAs we have is being, well, reducing the price but against extension. And so it has been a derisking of the PPAs because being close to market price is much than being 3x over the market price. What at some point would have happened. And so globally, I'm not going to say it creates value because this is highly depending on the way you would today value ECL. But I will just give you 2 more private opinions from myself. But first of all, I think that the results will erode in the future because if you stay black with coal, your customers will be a mess obviously because they expect something different. And having a customer that expects something different in terms of price and in terms of technology, then what you propose them, well, that's not the best way of being sustainable. And secondly, from the cost perspective, we know that at some point there will be more CO2 tax. The only question is when. And then just take insurance. 3 years ago, we had a certain market for talking about insurance to ensure the relevant call stations. But I think that as of today, 50% of that market has barely disappeared. So you have less people, less companies today willing to insure coal. This will happen tomorrow in terms of, I don't know, in terms of financing, in terms of everything. So results will erode. It's a matter of time. And then you have the cherry on the cake, if you like, it's growth. Having a cold company, there is no growth perspective, forget it. And I would even say that from an ENGIE standpoint, from the main shareholder of the company, probably the main shareholder of the company would have been reluctant in putting more CapEx in a company that is not aligned with the strategy of the company. And so globally, you have now the option to create more value with the company because there is a growth option. Obviously, evaluating what is how much does it mean a growth option, that's a little bit more complex. And okay, this is what you are all paid for. So take the market and look at the mining industry, look at the what BHP, what Anglo American, what Atopargasa Minerals are explaining on their future in terms of sustainability, in terms of carbon neutrality, etcetera. And I think that indeed what we have been up to and the strategy that has been defined makes a lot of sense with regard to the evolution of the country and the main industry in the country. The plan would have destroyed value. Honestly, it wouldn't have go through the governance of ECL. That would have been stopped either by ENGIE itself or by the Board of ECL. I don't know if I replied to the question. And the last one was related to hydrogen. What are our plans with hydrogen? I think it's related to the 3 pilots that we announced and how that engages with this year? Yes. Well, that's probably on the longer run. If you look at the 3 pilots, it's one with Corfo that there is at the end of the day a research and development project with the aim to foster, let's say, the use of hydrogen into the mining industry and basically, in this case, as a replacement to diesel or natural gas for moving the famous skikes and these big trucks in the mining operations. There is no more plan. No, it will take time. The adoption of hydrogen will take time because it's extremely expensive for the time being, but better to be in and eyeing at that market than being at miles away from that evolution. Then you have Walmart. Walmart is an interesting one because it's the first real application of hydrogen with no subsidy. And by the way, I've been saying that some of these early adopters of green technology, well, Walmart is one of them. So we have to be green if we want to keep companies like Walmart in the portfolio of customers. So we will convert 189 forklift to hydrogen. And then you have a very longer plan with NIX and this vision of producing green ammonia in Chile. That might end up at some point with an export of ammonia or a derivative of hydrogen outside of Chile. And in the short of run, it would be producing this ammonia onshore in Chile and supporting, let's say, the evolution in terms of fertilizer or explosive with Cenex. But again, that will take time. This kind of project today is not valuable without subsidy, and the development team is focused today on finding, I don't know what to call that, it's not debt because it's much more grants and subsidies and working with Corfo again and government to government loans and things like that. And what will be the role of ECL in this? Well, if this hydrogen, at the end of the day, it's just PV and wind transformed in something different. So it's a huge market tomorrow, being the one of the KX and the one of IX. If there is an early adoption of hydrogen, this year we benefit from all these green corporate PPAs that will allow growth to the company. That's the connection we see here. Thanks, Axel. And Juan Carlos, I forgot to mention something, but I hope our announcement last Wednesday answered a little bit your suggestion during our last shareholders meeting. It was very interesting to have that suggestion, and I hope we were at the level. Thank you. Yes. Can you hear me well, Eduardo? I'm online still. Yes, to answer your point, yes, definitely. Thanks for that. I don't think you did that because of my suggestion. I think it was part of your strategy, and it was, you're spot on. You did very well. Thank you, Axel, for your comments and for taking the time. Have a busy agenda when you're here explaining the strategy and with the level of with the high level of quality of information, it adds value. I have 3 comments, no more questions. But for some reasons, Axel, the Chilean market has got nervous around all the changes in this industry. And certainly, with the discount that ENGIE Chile is having today, if you compare companies, similar companies with a similar strategy, with a similar asset footprint, either in Europe or globally. The multiples that the company has in Chile are with a severe discount versus others. And that for some reason, I don't know if it is ignorance of the market, from the market or lack of information, and that was one of the reasons why I suggested that on your AGM. I did follow to finalize. I did view I did watch, sorry, the audience that your President, Catherine MacGregor, did in the SENA in France in March 2021. And I think it was an outstanding presentation. Very challenging questions, but she did that very, very well and hard questions, very well answered. And I guess that is something that could help also to apply in Chile to go back to normal multiples for ENGIE and being treated fairly from the market on the price of the share on the share price. So thanks for that, Axel. Thanks, Eduardo, for answering the questions, and keep doing the good work. This concludes the question and answer session. At this time, I would like to turn the floor back over to NG Energy at Chile for closing remarks. Well, thank you very much for your participation. Bernarita, Axel, if you want to say something too. Thank you to everyone. Appreciate it from my side, obviously, the question and happy to be part of all these announcements because I think it's not every month that we take this kind of decision. Thanks for being here. Okay. On my side, thank you for attending the call and for the good questions. So that's all. I hope you all have a very nice weekend. Time and have a nice day.