Enel Chile - Earnings Call - Q2 2025

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to Enel Chile's first half and second quarter 2025 results conference call. My name is Victor, and I'll be your operator for today. 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. Such forward-looking statements reflect only our current expectations, are not guarantees of future performance, and involve risks and uncertainties. Actual results may differ materially from those anticipated in the forward-looking statements as a result of various factors. These factors are described in Enel Chile's press release reporting its first half and second quarter 2025 results. The presentation accompanying this conference call and Enel Chile's annual report on Form 20-F included under risk factors.

You may access our first half and second quarter 2025 results press release and presentation on our website, www.enel.cl, and our 20-F on the SEC's website, www.sec.gov. Readers are cautioned to not place undue reliance on those forward-looking statements, which speak only as of their dates. Enel Chile 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 except as required by law. I would now like to turn the presentation over to Mrs. Isabela Klemes, Head of Investor Relations of Enel Chile. Please proceed.

Isabela Klemes (Head of Investor Relations)

Buenos días, good morning, and welcome to Enel Chile 2025 second quarter and first half results presentation. We greatly appreciate that you take the time to join us today. My name is Isabela Klemes. I'm the Head of Investor Relations. Joining me this morning are our CEO, Gianluca Palumbo, and our CFO, Simone Conticelli. Before we begin, I'd like to take a moment to introduce Gianluca Palumbo, who assumed the role of Chief Executive Officer of Enel Chile on July 1. Gianluca is an electrical engineer, a graduate of the University of Naples, Federico II, and brings nearly three decades of experience within Enel Group. Throughout his career, he has held several strategic leadership positions, including Head of Global Network Development for all distribution business lines within Enel and General Manager of Edesur, Enel Distribution Company Argentina.

Most recently, Gianluca served as Head of Global Construction Operation and Maintenance for the entire distribution business across the Enel Group. Our presentation and related financial information are available on our website, www.enel.cl, in the Investor section, as well as through our Investor app. In addition, a replay of the call will soon be available. At the end of the presentation, there will be an opportunity to ask questions via a webcast chat through the Ask a Question link. Media participants are connected in listening mode. Gianluca will kick off the presentation by covering key highlights of the period and the country energy context. He will also delve into our portfolio manager actions and provide updates on the regulatory context. Following that, Simone will offer an overview of our business economic and financial performance. Thank you all for your attention, and now let me hand over to Gianluca.

Gianluca Palumbo (CEO)

Thank you, Isabela. Good morning, and thank you for your participation. I'm honored to be speaking with you today. Together with our Senior Leadership Team, I'm committed to our core goals as we navigate both challenges and opportunities with clarity and determination. Let's start the presentation with our main highlights of the period. Let's begin with portfolio management. Hydro generation remained consistent with last year's levels, supported by a higher than expected thermal dispatch. This was largely driven by transmission constraints throughout the period, as well as temporary unavailability of certain thermal units within the system. Our gas trading operations also performed well this quarter, playing a strategic role in complementing our portfolio and helping offset our spot market purchases. This activity continues to be a key tool in navigating current market dynamics and is expected to remain at a relevant level throughout the year.

Now, moving on to our distribution segment. At the same time, we have made solid progress with our grid resilience and winter program. This initiative is designed to strengthen our grid and improve our response to climate-related events. As part of this effort, we have been deploying remote control systems across our networks to significantly reduce average service restoration times. This is a key part of our strategy to ensure long-term reliability and to improve our operational continuity. We have also implemented a new vegetation management control program carried out in close coordination with local municipalities and relevant regulatory entities. This initiative aims to prevent service disruption and further secure the stability of our infrastructure. Additionally, we have introduced new procedures for managing grid failures more efficiently. For instance, once applied, we are using generation units to support service restoration during network recovery.

These enhancements are part of our broader strategy to boost system resilience and operational responsiveness. Let's now turn to the regulatory and country context, which continues to play a key role in shaping our strategic decisions and long-term planning. This third quarter will be particularly relevant as we expect the release of the final VAD 2024-2028 consultant report and the publication of a new regulation on BESS ancillary services. I will share more details later. In the meantime, the PMP regulated tariff decree for the second half of 2025 was published in July. This update adjusts the energy component of a regulated tariff. As I will explain later, it enables us to begin recovering a larger portion of PEC 1 and provides greater visibility over cash flow for our generation business.

Let's now move on to our financial performance, which reflects the resilience of our operations and our ability to adapt to a changing environment. In the first half of 2025, we delivered an EBITDA higher than the same period last year. This strong performance was further supported by a positive FFO driven by $261 million received from stabilization energy mechanism factoring. This inflow significantly improved our cash flow position. As a result, we have maintained a solid liquidity position that allows us to navigate potential headwinds posed by evolving climate scenarios, while also advancing our investment program across both our generation and distribution businesses. Now, turning to generation investments. After gaining confidence in proposed ancillary services regulation and deeply analyzing several market scenarios for Chile and observing the cost evolution of the BESS, we are ready to formally launch construction of our BESS investments.

These projects will be deployed in northern Chile, adding around 0.5 GW of battery energy storage to our portfolio within the next two years. This marks a significant milestone. It reinforces our commitment to Chile and demonstrates the strength of our strategy to continue serving both regulated and free market segments. Now, let's move to slide four to talk about the country's market situation. The national electricity system has been affected by several factors, including poor hydrological conditions, both scheduled and unscheduled maintenance across various thermal power plants, and the temporary unavailability of a transmission line connecting the northern and central regions of the country, mainly in April and June, which led to significant system decoupling.

All these factors combined led to an increase in spot price in the central southern zone of Chile, mainly during daytime hours, resulting in higher operating costs for the system, as we are showing in the left part of this slide. On the hydrology front, cumulative rainfall, as expected, has been lower than in the same period of 2024. Nevertheless, the hydro generation during this period was close to last year's levels. Therefore, we are maintaining our hydrology guidance for the year in line with the average observed over the past 10 years. For 2025, we expect hydro generation to reach around 11 TWh.

Despite this challenging scenario, we have managed to navigate it thanks to our solid and long gas supply position, which includes our long-term LNG contract with Shell and Argentina Gas Supply, the full availability of our efficient thermal capacity, and strategic water reserves from favorable rainfall in 2024 stored in our dams. Thanks to our robust and diversified gas position, we were able to capitalize on favorable trading opportunities across both local and international markets during the period. This demonstrates the effective complementarity within our portfolio. Now, moving on to slide five, let's review our generation portfolio and energy balance, taking into account the system constraints I just outlined. First of all, I would like to highlight that we have started 2025 with a solid diversified portfolio, which includes a total net installed capacity of 8.9 GW, with 78% coming from renewable energy sources and battery energy storage systems.

Net electricity generation decreased 5% compared to production as of June 2024. This decline was driven by lower hydro dispatch during the first quarter of 2025, reduced renewable generation, and increased curtailment levels caused by transmission line limitations already mentioned. However, this was partially offset by higher contribution from our efficient thermal power plants. During the second quarter of 2025, net generation declined to 5.9 TWh, mainly due to the reduced renewable generation already mentioned. In the first half, our energy sales almost reached 15.1 TWh, mainly due to lower sales to regulated customers following the expiration of regulated contracts. During the second quarter of 2025, physical energy totaled 7.4 TWh, lower than the second quarter of 2024, mainly due to reduced sales to regulated customers and free clients.

In this first semester, as you can see in the slide, we reduced our purchases from third parties and also our spot market purchases, mainly at non-solar hours. Now, I would like to take a moment to discuss the energy regulatory framework and share important upcoming updates on slide seven. Regarding our distribution business, we are currently navigating a new regulatory cycle that incorporates a new replacement value of $2.1 billion. The consultant's final report on the 2024-2028 VAD is expected to be delivered and published in the coming weeks. We estimate the regulator will release the preliminary technical report for this new cycle in the second half of 2025.

In relation to the 2024 VAD process, we remain monitoring the resolution from the Superintendency of Electricity and Fuels, which will establish the timeline for defining the outstanding debt in favor of distribution companies, marking an important step toward improved regulatory. Now, on tariff in July 2025, the decree for the second half of 2025 PMP was published. This decree allows the recovery of cash in our generation business for an amount of around $48 million in the next six months. Related to the PEC accruals, as of June 2025, we had an account receivable related to the PEC of around $164 million. These figures already include the factoring executed in April for $261 million. Let's now move to the right-hand side of the slide to review updates on important changes in the regulatory framework currently under discussion.

The proposal to expand the electricity subsidy for the country's most vulnerable households continues under discussion. Measures approved to date are additional net VAT related to the tariff increase, increasing the amount of compensation that distribution companies must pay to clients in case of distribution power outages. The discussion now moves to the Finance Commission before being voted in the Senate plenary. Measures related to the CO2 tax and the so-called [Bolsa Pime] initiative are still under discussion. Regarding the remuneration of ancillary services for battery energy storage systems, we expect regulatory updates in the third quarter of 2025. The proposal presented by the National Energy Commission seeks to encourage the participation of the BESS in the ancillary service market by recognizing the costs associated with their delivery, given the systemic benefits that their inclusion would entail.

To this end, a calculation methodology for the opportunity cost is proposed to mitigate the risk of foregoing participation in energy arbitrage. Next, our CFO, Simone Conticelli, will present a review of our financial and economic performance.

Simone Conticelli (CFO)

Very thanks, Gianluca, and good morning, everyone. I will start by reviewing the highlights of our performance over the period. Before we start commenting the first half results, let me remind that as of January 1, 2025, Enel Chile changed its functional currency from Chilean pesos to U.S. dollars. For comparative purposes in today's presentation, the first half and the second quarter 2024 figures are converted using the average exchange rate of the period. Now, let's take a look at a brief overview of our financial performance. As shown on the slide, in the first half of 2025, EBITDA reached $659 million, representing a 10% improvement compared to last year's figures. The improvement is mainly driven by strong surplus performance in generation and improved gas trading activities, which more than offset the negative impact of regulated PPAs expirations and transmission line constraints.

The June transmission line constraint particularly impacted the second quarter EBITDA, that slightly decreased by $10 million compared to the second quarter of 2024. Going to the net income, the first half net income amounted to $246 million, representing a decrease of 8% compared to the previous year, mainly due to the higher V&A, while in the second quarter, net income amounted to $71 million. The first half FFO showed a significant improvement compared to last year, reaching $403 million, 7.8x the previous year's figures. The second quarter FFO reached $295 million. That means $357 million higher than the result of the same period of 2024. The increase is driven mainly by the previously mentioned improvement in EBITDA and the recovery of funds associated with PEC. We'll go into more details later in the presentation. Now, let's move to the next slide to review the progress made on CapEx.

Our total CapEx reached $157 million in the first half, mostly centered on grids and power plant fleet's performance. Let's take a closer look at the allocation. 40%, or $63 million, was directed towards grid investments. 31%, or $48 million, supported thermal projects. 29%, or $45 million, was invested in renewable and storage. The grid focus, as previously explained by Gianluca, remains on the resilience program, reinforcing infrastructure to reduce vulnerability to climate-driven disruptions. The priority for the thermal segment is the maintenance and performance enhancement of the power plant fleet. In the renewable segment, we have centered our efforts on finalizing the PMGD program, enhancing hydro facility performance, and maintaining fleet availability. Passing to breakdown by nature, asset management CapEx totaled $89 million, accounting for 57% of the total CapEx, mostly used for the maintenance of Atacama, Quintero, and San Isidro CCGT, and grids correcting maintenance and digitalization.

Development CapEx was $38 million, primarily driven by the complexion of the 2024 investment program for PMGDs and investment for grid reliability enhancement and telecontrol deployment. The 2025 development CapEx for battery-related projects has been partially deferred to 2026. Customer CapEx totaled $30 million, mostly focused on low and medium-volt connection projects and initiatives to support road companies. Now, let's move to the next slide, which presents a detailed view of our second quarter EBITDA. In the second quarter of 2025, our EBITDA reached $293 million, representing a slight decrease of $10 million compared to the same period of 2024. Let's go to the main reason for the performance differences.

Starting with generation business, we recorded a decrease of $106 million in PPA sales, primarily due to the termination of some high-price regulated contracts that impacted on volume and average price of the regulated portfolio, partially offset by the negative impact of exchange rate hedges recorded in 2024. Going to the sourcing, we recorded a positive effect of $92 million, despite the negative impact of $23 million due to the transmission line constraints and interruptions, particularly in June. The good performance is primarily explained by lower costs in the spot market, mainly due to the lower energy volume purchase and lower third-party purchases. Regarding gas optimization activities, we achieved a positive contribution of $25 million, thanks to increased gas trading volumes for the total of 6.4 terabit U during the second quarter of 2025.

Regarding our grid business, we reported a positive impact of $7 million, mainly driven by a provision reflecting the higher tariffs expected for the 2024-2028 regulatory remuneration period, partially offset by a higher tariff in the quarter, mainly due to increased maintenance activity aimed at strengthening the grids. We also recorded a negative impact of $14 million, mainly due to generation costs related to the new development capacity that started being operated after June 2024 and maintenance activities. Finally, in the second quarter of 2025, we recorded the personnel cost one-off effect, mainly for the incentivized early retirement plan to support the company reorganization aimed at improving internal performance. Now, let's move on to the next slide to review the main impacts on EBITDA during the first half. In the first half, our EBITDA reached $659 million, representing an improvement of $62 million compared to the same period of 2024.

Starting with the generation business, we recorded a decrease of $155 million in PPE sales, mainly due to the termination of high-price regulated contracts, partially offset by the negative impact of exchange rate hedges recorded in 2024 and the positive price set due to the indexation of free market contracts. Regarding sourcing, we recorded a positive effect of $189 million, despite the $34 million negative impact due to the transmission line restriction following the February blackout and the additional second quarter issues. The result was obtained thanks to lower spot market and third-party energy purchase costs, energy settlement for previous periods, reduced transmission costs, and finally, lower production costs thanks to the efficiency of our thermal power plants. In the first half of 2025, gas optimization activities contributed for $22 million, also thanks to the increase of 5.9 TWh in trading volumes versus the same period of 2024.

On the grid business, we recorded a positive impact of $34 million, primarily driven by two factors: the provision reflecting the higher tariff expected for the 2024-2028 regulatory remuneration period and the favorable effect of tariff indexation. As outlined in the quarterly analysis, in the first half, we recorded an increase of generation costs due to the new development capacity and the maintenance activities. Finally, as previously explained, we have a non-recurring effect of $30 million related to the company's reorganization. Now, let's move on to the next slide where we will review the net income evolution. Our first half 2025 net income reached $246 million, a decrease of 8% compared to last year's figures, mainly explained by improved EBITDA by $62 million, offset by higher depreciation, amortization, impairment, and vendor expenses for $56 million, mainly due to the commissioning of new renewable capacity amounting to $20 million.

The $29 million impairment followed our decision not to proceed with the new PMGD solar project initially planned for development in this area. Finally, the increase of grid vendor provisions amounting to $6 million was mainly driven by higher average invoice amount due to the rise of tariffs. Regarding financial results, we recorded a negative variation of $28 million, mainly explained by the lower capitalized expenses on renewable projects, the 2024 interest on PEC receivables, partially offset by lower financial expenses and positive foreign exchange differences. We also recorded a $3 million increase in the income taxes, mostly due to the improved results. Focusing on the quarter, net income decreased by $39 million, mainly due to a $10 million decline in EBITDA, a $41 million increase in depreciation, amortization, and vendors, primarily due to the operation of a new renewable capacity and the commented impairment.

Finally, a $12 million decrease in income taxes was mainly due to the lower results recorded in the second quarter of 2025 versus the second quarter of 2024. Now, let's move on to the FFO analysis on the next slide. Let's analyze the FFO composition for the first half of 2025 and the main FFOs compared to the same period in 2024. Our FFO reached $403 million, representing an improvement of $351 million compared to the first half of 2024. This is due to the following factors. First, EBITDA amounted to $659 million, with a positive variation of $62 million as previously explained. Second, a $269 million recovery of PEC receivables in the first half of 2025, mainly due to factoring executed in April 2025 related to PEC freeze.

It's worth mentioning that we observed a positive effect of $416 million versus the first half of 2024, thanks to the end of the accumulation of PEC receivables started in October 2024. Third, the working capital increased by $256 million, mainly due to the development CapEx payments and seasonality on energy payments. The increase was higher by $116 million versus previous year, mainly due to the negative effect of energy payment scheduling and the increase in energy distribution receivables due to the increase in the tariff. These effects were partially offset by lower CapEx payments related to the new renewable capacity. Fourth, the income taxes impacted on FFO by $187 million, mainly due to tax payment in the generation business. Income taxes paid in the first half of 2025 were higher by $60 million compared to the first half of 2024.

This difference is mainly due to the increased tax payment in the generation business, driven by both higher results and higher monthly payment tax rates. Finally, financial expenses amounted to $82 million, mostly due to the vendor-related costs. This represents a reduction of $38 million compared to the first half of 2024, mainly driven by a lower average debt this year. Now, let's take a look at our liquidity and leverage position. Our gross debt increased slightly by $40 million to $3.9 billion at the end of June 2025 compared to December 2024. This increase is mainly due to a seasonal effect related to the net working capital needs in the second quarter.

The gross debt increase between December 2024 and June 2025 was driven by $100 million drawn from the new credit line with CAF, Banco de Desarrollo de América Latina y El Caribe, and $42 million in new leasing liabilities, offset by $102 million debt amortization. The average maturity of our debt portfolio slightly declined to 5.9 years as of June 2025, compared to 6.2 years in December 2024. The portion at fixed rate is 86% of the total debt. The average cost of our debt reached 4.9% as of June 2025, in line with our effort to optimize the financial costs. Regarding liquidity, we are in a comfortable position to support our capital needs for the upcoming months and cope with next year's maturity. As of June 2025, we have available committed credit lines for $590 million and cash equivalents for $320 million. Thank you all for your attention.

I will pass the floor to Gianluca for the closing remarks.

Gianluca Palumbo (CEO)

Thank you, Simone. As I take part in my first earnings call as CEO, I'd like to extend my thanks to our shareholders and the broader investment community for your continued support of Enel Chile. I stepped into this role committed to working with the Enel Chile team through an agile, data-driven approach, clarity in execution, and deeply rooted in operational excellence. This mindset will guide how we identify the six opportunities, design and scale innovative solutions, and lead our team with clarity, purpose, and accountability. I look forward to fostering our culture of agility, productivity, resilience, and innovation, confident that this approach will generate consistent and sustainable value to all our stakeholders. Now, I would like to share the following closing remarks.

We remain fully committed to our winter plan in the distribution business, with a clear focus on ensuring services continuity and reliability, especially during the most critical months of the year. The timely completion of all infrastructure projects is progressing as planned, strengthening our ability to respond effectively within a robust risk management framework. This approach includes well-defined risk prevention activities, improves organizational readiness, enhances our capacity to respond rapidly, and supports a swift recovery. Also, now that we have greater clarity regarding the regulation, we are set to begin construction of our BESS pipeline in the coming months. In parallel, we are proactively implementing managerial measures to mitigate impacts on our portfolio, those related to transmission constraints and asset unavailability. We are acting with flexibility and precision, identifying key operational actions and deploying solutions to safeguard value and maintain system stability and rentability.

At the same time, we continue to improve the foundations of our business model, which has consistently proven resilient in the face of external challenges. These ongoing managerial actions enhance our adaptability, reinforce our positioning, and support the delivery of sustainable long-term value. Now, let me hand it over to Isabela for a question and answer session.

Isabela Klemes (Head of Investor Relations)

Thank you, Gianluca. Thank you, Simone. Let's now move on to the Q&A session. We will be taking questions this time via chat through the webcast. The Q&A session is now open. I will start here, Gianluca and Simone, with the first question we have received. The first question comes from Florencia Mayorga from Metilife. The first question of Florencia is, Gianluca, which is the main reason behind the higher energy losses in the distribution business? She also, the second question is, regarding higher gas sales in the generation business, how sustainable they are? Okay, Gianluca?

Gianluca Palumbo (CEO)

Yes. Losses in distribution increase once comparing 2024 versus 2025. One reason is higher electricity prices starting in mid-2024, which led to more energy debt and last year's climate events. Some changes in customer habits also added to the problem. To fix this, we have made payment plans easier for customers. We have also added better tools to find debt. We are working with regulators to improve the rules and regulatory model. Chile still has lower losses than other Latin American countries, but we are watching the situation closely and working with teams in other regions to share what's working and reduce these losses.

Isabela Klemes (Head of Investor Relations)

Thank you, Gianluca. We have the second question regarding the gas.

Gianluca Palumbo (CEO)

Yes, okay. Our current guidance is between $80 million-$90 million for this year. We expect that the sale of gas surplus could be sustainable in the next few years, considering our availability. However, profitability and volume of gas trading will vary considering market conditions.

Isabela Klemes (Head of Investor Relations)

Okay. Thank you very much, Gianluca. Let's go to our second question coming from Beatrice Gianola from Mediobanca. She has several questions. I'll go one by one, Simone. The first one is from hydrology. She's asking that in the first half, hydro production is slightly above 50% of the full-year target, which has confirmed. How do you expect hydro volumes to evolve in the second half? Do we expect that to slow down? If you are comfortable with the full-year guidance, both in the hydrology and also in the, we understand also in the EBITDA numbers, if you are confirming.

Simone Conticelli (CFO)

Okay. The first half was very, very peaceful, but considering that we have many plants with reservoir and the reservoir was at the highest level at the beginning of the year, we achieved a very high level of production. July was a little bit of a surprise. It started a little bit dry. At this moment, it seems that the rain season has already come a little bit late. Also, considering that we are expecting the melting season and there is a lot of snow on the mountains, we are quite optimistic about the hydro production for the next month. We will go on monitoring the situation. We can confirm 10.7 TWh. That was our target in the first year of the storage plan.

Isabela Klemes (Head of Investor Relations)

Okay. Thank you, Simone. We are going to the second question from Beatrice. It's about the debt, a cost of Enel Chile. Can you share with us your current average cost of debt?

Simone Conticelli (CFO)

We have a very good cost of debt coming from the investments that we made in the past in a more favorable condition. We started the year with 5%, but at this moment, the cost of debt has slightly decreased to 4.9%, also due to our good mix between long-term and short-term debt.

Isabela Klemes (Head of Investor Relations)

Okay. Thank you, Simone. Let me see now. We have a question coming from [Francisco Pai] from Santander. The question of his is regarding the 2025 guidances as well. Considering the worst and expected energy market conditions, he's talking about the low hydrology and unavailability of generation plants, transmission weight issues, which led to higher spot market prices. Are you considering to adjust your full-year year-end guidance in terms of EBITDA, net income, and payout?

Simone Conticelli (CFO)

Thank you for the question, Francisco. As we know, we are a very well-balanced company, so we have many possibilities to react also to bad events. In the first half, as you commented, there was a negative outcome from the point of view of external pressure, hydrology, higher price, problems with the transmission line, and everything. We reacted and reached good results in line with our expectations. We are sure that we can continue on this trend. We confirm also the guidance for 2025.

Isabela Klemes (Head of Investor Relations)

Okay. Thank you, Simone. I'm checking here. The next one is coming from Ruben Alvarado from [BC]. Thank you, Ruben, for your question. He has three questions, Simone. I think I'll go one by one. He's asking about, do you expect any additional impairments in the future related to Salinas project? It's the second one. I think it's one by one, I'll tell you.

Simone Conticelli (CFO)

Yes. Okay. Let's talk about the Salinas project. This is an important project, a power plant with 375 MW in the initial project. We built the first 205 MW in 2024, and the condition in the market changed. What happened is that we moved the destination of our assets to different projects, in particular to the construction of PMGD, so small power plant, solar power plant in the area. Considering that the market for this kind of project is reducing, we changed the value of our assets to align the assets at the market level. In this moment, the value of the asset after the last impairment is quite low, and we're not expecting any other impairment.

Isabela Klemes (Head of Investor Relations)

Okay. Thank you, Simone. The second question is, could you give us more color on the reduction costs in the distribution segment? He asks, if sales in the distribution business were down, why do you see consolidated costs decreasing more than consolidated sales? Did you reach some additional efficiencies in terms of costs this year?

Simone Conticelli (CFO)

Sure. We are keeping on working on the distribution business. You know that this is for us a core business. We are looking at the possibility of reducing the cost. For this reason, we launched some expedition processes and also some extraordinary activity to contain the cost. This is the main reason for the cost reduction. This is in line with our policy to try to increment the value of this business.

Isabela Klemes (Head of Investor Relations)

Okay. Thank you. The last one is, what is the reason behind the year-over-year increase in the financial expenses in the quarter for Enel Chile?

Simone Conticelli (CFO)

The increase is related also to the increase of amortization. The reason is that in the last year, we had a large amount of projects under construction, and we had the opportunity to capitalize on costs in the correct way in these projects. Considering that this project stopped producing energy, we reached the COD, in particular for the huge project of Los Honduras. This year, we have a little bit changed the possibility to capitalize financial costs.

Isabela Klemes (Head of Investor Relations)

Thank you, Simone. The next one is coming from Felipe Torres from AFP Habitat. Thank you, Felipe. The question is, thank you for the presentation. Question. All gas trading activities already made were booked, or can we expect further impact of gas trading already done in the next quarters? Can you give us guidance regarding future gas trading activities in the current context of lower availability of Argentinian gas? Gianluca?

Gianluca Palumbo (CEO)

Okay. Thank you. Thank you, Felipe, for the question. In the first quarter of 2025, we signed an agreement to sell two LNG cargoes for delivery in Europe. We are always looking for opportunities to trade LNG surpluses. The margin of the first cargo was booked in the second quarter of 2025 and accounted for $23 million. The second cargo will be sold and booked only in the fourth quarter of this year. As commented before, our current guidance for 2025 gas margin is between $80 million-$90 million. At the end, yes, the last is okay. Regarding Argentina Natural Gas, we would like to clarify that we have a firm contract, and our demand has been successfully delivered, except during one week in June due to the extreme weather conditions in Vaca Muerta.

Isabela Klemes (Head of Investor Relations)

Okay. Thank you, Gianluca. Let me check here. We have the next one coming from Martin Arancet at Balanz Capital. Now, from Rodrigo Mora from Moneda. Actually, both are quite the same. They are asking questions about the BESS. They announced BESS investments in the presentation. I'm reading here the question. What is the difference between the new BESS investment plan and the previous one? How much do you expect to invest in the following two years? What are your expectations in terms of additional revenue from auxiliary services? This is from the first one that is from Martin. Then I read from Moneda as well, from Rodrigo Mora.

Gianluca Palumbo (CEO)

Okay. Thank you, Martin. The BESS investment is in the same Enel Chile presented in the Capital Market Day 2025, 2027. We are not considering in our numbers yet ancillary system revenues.

Isabela Klemes (Head of Investor Relations)

Okay. Thank you. From Rodrigo Mora, Moneda Patria, thank you for your participation. Let me say here, I have one question. Could you give us more color about the BESS program? The 557 MW that you announced, how many hours is your battery that you're considering? Could you tell us when this capacity will be ready? Could you give us more information about the new wind farm project announced during the strategic plans 2025-2027? Thank you very much.

Gianluca Palumbo (CEO)

Okay. The investment is around $400 million in three battery energy storage system projects, 453 MW in total over four hours, with the COD in 2027. The wind farm projects announced during the strategic plan are still in the business plan, but with a further COD than battery energy storage system projects.

Isabela Klemes (Head of Investor Relations)

Okay. Thank you, Gianluca. I'm going now to a new one from Florencia Mayorga from Metilife. She's asking about Simone. The debt, when you're expecting to address the 2027-2028 bonds of Enel Chile, the $1 billion bonds?

Simone Conticelli (CFO)

Thank you for the question. This is really the higher maturity that we have in the medium terms. At this moment, it is a little bit early to make plans about that. What we can say is that in general terms, we continuously evaluate liability management alternatives to optimize our financial costs. Our analysis that already has been started includes many of the financial options, like issuing new bonds or, for example, securing long-term loans and so on. Maybe we will be more involved in this issue in the next months.

Isabela Klemes (Head of Investor Relations)

Okay. Simone, we have another one for you coming from Liliana Young from UBS. She's asking about the investment. If we are seeing, let me ask here the question. Where do you see most attractive investment opportunities from a subsector standpoint? Renewables plus BESS or distribution or transmission? What about dividends shared by BESS? Do you have a program of shared by BESS in your company? Thank you.

Simone Conticelli (CFO)

I'm now.

Isabela Klemes (Head of Investor Relations)

Oh, sorry, Simone. There is another one that I keep here. If you can provide more color on the CapEx plan of the company as well.

Simone Conticelli (CFO)

Okay. The first one is, can you help me about where are most possible investments?

Isabela Klemes (Head of Investor Relations)

Okay.

Simone Conticelli (CFO)

Okay. I remember. I will ask for the next. For our investment, we try to optimize the investment in all the areas. I mean, in generation and also in distribution. In generation, for sure, at the center of our strategy, there are the projects for hybridizing existing solar PV plants, mainly in the north, mainly solar power plants through battery energy storage systems. We are considering many other opportunities, for example, also to build or maybe to buy also power plants in other areas of the country. Talking about distribution, we are investing as much as we can, considering our cash flow that is impacted by our current remuneration model. These investments are mainly devoted to increase the resilience of the grids, also considering that this very disruptive climate event, it seems that will be occurring in the future more often. All our efforts to increase the grids.

Second, talking about shared by battery energy storage systems, this is something else that is not in the end of the management. It's a decision of the assembly of shareholders. Always is an opportunity for a company that has a very good and solid leverage. This opportunity can be used, but in this moment, I don't have any specific to talk about that.

Isabela Klemes (Head of Investor Relations)

Okay. Thank you, Simone. The other question on Liliana is also about the CapEx plan of the company. If you are confirming of the Capital Market Day, the CapEx plan.

Simone Conticelli (CFO)

We are confirming for the moment the current plan, as we have commented during the presentation. We have a little bit of delay in 2025 CapEx because we studied deeply the investment in BESS. We also expected the very good news from the regulator about the participation of BESS on the complementary services market. We are going to start in the very next days. This BESS will be delivered with some more delay compared to the plan. We will talk about further opportunities in our plan presentation further.

Isabela Klemes (Head of Investor Relations)

Okay. Thank you, Simone. The next question is coming from Fernando Salles from BCG. He is welcoming you, Gianluca, from the company, and thank you for the presentation. He has two questions. The first one is the proposal of auxiliary services remuneration from energy storage for the CNE is a positive step, but it is far from ideal as it doesn't see many incentives. Your decision as a company to launch the new BESS project is because you expect the initial proposal to be improved before it has been made public, considering all the comments that were sent over the coming weeks. The second one, have you gotten any feedback from the CNE? The other question is, the new BESS project will hybridize existing solar PVs in the north, or are you looking to develop a standalone asset? Thank you for your questions, Fernando, Gianluca.

Gianluca Palumbo (CEO)

First of all, thank you, Fernando. You're welcome. About the first question, the new auxiliary services proposal will allow capturing higher spot prices with the independency of the BESS dispatch by coordinator. About the second question, we have advanced battery energy storage system projects totaling 450 MW, like before, for four-hour duration in northern Chile, and we expect to share important updates in the coming weeks. Our wind projects remain on track and fully aligned with our current plan. Finally, the BESS project will hybridize existing solar PV plants in northern Chile. The new BESS capacity main goal is to improve our non-solar hour production rather than providing auxiliary services.

Isabela Klemes (Head of Investor Relations)

Okay. Thank you. Thank you, Gianluca. We have the last question here. The last one is coming from Rodrigo Mora, Moneda Patria. Simone, the question here. The first one is related to the incentivized retirement plan included in this quarter for the company. Could you give us, to the investors, more information about the split by subsidiaries, not by segments? He is also asking a question about the availability of some renewable assets of the company. He is saying that Guangzhou is generating less than one-third of one year ago, and the geothermal plant, Cerro Pabellón, has no reduction of any generators. Could you give more information about the actions that the company is taking to recover this capacity of generation plants?

Simone Conticelli (CFO)

Hi, Rodrigo. Thank you for your questions. First of all, let's start talking about the reorganization. The company is a very important project that will improve our internal efficiency in the future. This plan goes to all the groups here in Chile. $5 million of the impact are on the generation area, more or less the same amount on the distribution area, but we are also looking at the services areas. Talking about our solar assets, yes, it's true. We are producing a little bit less than expected. The reason is that we anticipate some maintenance activity, especially on transformers. During

This first half, we're going to finish the job in another few weeks. Maybe in September, we should be ready. This is due to some problems, but also I want to stress that this kind of issue is covered by the insurance. We have an insurance that covers the cost of the maintenance, but also partially the lost production. It's very important. Talking about Cerro Pabellón, it's true that we are producing a little bit less. We are producing two out of three turbines, but the three turbines are currently functioning. The fact is that we have a little bit less of fluid, and this is the natural evolution of the wells. We have planned already an intervention with a specific machine to be transported to the site to recover the full efficiency of the wells. By the end of the year, we should be making these maintenance activities.

Isabela Klemes (Head of Investor Relations)

Okay. Thank you, Simone. Now is our last question from Fernando Salles, BCG, on the distribution. Gianluca, has there been any progress on the change to execute investment in resilience in Chile and be recognized in the asset base earlier?

Gianluca Palumbo (CEO)

Okay. Thank you for your question. No progress so far. Enel Chile are actively advocating for the need to transition to a new model based on real assets. A significant investment in the network will be required to address the increasingly frequent effects of climate change, the higher electrification expected, and the growing penetration of renewables in the system. This is our point.

Isabela Klemes (Head of Investor Relations)

Thank you very much, Gianluca. Thank you all for connecting. If there are any other questions or any other information you may need, our Investor Relations team will be available. Thank you very much. Have a good week.

Gianluca Palumbo (CEO)

Thank you.

Operator (participant)

Thank you for your participation in today's conference. That does conclude the program. You may now disconnect. Everyone, have a great day.