Enel Américas' (ENIA) CEO Maurizio Bezzeccheri on Q1 2019 Results - Earnings Call Transcript

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About: Enel Américas S.A. (ENIA)
by: SA Transcripts
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Earning Call Audio

Enel Américas S.A. (NYSE:ENIA) Q1 2019 Earnings Conference Call April 25, 2019 12:00 PM ET

Company Participants

Rafael De La Haza – Head-Investor Relations

Maurizio Bezzeccheri – Chief Executive Officer

Aurelio Bustilho – Chief Financial Officer

Conference Call Participants

Enrico Bartoli – MainFirst

Javier Suarez – Mediobanca

Elchin Mammadov – Bloomberg Intelligence

Charles Fishman – Morningstar

Marco Contreras – Kallpa Securities

Operator

Good day, ladies and gentlemen, and welcome to the Enel Américas First Quarter 2019 Results Conference Call. My name is Michelle, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded.

During this conference call, we may make statements that constitute forward-looking statements within the means of the Private Securities Litigation Reform Act of 1995. These statements could include statements regarding the intent, belief or current expectations of Enel Américas and its management with respect to, among other things Enel Américas’ business plan, Enel Américas’ cost reduction plan, trends affecting Enel Américas’ financial conditions or results of operations, including market trends and the electricity sector in Chile or elsewhere, supervision and regulations of the electricity sector in Chile or elsewhere, and the future effect on any changes in the law and regulations applicable to Enel Américas or its affiliation.

Such forward-looking statements reflect only our current expectations and are not guarantees of future performances or involve risks or uncertainties. Actual results may differ materially from those anticipated in the forward-looking statements as a result of various factors.

These factors include a decline in the equity Capital Markets of the United States for Chile as increase in the market rates of interest in The United States or elsewhere, adverse decisions by the government regulations in Chile or elsewhere and other factors described in the Enel Américas’ Annual Report on Form 20-F, including under Risk Factors. You may access the 20-F on the SEC’s website at www.sec.gov. Readers are cautioned to – cautioned not to place undue reliance on those forward-looking statements, which speak as of their dates.

Enel Américas undertakes no obligation to update these forward-looking statements or to disclose any development as a result of which these forward-looking statements become inaccurate.

I would now like to turn the presentation over to Mr. Rafael De La Haza, Enel Américas’ Head of Investor Relations. Please proceed.

Rafael De La Haza

Good afternoon, ladies and gentlemen, [Foreign Language] and welcome to our first quarter 2019 results conference call. I’m Rafael De La Haza, Head of Investor Relations and here with me are Maurizio Bezzeccheri, CEO of Enel Américas; and Aurelio Bustilho, CFO.

Let me remind you that this conference call will follow the slides that have been already uploaded into the company’s website. Following the presentation, we will have the usual Q&A session, open it to analysts connected to this call.

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

Maurizio Bezzeccheri

Thank you, Rafael. Enel Américas’ EBITDA for this period reached $909 million, an increase of 11% compared to the same period of 2018, despite the currency devaluation in the four countries where we operate, especially in Argentina and Brazil.

Without the negative FX impact, EBITDA would have increased by 33%. In distribution business, EBITDA reached almost $500 million, a 16% increase compared to last year. This good result was mainly driven by Brazil due to the contribution of Enel São Paulo and better results in Goiás, reflecting our capacity to add value and to deliver results from our acquisitions.

Regarding efficiencies, we were able to reduce our OpEx in 12%. Despite the positive operational results, group net income decreased by 8%. This is explained by the increase in financial expenses due to the debt coming from the purchase of Enel São Paulo. Regarding our sustainability commitment, we are glad to announce that Enel Américas was included for the first time in the Sustainability Yearbook 2019 published by RobecoSAM.

Let’s now take a look at our CapEx for the period in Slide 3. Total gross CapEx for the period amounted to $319 million, an increase of 27% compared to the same period of last year. The CapEx is well balanced between asset management, asset development and customers with 34%, 34%, and 32%, respectively. Distribution capture most of our CapEx with a 93% share. Within distribution business, we have to mention the effect of the consolidation of Enel São Paulo in Brazil, which represent 20% of our total distribution CapEx. From a geographical point of view, 53% of the investments are devoted to our subsidiaries in Brazil.

Now let’s analyze the main operating indicators on the following slide. In generation business, our total net production increased by 0.2 terawatt hour compared to the previous year, mainly as a result of higher generation in Cachoeira Dourada and Costanera, partially offset by lower generation in Fortaleza. Energy sales of our generation companies increased by 13.3%, mainly explained by our growth in the Brazilian market.

In distribution business, distributed energy amounted to almost 31 terawatt hour, 36% higher than last year. Without the contribution of Enel São Paulo, demand would have been substantially flat. Our customer base increased by 7.3 million clients, mostly explained by the consolidation of Enel São Paulo. In homogenous terms, we added almost 40,000 new clients, lower amount than usual due to client reclassification process in Brazil and Argentina. The company is currently serving 24.5 million clients.

Let me now comment the operating highlights of Enel X and retail businesses in Slide 5. In Enel X business, you can see that regarding E-City, we increased our public lighting points in around 5,000. We also had an important growth in photovoltaic and storage business in E-Industries. Regarding E-Home, we had a significant increase in the transactions of third-party billing and collection services, while the level of contracts of micro-insurance remained substantially flat.

Finally, in E-Mobility, the number of charging station increased from 10 to 100, especially in Argentina and Colombia. Regarding energy free market business, the number of customer increased by 3%, reaching 1,547 clients and the energy sold amounted to four terawatt hour, 3% higher than last year.

On the other hand, the number of customer in gas free market business increased by 16%, and the gas sold increased by 56%, reaching an amount of 0.3 terawatt hour. The competitive advantage of Enel Américas due to it’s presence in the major urban areas of the different countries, in which the company operates, will offer us the possibility to rapidly expand these businesses.

Let’s see now our financial result of the period in Slide 7. EBITDA of the period reached $909 million, a 10.9% increase compared to the same period of last year. Without FX effect, it could have increased by 33%. This positive result is mainly explained by the consolidation of Enel São Paulo, which contributed with $112 million and better performance in Enel Goiás and in Fortaleza. Group net income increased by 7.6%, net of FX, it could have increased by 13.1%. Net income was strongly affected by an increase in financial expenses in Enel Brazil, which we will analyze deeply later on.

On the next slide, we will see the breakdown of our EBITDA. As you can see on this slide, Brazil was the main contributors in terms of EBITDA, with a 44% followed by Colombia, Peru and Argentina. Regarding business lines, it was well balanced between generation and distribution, and we can see that Enel X and retail contributed with 1% each. EBITDA in generation business increased by 5.3%. We can see that Argentina was the main contributors mainly due to better performance in Costanera, while in Brazil Fortaleza increased in 120% due to higher sales and positive impact from PIS/COFINS tax that will be explained later on. The positive operational result was partially offset by a negative impact of $109 million coming from FX.

In distribution business, EBITDA increased by 16.4%, which is an important improvement in Brazil mainly due to the consolidation of Enel São Paulo and also by a better performance in Goiás and Rio. Colombia and Peru also showed positive operational results. In Argentina, we had a decrease of $65 million in operational terms. This is explained by a decrease in energy sales and by higher energy purchase cost mainly due to the increase in the average price of energy. FX impact in distribution business was minus $78 million.

Now let’s analyze the key financial and economic results on a country-by-country basis. Beginning with Argentina in Slide 9. EBITDA in Argentina decreased by 51% or $75 million, reaching $71 million. In operational terms, EBITDA increased by $11 million, more than offset by a negative FX impact of $86 million. This important effect in FX is explained by the devaluation of the Argentinian peso against dollars and the hyperinflation effect. Without FX effect, EBITDA would have increased by 8%. In generation business, EBITDA increased by 11% or $6 million, reaching $60 million. Without considering FX effect, EBITDA would have increased by $73 million or 136%. This is mainly explained by higher margin as payment in generation are dollarized, partially offset by lower physical sales due to lower availability in index [ph].

In distribution business, EBITDA decreased by 90% or $82 million. In operational terms, EBITDA decreased $65 million or 71%, mainly explained by the reduction of energy sales revenue together with the higher energy purchase cost due to increase in the average price of energy.

CapEx decreased by 30% compared to last year, reaching $51 million for this period. Without considering FX effect, the CapEx increased by $74 million, mainly in distribution business due to quality plan in Edesur.

Let’s move to Brazil on the following slide. In Brazil overall EBITDA in the period increased by plus 57% or plus $145 million, including $64 million negative impact coming from FX. EBITDA in generation business increased by 16% or $17 million, which is explained by better results in Fortaleza due to higher sales revenue and the one off fiscal benefit coming from an update of PIS/COFINS taxes, derived from a change in taxable basis criteria from 2003 and 2018 that was recognized in this period.

Our EBITDA in distribution business increased by 78% or $130 million, mainly explained by the consolidation of Enel São Paulo, which contributed with $112 million and better results in Enel Rio and Enel Goiás, mainly due to the new tariff to final client after the tariff review in March 2018 and October 2018, respectively, and better operational performance in both companies. This was partially offset by a reduction in Enel Ceará due to higher cost, mainly in connection with action to control energy losses and bad debt.

CapEx in Brazil increased by $31 million compared to last year, reaching $170 million, mainly explained by investment in Enel São Paulo, partially offset by a reduction in Enel Goiás, due to a higher level of investment reached last year due to the tariff revision of CARB in 2018. Regarding tariff reviews, Enel Distribución Ceará started its new tariff period on April 22, which was an increase of 8.22% in the final client tariff and the recognized asset base around $1.1 billion.

In addition, regarding Enel Distribución São Paulo, Enel has opened a public hearing in order to the debate, the next tariff review. And the closing or the public hearing will happen within May 2019. So we are expecting a first proposal from Enel in June. The final tariff results will be approved on beginning of July. Finally, on March 12, 2019, Enel approved the new regulatory nontechnical losses for Enel Distribución Rio during 2019-2022 period, which will be 19.9% for 2019.

Now, let’s analyze Colombia on Slide 11. EBITDA in Colombia increased by $8 million or 3% compared to last year despite a negative impact of $29 million due to currency devaluation. Without FX impact, EBITDA would have increased by 13%. In generation business, EBITDA was flat, but in operational terms, we had an increase of 10% mainly due to higher sales revenues and lower personnel expenses. This was offset by a negative FX impact of $17 million.

In distribution business, EBITDA increased by 3% or $8 million, mainly explained by higher demands and higher tariffs. This was partially offset by FX impact of minus $12 million. CapEx in Colombia increased by 44%, mainly due to investment in service quality and network automation in Enel Codensa.

Now, let’s analyze Peru on Slide 12. EBITDA in Peru increased by 8% or $11 million, reaching $143 million. In generation business, EBITDA decreased by 4% or $3 million, from which $2 million are explained by negative FX impact. Energy sales decreased – increased by almost 4%. In distribution business, EBITDA reached $70 million, $40 million or 25% higher than last year.

Sales increased by 6.4% compared to last year, while the number of client increased by more than 26,000. Total CapEx increased by $4 million, mainly in generation business due to maintenance of the plants and for the finishing work for the rebuilding of the Callahuanca hydroelectric plant. Callahuanca was declared commercially operative in late March 2019 by the National Electrical System Operator [indiscernible]. The CapEx in distribution business increased in order to improve infrastructure and network quality.

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

Aurelio Bustilho

Thank you, Maurizio. Starting from $909 million EBITDA, the company registered the depreciation and amortization for an amount of minus $287 million, 51% higher than the last year, mainly as a result of the consolidation of Enel São Paulo and higher charge in Enel Rio due to the increase in asset base resulting from investment carried out last year to modernize the company’s distribution network, which added about $622 million.

Net financial results amounted to minus $150 million, which represents a higher cost of $139 million. This is mainly due to higher financial expenses related to Enel São Paulo consolidation. This is partially offset by Fortaleza due to already mentioned one-off update of PIS/COFINS taxes. We also had a positive effect in Edesur due to hyperinflation.

Income tax registered in period was $156 million, a decrease of $14 million compared to last year mainly due to a lower level of earnings before tax that decreased the base taxable income. The effective tax rate during the period was 33%.

Total net income amounted to $316 million, while attributable net-net income reached $204 million, an 8% decrease compared to the previous year results. Without considering the financial expenses coming from the purchase of Enel São Paulo, group net income would have increased by around 9%.

Without these elements, let’s analyze the cash flow in Slide 14. FFO amounted to $68 million. These results includes a negative net working capital in the period for an amount of $537 million, mainly due to actions on net working capital peg at the end of 2018 in Brazil, Colombia and Peru due to the higher payments made to suppliers. Taxes paid during the period amounted to $154 million, while net financial expenses amounted to $151 million, mainly related to our activities in Brazil and Colombia. Net cash flow amounted to minus $385 million during the period after invest $390 million in maintenance and growth CapEx as indicated in the previous slides.

Dividends paid by the company amounted to $134 million. Extraordinary operations amounted to $2 million, and FX effect amounted to $22 million. Without this effect, total net debt increased $409 million compared with December 2018.

Let me now analyze the debts of our company in the following slides. Gross debt amounted to almost $9.2 billion, with an increase of $448 million versus December 2018. This growth is mainly explained by an increase of financial debts in Enel Ceará, Enel São Paulo, Enel Goiás and Codensa, partially offset by a decrease of financial debt in Endesa.

In terms of currency, most of our debts is in Brazil reais, mainly as a consequence of the acquisition of Enel São Paulo. The same reason explains that 63% of our debt is allocated in Brazil.

Finally, we registered an increase of 50 bps in the cost of debt since December 2018, mainly explained by new debt in Enel X, Brazil and Cachoeira Dourada, both in a deteriorated financial condition contest. In addition, Enel Brazil and Enel Distribución Rio increased their cost of debt.

Let me now continue with a focus in our last two acquisitions in Brazilian distribution business.

Starting with Enel São Paulo, we are very satisfied with the performance of the company during the first quarter of this year. EBITDA reached $112 million at Enel Américas level. If we compare the numbers in reais in Brazilian GAAP, we see that EBITDA increased by 18%. At net income level, we had a positive result of BRL 69 million, while last year, the company reported a loss of BRL 5.4 million in Brazilian GAAP – million reais in Brazilian GAAP.

Gross CapEx reached $58 million, and it was mainly allocated to digitalize and modernize the distribution network. It is important to mention that part of these investments will be considered in the new RAB of the company that will be announced in July this year.

OpEx decreased 6.7% as a result of the deepening of the integration and optimization process of Enel São Paulo in the Enel Américas Group, which started on July last year and has allowed to reduce the operating cost. Debt profile has improved compared to the previous year thanks to a good liability management made by the company. Regarding the operational performance by the company, distributed energy has increased with respect to last year and energy losses decreased from 9.6% to 9.5%.

We can see that quality indicators SAIDI and SAIFI have improved on a significant manner, reducing by 18% and 17%, respectively, as a result of the investments in the company’s distribution network. We are very confident that will continue adding value in line to what we announced on our strategic plan. On the next slide, let me highlight the group performance that Enel Goiás has had during this period. Enel Goiás improved its financial results on a solid way compared to the same period of last year, increasing its EBITDA by 93% and net income by 54%.

Gross debt’s profile is better than first quarter last year, thanks to a good debt management. The company added almost 100,000 clients during the last 12 months, and it’s energy distributed was higher than the first quarter last year, increasing by 7.1%.

Regarding quality indicators, just as Enel São Paulo, we see a solid decrease in SAIDI and SAIFI, which is explained by our strong CapEx plan focused in Infrastructure and Networks of both indicators were reduced by 27%.

Now I would like to hand over to Maurizio to give you an update regarding the capital increase proposal announced on February 27.

Maurizio Bezzeccheri

As you know – as you already know, on February 27, the Board of Director of Enel Américas unanimously approved to call an extraordinary shareholder meeting to approve a capital increase of up to $3.5 billion. In this slide, we have summarized the main events occurred since that day. Let me bring to your attention, in particular, debt.

On April 10, our controller shareholder Enel SpA, has disclosed that as a result of those [indiscernible] exercise announced back in October 2018, it has raised its participation in Enel Américas from 51.8% to 56.42%. In the same context, Enel SpA has also announced its intention to follow the capital increase and subscribe its stake.

On April 12, the Chilean market regulator, CMS, announced that the payment of the loan from Enel Brazil to Enel Finance International is not a related party transaction. In addition to this, let me tell you that after – therefore the announcement of February 27, the management of the company made an intensive marketing PVT in order to better explain the operation to all our shareholders. We met more than 150 local and international investors in the last weeks and given the feedback received by them, we have decided to reduce the amount of capital increase.

Today, the Board of Director of Enel Américas has approved unanimously a final amount of $3 billion. As you know, the extraordinary shareholder meeting has been called for the next April 30 to vote on the proposed capital increase. In the following slide, we will see the main terms and condition of the operation.

As you will find in this slide, the proposed transaction will consist in $3 billion capital increase with preemptive rights to be registered both in the Santiago and New York Stock Exchange. The pricing mechanism for the right offering and the other terms and condition to be approved by the extraordinary general meeting in Enel Américas on the next 30 April are exactly the same after our presentation of the 27th February. Usual proceed with 200 – $2,650 million for the payment of the debt in connection with Enel São Paulo acquisition and $350 million to start the structured process of the pension plan in Enel São Paulo.

Now in the next slide, Aurelio will explain the main impacts of the operation.

Aurelio Bustilho

I would like to focus now on the credit enhancement enabled by this transaction. As you can see on this slide, all Enel Américas’ relevant credited metrics would see a substantial improvement after the capital increase and going forward.

In terms of leverage, net debt-to-EBITDA would fall from two times by the end of 2018 to 1.1 times in 2018 post-transaction. We would return – we should return to optimize net debt-to-EBITDA level in the short term after we execute the M&A activity that we have discussed.

Regarding the FFO to net debts, the enhancement following the transaction 2019 would be from 30.6% to 45%. A more solid balance sheet and capital structure could bring multiple benefits to the company, such as reaffirmation in the company’s investment grading rates potentially positioning it for an upgrade by credit agencies, the possibility of achieving a lower cost of debt in line with the company strategic plan for 2019-2021, and the greater financial flexibility, allowing the company to have access to multiple financing alternatives to fuel growth.

Now in the following slide, let me focus on the P&L benefits of this transaction. As discussed in the previous slide, one of the benefits of the proposed capital increase is related with enhancement in cash flow generation for Enel Américas and the subsequent improvement in projected dividend flows.

Since the last portion of the capital increase will be used to pay a relevant volume of outstanding debts, these allow Enel Brazil and Enel Américas to lower their interest expense burden with mainly translating into greater earnings and dividends. As far as net income is concerned, it is worth to mention that the increase in Brazil’s cumulative earnings will drive an increase of 18% of Enel Américas’ net income. Consistent with the above Enel Américas, and Brazil will be able to increase its total dividend payouts, ultimately benefiting Enel Américas and its shareholders.

Total cumulative dividends paid by Enel Brazil will more than double post-transaction and the same metrics will increase by 14% for Enel Américas.

Let me now hand over to Maurizio to give you final details on the transaction, timetable and rationale.

Maurizio Bezzeccheri

As you may see, the timetable of the capital increase will be the same that we presented back in February. In the extraordinary shareholder meeting of the next April 30 approves the transaction, the capital increase will be launched by June with the idea of completing the two phases of Preemptive Rights Period by the end of August.

In the next slide, we will see how this transaction perfectly fits with our growth strategy. Enel Américas was constituted back in 2016 as a Latin American investment vehicle with a clear mission of growth. In the last two years, the company implemented a solid plan of acquisition demonstrating its capability to create value.

The proposed capital increase would improve the financial profile of the company and paves the way for a new phase of growth of Enel Américas. Let me finalize the conference call with the closing remarks in Slide 24.

Let me conclude this presentation by highlighting that despite the currency devaluation in the four countries, where we operate both, generation and distribution businesses, had a positive result at EBITDA level. In generation business, we had higher energy sales, while in distribution, we had an important contribution from our latest acquisition, São Paulo and Enel Goiás. Despite the positive operating results aforementioned, net income was affected by the increase in financial expenses due to the debt coming from Enel São Paulo’s acquisition.

Let me remind you, again, that the extraordinary shareholder meeting, in which all shareholders will be able to vote regarding the proposed capital increase operation will be held on April 30. This capital increase would allow the company to optimize its financial structure in Brazil and to capture upcoming opportunity and consolidate growth in the region.

Finally, let me highlight we, continue to have sustainability in the center of our business.

Rafael De La Haza

Thank you, Maurizio. Well, I now pass the call to the operator for the Q&A session. Operator, please proceed.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Enrico Bartoli with MainFirst. Your line is open. Please go ahead.

Enrico Bartoli

Hi, good afternoon and thanks for taking my question. I have three of them. First of all, if you can provide the outlook for Distribution Argentina considering, let’s say, the significant decline in EBITDA in the first quarter if you can provide some details on these you mentioned higher purchase costs. I wonder if this can be recovered over the next few quarters? And against that the tariff increases that were expected for this year, were actually implemented, if you can provide some details on this? And is – do you expect an impact from measures that the Argentinian government has approved in order to reduce inflation in the country over the next quarters? The second question is regarding guidance. If I’m right, you have a guidance of $4.4 billion EBITDA for this year. What impact do you expect on this from the recent further devaluation mainly from the Argentina peso, but also from the Brazilian real, if any from the nationality or regarding Argentina distribution and just a few comments on how confidence you are in order to reach this guidance? And the last one is on tariff increases in Brazil and distribution. You mentioned the 8% allowed to Enel Ceará. If you give us a hint of what you expect regarding Enel Rio, and the tariff increases compared to first quarter last year that you had in the other subsidiaries? Thank you.

Maurizio Bezzeccheri

Okay, okay. Let me reply to the first question regarding Argentina. Argentina, okay. Argentina, let’s say, first of all, the result of distribution is related as we said before to two major reasons. One, on one side, let’s say, the level of less energy demand, partially due to the crisis and partially due to the fact that the Argentinian is starting to use properly the energy in – the energy, let’s say, this is the reason why.

Regarding, let’s say, one of the recurrent question and underlying question to your question is the fact that how is the tariff increased. Let’s say, in February, we received all the tariff increase and as a consequence now, we will – following the tariff review, we will have an increase in – due to inflation in August. Of course, as you remember, already last year, we postponed – we divided in different installment the payment that this is – will be the case as well this year due to the fact that, as you know, the government has got some commitment with the International Monetary Fund. But the tariff up to now has recognized all the increase expected by the regulatory scheme. The announcement has been made by the Argentinian government that it is more – will not have impact on the number of Edesur and as a consequence of Enel Américas, we don’t expect a major impact.

And of course, what we – I would like to remember that how we deal with Argentina. Argentina for us is a sort of – is a company in which we’ll invest and we will – in all the money that we received from the regulatory scheme to improve the quality of service. So, for this reason as well the impact on cash flow due to the fact that EBITDA and CapEx are balanced, will have no impact on Enel Américas macro results regarding Argentina guidelines, Aurelio?

Aurelio Bustilho

Regarding the guidance, we maintained a $4.5 billion EBITDA that we projected to 2019, mainly driven by – especially by São Paulo, okay? And we consider, okay, in this number – already, we consider a devaluation of $400 million due to two effects, especially, mainly in Argentina. The main issue here is that what Maurizio commented is that the – what we will do is to – we will not increase the debt in Argentina. If we don’t get a tariff impact, if you have any reduction, of course, we’ll compensate with lower investment in the same way in order to maintain the FFO. But for now, we maintain our guidance.

The other question was related to the tariff reset that we had right now for Ceará. Ceará, we had a very good tariff reset. As you can see in our strategic plan, we consider the element RAB, we consider $1 billion, we got $1.1 billion. So, $100 million more. We got 8.22%. So – and we got an improvement in our recognition of transmission losses, which has an issue that we were discussing with the regulator, and it was very well addressed. So, we expect to that we at least the main drivers of the tariff reset, the RAB, the WACC as you know, the WACC is the same and this transmission – this loss has caused especially technical losses, we got an improvement. So, we are confident we were better than the plan we projected.

You talked about Rio. Rio, we got 100% of RAD recognition, a 6 billion reais in dollar, which is around $1.5 billion more or less, no? But it was 100% recognition, which was a very good result. And this year, we got the recognition of the total losses of the company, which is 19.9%, which is an issue that we have been addressed with the regulator. And for us, it was a very well addressed job with our regulation team to got these – both the recognition and both these RAB recognition, because as you know, as we mentioned, we put lots of effort in quality improvement in Rio. So, we got this 100% of RAB. It is a very well addressed and in line with our plan.

Maurizio Bezzeccheri

Let me just add something regarding the other portion of your question regarding activos pasivos regulatorio that is this reset of the financial debt and – in Argentina. As you remember, we were billing in – at the end of 2018 with the Secretary of Energy just to reach an agreement. Then, as you recall, in December, there was the change of the – with a new Secretary of Energy. We started negotiation. The agreement already passed through the control of the internal audit and the financial distribution of the government, and we expect to close these issues in the next month.

We have postponed several times this announcement, but is not our fault, of course, it’s due to the change of – the change of internal kind of counterpart and really, we think that this is the right time, because as you know now that Cachoeira Dourada and Edesur, the management of the concession will be – rely in the government of the city and government of the province of Buenos Aires. And of course, this will be done cleaning up all the issues as well the issues related to the financial aspect of activos pasivos regulatorio.

Enrico Bartoli

Thank you very much. Very clear.

Operator

Thank you. And our next question comes from the line of Javier Suarez with Mediobanca. Your line is open. Please go ahead.

Javier Suarez

Hi, good afternoon and thank you for taking my questions. I have three. The first one is on the capital increase or the reduction in the target capital increase. If you can help us to understand the reason behind and the rationale behind basically some capital increased from $3.5 billion to $3 billion. And also looking at to the slide 20, 21, the net debt-to-EBITDA after the completion of the capital increase of post-transaction could be just at one time and below one time from 2020. The question for you is what do you think a company like Enel Américas should be in terms of net debt-to-EBITDA on a sustainable basis? Which is the targeted level of net debt-to-EBITDA, which with the company feels comfortable? That is the first question. The second question is on Slide 2. You mentioned that there has been a reduction of 12% on the OpEx, but that is excluding Enel São Paulo? Can you help us to understand where that 12% reduction in OpEx has been obtained, and which is the subsidiary or the diversion of the company where most of the capital reduction has been obtained? And then the third question is on Slide 4 something that caught my attention is that number of customers ex-Enel São Paulo has remained relatively stable. Can you help us to understand the reason for that? And what we should expect given the next few quarters? Many thanks.

Maurizio Bezzeccheri

Okay. I will reply regarding the capital increase why we decided to pass from and up to $3.5 billion to $3 billion, because as we mentioned that, we want that this deal will get the maximum support by the shareholders, why? Because we consider that this is the starting of new growth strategy as you – during our roadshow for presenting the rationale behind the capital increase, the explanation we got the maximum net debt ratio of almost 2.5 times expressed by the rating agency, just not to lose our credit rating.

And for this reason, we want that this deal will get the maximum consensus for its approval, because its fundamental as well as a message to the management and to the market that it’s a shareholder we believe in the growth story of this company. Regarding the ratio, I don’t know if you want...

Aurelio Bustilho

The OpEx question, the reduction, if we not – if we don’t consider, of course, Electropaulo because it’s – it was indeed the first quarter of last year, it remained almost at the same level, but we had an improvement. The main improvement was in the Edesur personnel cost. Okay? We had a reduction in this personnel cost of Argentina. And of course, we had also a decrease in the – an impact, a positive impact in the FX, but anyway considering flat the same numbers, we had a reduction in the personnel cost of distribution business Edesur in Argentina.

Maurizio Bezzeccheri

Let’s say that as we announced in October, we will continue the OpEx reduction in all distribution company we have done, as Aurelio mentioned, in Edesur, we have done the same exercise in Goiás and we are getting the same results in Enel São Paulo. If you remember, we – in our business plan, we announced almost $230 million, $250 million of efficiency in the next year of the plan and $207 million was mostly related to São Paulo. And let’s say that already the reduction in terms of operation costs related to the reduction of employees is going ahead, quite ahead of our initial projection. So, the efficiency plan is continuing and not only continuing, it’s getting the result that we are expecting and in some cases like in Electropaulo, we are getting better result than originally planned.

Operator

Thank you. And our next question comes from the line...

Javier Suarez

There was a – I had a question on the number of customers’ evolution.

Maurizio Bezzeccheri

The customer evolution, some you consider the net result is 40,000 clients. Why? Because we are getting an increase in number of clients in São Paulo, and we are reclassifying the clients in Brazil, and especially in Rio and in Argentina. So, you see that the result is a little bit less than expected, but really, São Paulo is getting an increase in energy demand and an increase not only in terms of consumption per capita, but as well in terms of number of clients in line with our expectations. The only thing that in the presentation, you saw the net results with the reduction of client, because we are doing right now both in Argentina and in Rio. Of course, in the effort to eliminate bad debt, we are counseling some client that really done no consumption of energy since long time. So we are doing a cleanup of our client basis. For this reason, the net result that you see.

Javier Suarez

Okay, interesting and many thanks.

Operator

Thank you. And our next question comes from the line of Elchin Mammadov with Bloomberg Intelligence. Your line is open. Please go ahead.

Elchin Mammadov

Thanks for taking my questions. I have three. On the capital raise, again, a similar question to the previous one, but mine is slightly different. So what is going to be the impact of this, let’s say, up to $500 million reduction in the capital increase? Is it going to be less M&A, less CapEx, less dividend or lower chance of credit rating update – upgrade? So this is the first question. The second question is I didn’t catch your explanation on the hyperinflation in Argentina. Do I understand correctly that you are still expecting a tariff catch up somewhere down the line due to Argentina hyperinflation? And the final question, again, on long-term target to – of net debt-to-EBITDA, what are you targeting? I didn’t understand what you answered to the previous question. Thank you.

Maurizio Bezzeccheri

Okay. If I understand your first question regarding capital increase, when we presented the $3.5 billion capital increase was based on our specific model and that we are planning to the Board at that time some level of merger and acquisition. It’s evident that with the $3 billion, what we will do, mostly, we will continue to conceive the payment of the loan related to Enel International Finance. This is the same between $3.5 billion and $3 billion figures. What is – the major change is between $3.5 billion and $3 billion is the intervention on pension fund. And that means that in $3.5 billion was issue something related to the $700 million just to solve the issues – the entire issues of the pension fund.

With the new figures of $300 million, what we are taking into account is just the amount of money that we use in 2019 beginning of 2020. And of course, the remaining amount of money we will get through that acquisition. And with – this means, as a consequence, that we will have a lower fire power for future merger and acquisition activities and no impact on dividend. Of course, if we will go ahead with the capital increase, no impact on dividend. And the exercise of $3.5 billion to $3 billion is mostly due to the fact that I – as I mentioned to the previous question, we want to get the maximum consensus around the – around this operation. Why? Because we want – we declare since the beginning and we continue to declare that this acquisition is made in the interest of all our shareholder to continue our growth strategy. It’s evident that reducing $500 million, this means that, that will be a major effort from the management just to find out new idea or new solution to continue the growth strategy of the company. Regarding...

Aurelio Bustilho

Regarding the hyperinflation, just to clarify that we expect, of course, a negative effect around the $50 million to $60 million, right? But on the other hand, it’s important to mention that we have the generation is indexed to U.S. dollars. So, there is a compensation. In our calculation, the number will be around $40 million to $50 million. On the other hand, as Maurizio was explaining, we are discussing the activos pasivos regulatorio, which is expected that we can book a positive amount to neutralize this effect and also included can have positive net effect by – after this adjustment, okay? But it’s important to mention, again, that Argentina we’ll – we are controlling, of course, the cash flow in order to not include – increase or to have debts in Argentina.

Regarding the target of net debt-to-EBITDA, after the transaction, of course, the first step when you do a capital increase, we will pay this debt, and we’ll reach 1.1 times net debt-to-EBITDA. But with this, we open space for a second movement with a growth transaction. And of course, we’ll keep and maintain our limits established in the – for the rating agencies, which is 2.5 times net debt EBITDA, more or less at this level.

Elchin Mammadov

Thank you. Very clear, thank you.

Operator

Thank you. And our next question comes from the line of Charles Fishman with Morningstar. Your line is open. Please go ahead.

Charles Fishman

Thank you. Two questions. One is, on that issue of the reduction in the capital increase from $3.5 billion to $3 billion. To make sure – I’m a little confused about that, the primary reason was a reduction in what was going to be contributed to the pension plan? If you could discuss that. And then the second question is, you had $319 million CapEx in the first quarter, can we consider that a normal run rate for this year, in other words around $1.2 billion for the entire year CapEx? Thank you.

Maurizio Bezzeccheri

Okay. No. Regarding – we have done the reduction from $3.5 billion to $3 billion will just – we will do the same exercise. The only thing that we will need $700 million, and we will cover this $300 million, $350 million this amount through the capital increase. The other $400 million will be necessary through that, okay? So, we will continue the operation of derisking the pension fund. Why? Because we are looking some decreasing in terms of interest.

And for this reason, I remember, I recall to all of you that pension fund is on our debt balance sheet. So, we need to solve these issues that is fundamental for a sustainable financial situation in Brazil. So, the difference between $3.5 billion and $3 billion is just that with $3.5 billion was supposed to be done all through the use of proceed of the capital increase in the hypothesis of $3 billion, $350 million will be done with capital increase money and the other $400 million will be done through debt or meanwhile cash flow generation.

Aurelio Bustilho

Regarding the – I understand that the CapEx level, of course, the first quarter is important to reinforce this. The – for this quarter, we had to conclude, of course, the tariff review of São Paulo and Ceará. So, it’s the time to put more effort in our CapEx in order to close the RAB. So that’s the – we maintained our CapEx estimation for the year, which is $1.8 billion for this year, the total for the region. But you cannot annualize what we did in the quarter, because it’s a – of course, the logical depends on the situation of each company. Some companies we are reinforcing the quality plan, some companies we are maximizing the RAB and also some companies we are maximizing the loss – to reduce the losses. So that’s the logical. So, it’s not correct to annualize what we did in the first quarter, because mainly, prevail the issue related to the RAB, okay?

Maurizio Bezzeccheri

And let me recall that what we have at international level using as well the experience of our reference shareholder Enel, we have an experience, as we said, some technical model that we are exporting all over the world. This is the reason why we are able to integrate company like Electropaulo or Goiás so quickly. We use this experience. This experience is not only based on the operational aspect but as well as managing the regulatory issues.

So, due to the fact that in – as for example, in Enel Distribución São Paulo, there was ongoing the tariff revision. And as you know, the remuneration is based on the RAB of the company [Technical Difficulty] as well included in the new RAB recognition of the tariff in July [Technical Difficulty] all the investment that we have done in the month of January 2018.

So we push additional investment. Why? Because it was additional investment in digitalization of the grid that will improve the quality, improve the implementation of our business model, but as well will be possible to recognize this investment already now without expecting the next regulatory period. So the push on investment is based on our good execution very well defined business model in terms of investment, so rapid execution of the investment. The use of larger procurement platform and for this reason, we were able just to do this investment getting at the end of the story an improvement in tariffs in July for Enel São Paulo. This is the reason why we push for further investment.

Charles Fishman

That is very helpful. Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Marco Contreras with Kallpa Securities. Your line is open. Please go ahead.

Marco Contreras

Hi, good afternoon. Thank you for the call. I have two questions regarding the distribution business in Perú. The first one is, if you could elaborate a little bit more on what were the main drivers of the margin expansion you had in Enel Distribución Perú. The second one was you see this margin sustainable in the coming quarters considering that there has been a reduction developed at the end of 2018?

Maurizio Bezzeccheri

Well, regarding Perú, I just impose the story...

Marco Contreras

Yes, only regarding distribution business in Perú?

Maurizio Bezzeccheri

Sorry, I was with – let’s say, that regarding Perú, just let me recall the story of last year. Last year, we – if you remember in August 2018, we got first proposal from Osinergmin in terms of new tariffs because it was exactly the definition of the revision of the tariff. And we got almost 18% reduction. What we have done based on the reason that I mentioned before, what happened, we were able to explain our disagreement on some calculation. At the end of the story, we terminated the revision of tariff with a plus 0.8%, so we recovered minus 18% and we got plus 0.8%. So we started 2019 with the new tariff review. And meanwhile, in December 2018 as well as we solved another issues related to the over contractual energy in the distribution company. Of course, due to the movement of the client from regulated market to free market, there was some contract of energy with distribution company – with the generation company and distribution company that was, let’s say, planning some cost – additional cost to the distribution company.

Finally, once again due to our experience on other regulated market, we were able just to reach an agreement with generating company. So, we’re keeping the contract longer. So not affecting distribution company in the short terms and maintaining the same level of price. So in the final question, you consider this margin will be sustainable in the – along the period of the business plan, the reply is, yes, because finally, we settled the tariff review and we solved the issues related to the overall contractual energy with the generation company.

Marco Contreras

Thank you.

Operator

And I’m showing no further questions at this time. And I would like to turn the conference back over to Rafael de la Haza for any further closing remarks.

Rafael De La Haza

Well, thank you for your attention. There are no more questions. I conclude the results conference call. And let me remind you that the Investor Relations team is available for any doubt you may have. Thank you very much.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone, have a great day.