Colbun SA

SGO:COLBUN

Earnings Call Transcript 2020-Q1

[Operator]

Good day, ladies and gentlemen, and welcome to the Colbún First Quarter 2020 Earnings Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to CFO of Colbún, Sebastián Moraga. Sir, the floor is yours.

[Sebastián Moraga, executive]

Hello to everyone, and welcome to Colbún's First Quarter 2020 Earnings Review Call. My name is Sebastián Moraga, I am the company's CFO. And joining me today are Miguel Alarcón, the Deputy CFO; and Soledad Errázuriz and Isidora Zaldívar from the Investor Relations team. I hope that you have received our earnings report and an earnings review presentation that we have prepared to complement the analysis of our figures. Otherwise, you can download them at the Investors section of our website.

Agenda for today on Slide 3 is as follows: we will begin talking about the highlights of this quarter, then analyzing details this quarter results, and after that, we would provide an update on our growth opportunities.

Following the presentation, there will be time to participate in a Q&A session.

Now please go to Slide #4 to review the highlights of this quarter. Regarding the COVID-19 pandemic contingency, the company's power plants are operating normally, and Colbún has taken actions considering 2 priority focuses. To protect the health of workers, collaborators, suppliers and our surrounding communities. Home office was established for all the positions that can carry out their functions with this mode. For positions with functions in which an on-site attendance is critical, this work mode is maintained with the necessary safeguards.

Different preventive measures were adopted in the company's power plants to prevent contagion, such as equipment, segmentation, safeguards in feeding places, temperature controls, collective and individual cleaning and disinfection practices reinforcement and special transportation to and from the homes of the workers. And to ensure the continuity and security of the energy supply, measures were adopted to ensure the provision of the necessary supplies for the correct operation of all power plants, and power plants maintenance have been rescheduled in the cases that it does not risk the operational continuity and integrity of the generation units.

Regarding the impact of COVID-19 on energy demand. There is still uncertainty about the magnitude and length of this contingency. Since the last weeks of March, energy demand has fallen approximately 5% in Chile and 30% in Peru.

Now regarding Colbún's financing activities. On March 6, Colbún issued a new bond in the international market for $500 million, with a 10-year maturity obtaining a coupon rate of 3.15% and a 3.33% yield, reaching the lowest rate obtained by a private corporation in Chile.

Of the obtained funds, $343 million were used to partially refinance the $500 million bond of the same time that matured on 2024, with a coupon rate of 4.5%.

Additionally, 2 new lines of bonds were registered in the local market for a combined amount of UF 7 million, which is the currency indexed to local CPI, with terms of 10 and 10 (sic) [ 30 ] years.

On April 30, the Annual Shareholders Meeting agreed to distribute a total dividend of $253 million, which consists of: one, a final dividend of $110 million, which added to the $92 million paid in December 2019, would amount to 100% of 2019 net profit; and an additional dividend from accumulated profits for $50 million.

Regarding the availability of Fenix Power Plant from October 29, 2019, to January 10, 2020, the plant operated at 50% of its capacity as a result of a failure in one of the gas turbines, the GT12. From January 10 and until February 1, the plant was unavailable because the company performed a preventive maintenance on the other gas turbine, the GT11, while GT12 was still undergoing repairs. The GT12 turbine was repaired and came into operation. On February 1 and until March 8, the plant operated at 50% of its capacity. The preventive maintenance of GT11 was completed on March 8.

As of March 17, the plant is 100% available. There's a -- an insurance policy associated with the failure and its coverage is in the liquidation process. It should be noted that the plant has not dispatched since March 17, given the reduction in energy demand in Peru as a result of the state of emergency decreed due to the COVID-19 pandemic.

Now please go to Slide #5 to review the main consolidated figures of the company. Consolidated EBITDA for this quarter reached $172 million, increasing 4% compared to $165 million in the first quarter of 2019, mainly explained by our generation with natural gas at lower cost and to the favorable impact of the devaluation of the Chilean peso on expenses denominated in local currency.

Consolidated profit reached $41 million, 38% lower than the $66 million posted in the first quarter of last year, explained by a higher nonoperated loss, mainly due to other losses associated with a portion of the premium paid for the partial repayment of the 2024 bond carried out in March, which had an impact of $17 million, plus a negative effect on the variation of the exchange rate on temporary balance sheets items in local currency during the quarter. Those effects were partially offset by the higher EBITDA of the quarter.

Financial investments totalized $980 million and net debt-to-EBITDA is at 1.2x. The average long-term financial debt interest rate is 3.9% in dollar terms.

Finally, Colbún has a total installed capacity of 3,800 megawatts comprised of 2,200 megawatts in thermal units, 1,600 megawatts in hydraulic units and 9 megawatts from a PV power plant.

In terms of transmission assets, it owns 942 kilometers of transmission lines and 31 substations.

Now I will turn to Soledad, who will speak about the main drivers of these first quarter results.

[Soledad Errázuriz, executive]

Thank you, Sebastián, and hello to everyone.

Now please continue to Slide 7 for our physical sales and generation balance analysis in Chile.

Total generation of the period decreased 10% compared to the first quarter of 2019, reaching 3 terawatt hours, mainly due to a lower thermal generation, driven by the lower economic dispatch during certain hours of the day and a lower hydro generation due to less favorable hydrological conditions compared to the same quarter of last year.

Physical sales during the quarter reached 2.9 terawatt hours, 12% lower than the first quarter of last year due to lower sales to regulated clients, mainly explained by the expiration of the contract with SAESA in December 2019 and to lower sales in the spot market, partially offset by higher sales to unregulated clients.

Spot market balance during the first quarter of 2020 recorded net sales for 422 gigawatt hours compared with the net sales for 695 gigawatt hour in the first quarter of last year as a result of the lower generation of the quarter. 100% of the Company's commitments were supplied on the cost-efficient generation.

Now please continue to Slide 8 to analyze the EBITDA from the generation business in Chile for the quarter.

EBITDA of the generation business in Chile reached $134 million in the first quarter of 2020, increasing 4% compared to the first quarter of 2019. The higher EBITDA of the quarter is mainly explained by, first, a decrease in gas generation costs; and second, lower expenses denominated in local currency as a result of the depreciation of the exchange rate compared to the first quarter of 2019.

Those effects were partially offset by the lower operating income of the quarter.

Now please continue to Slide 9 to analyze the EBITDA from the transmission business for this quarter. EBITDA of the transmission business reached $18 million this quarter, decreasing 6% compared to the first quarter of 2019, mainly explained by an increase in raw materials costs explained by nonrecurring expenses associated with maintenance services.

Now please continue to Slide 10 for our physical sales and generation balance analysis in Peru. Total generation of the period decreased 63% compared to the first quarter of 2019, reaching 343 gigawatt hours, mainly explained by, first, the lower availability of the plant driven by the GT12 gas turbine repairment and the preventive maintenance of the GT11 gas turbine. And second, a lower economic dispatch explained by the State of Emergency decreed since March 16.

Physical sales during this quarter reached 625 gigawatt hour, decreasing 34% compared to the first quarter of 2019. The decrease is explained by, first, lower sales in the spot market as a consequence of: a, the lower generation as a result of the repairment and maintenance of the gas turbines; and b, the COES request to stop operating due to the demand decrease registered in Peru after the State of Emergency decreed by the government since March 16, in the face of the COVID-19 pandemic. The decrease is also explained by lower sales to customers under contract as a result of the aforementioned State of Emergency and the expiration of the Distriluz contract.

Spot market balance during this quarter recorded net purchases of 296 gigawatt hour compared to the net sales of 156 gigawatt hour during the same quarter of the previous year, due to the lower generation of the period.

Now please continue to Slide 11 to analyze the EBITDA in Peru for this quarter. EBITDA in Peru reached $20 million in the first quarter of 2020, 19% higher than the EBITDA of $17 million recorded in the first quarter of last year, mainly due to lower gas consumption, due to the decrease in generation as a result of the lower availability of the plant during the quarter. This effect was partially offset by the reduced revenues of the quarter.

Now please continue to Slide 12 for the consolidated nonoperating income and net income analysis. Nonoperating income in the first quarter of 2020 presented losses of $49 million, greater than the losses of $18 million in the first quarter of 2019. The higher losses are mainly explained by, first, higher other losses associated with a portion of the premium paid for the partial prepayment of the 2024 bond carried out in March, which had an impact of $17 million. And second, a negative effect of the variation of the exchange rate of Chilean peso to dollars on temporary balance sheet items in local currency during the quarter. The company recorded in the first quarter of 2020, profits of $41 million, 38% lower than the $66 million profit of the same quarter of last year. The lower profit is mainly explained by the higher nonoperating loss previously explained.

Now continuing with the conference call, please go to Slide #14, where Sebastián will give you an update on the status of our growth opportunities.

[Sebastián Moraga, executive]

Thank you, Soledad. Regarding our growth opportunities in Chile, we have focused our growth in renewables based on 3 pillars. The first one is developing a pipeline of projects.

Regarding the operation of renewable energy from variable sources up to the state, Colbún has been able to complete a portfolio of locations for wind and solar projects, which are in different stages of studies and development.

Horizonte, a wind farm of 607 megawatts located in the Atacama Region. Diego de Almagro Sur I and II, 2 PV projects of an overall capacity of 200 megawatts. Inti Pacha another PV project of 430 megawatts. Jardn Solar, a PV project of 450 megawatts; Machicura, a PV project of 10.5 megawatts. And additionally, at the end of the quarter, Colbún holds a portfolio of locations for other wind and solar projects, which are in the early stages of development. For more details on this slide, you can refer the latest earnings report available at our website.

Second, the company does not rule out the purchase of renewable assets in operation. And finally, the third pillar of our growth in renewables is acquiring energy from third parties.

Regarding the transmission business, Colbún has several projects for the expansion and enhancement of the company's current transmission assets with a total awarded investment value of approximately $50 million.

In terms of our international expansion strategy, as we have mentioned before, we continue searching for growth opportunities in selected countries of the region in order to maintain a leading position in the power generation business and diversify sources of income.

This concludes Colbún's First Quarter 2020 results review. Thanks for listening, and now we are open to answer your questions.

[Operator]

The floor is now open for questions. [Operator Instructions] And our first question comes from Murilo Riccini with Banco Santander.

[Murilo Riccini, analyst]

Congratulations for the results. I have a couple of questions for you guys. Could you provide us an update on the receivables regarding stabilization mechanism? How much did you accumulate this quarter? The second one, have you experienced any delays in the construction of any of your projects? And the last one, that would be great if you could provide us a color about demand and collections in Chile and Peru during April. Have you seen any relevant impact on these countries?

[Sebastián Moraga, executive]

Okay. Yes, you go ahead, Miguel.

[Miguel Alarcón, executive]

Okay, thank you. So Murilo, this is Miguel. Thank you for your questions. So the first one, in terms of the receivables with the tariff stabilization mechanism. Up to this date, what we have accumulated is approximately $40 million. That was the last decree published. So the figure is $40 million. Regarding your second question, in terms of the projects, we have not suffered any delays yet, as all of our projects are still in the study and environmental approval phase. We haven't begun construction of any of the projects. We still aim for beginning the construction of our PV project, Diego de Almagro, during the second half of this year. And regarding your third question, we have not yet experienced any significant delays in terms of their receivables for both operations, this given the case while in Peru and also in Chile. I do have to say that, of course, this is still an ongoing situation as the coronavirus effect is still fully in place affecting the energy demand both in Chile and Peru.

[Murilo Riccini, analyst]

Miguel, just a follow-up question about the stabilization mechanism. The $40 million, this is only for the first quarter? Or this is the total accumulated?

[Miguel Alarcón, executive]

No, it's the total because you have to remember, Murilo, that with the last published decree, there was an unaccumulated effect. So this is the full effect on what's been accumulated so far as of this, I think it was April of this year.

[Operator]

Our next question comes from Enrique Grau with Inteligo.

[Enrique Grau, analyst]

My question is about Fenix Power. And I understand the operator of the Peruvian system told you guys to stop dispatching since March 17. So my question is, when will you start dispatching again there?

[Sebastián Moraga, executive]

Sorry, Miguel? Sorry for the delay, I had a problem with my speaker. Yes, it is true that the regulator in Peru stopped, but the news coming out from Peru is that last weekend, in order to gradually reactivate the economy, which was completely shut off by the Peruvian government. It is announcing that 4 main sectors, specifically mining, construction, agriculture and fishing would come into operation in a gradual manner in the next 4 weeks. And that is mainly because you have seen the impact on demand in Peru, which in our business, has translated into a fall of approximately range of 28% up to 30% of energy demand falling in Peru versus only between 4% to 5% in Chile. So our view is that with this gradual reactivation of these 4 economic sectors, we should see the demand of energy in Peru going north. And with that, more generators should be on the dispatch order and obviously producing electrons.

[Enrique Grau, analyst]

Okay. So your -- you sound optimistic about its -- the hydro players right now are dispatching. And when the raining season will come to an end, then you guys will start dispatching again. Is that right?

[Sebastián Moraga, executive]

Yes. I don't want to sound optimistic. I'm just putting the fact. We are certain that the differences in demand of energy between Peru and Chile is the different approaches the governments took over the economy that is -- in Peru, they took a completely shutdown view, whereas in Chile, it has not been that way. And now we are seeing that the Peruvian government is moving into more, I would say, cautionary and zone to zone. And in this case, activity to activity in order to bring back the economic operations of the country. So having said that, we believe that the demand for power will surely come up from a completely shut down, obviously.

[Operator]

And Mr. Moraga, we do not have any further signals.

[Sebastián Moraga, executive]

So apparently, there are no more questions. So with this, we are ending Colbún's First Quarter 2020 conference call. And I wish you all a good afternoon and keep safe in your homes and at work. So bye-bye.

[Operator]

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.