Colbun SA

SGO:COLBUN

Earnings Call Transcript 2018-Q3

[Operator]

Greetings, and welcome to the Colbún Third Quarter 2018 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Sebastián Moraga, Chief Financial Officer. Please go ahead.

[Sebastián Moraga, executive]

Thanks. And hello, everyone, and welcome to Colbún's third quarter 2018 earnings review. My name is Sebastián. I am the CFO of the company, and joining me today are Miguel Alarcón, our Deputy CFO; and Verónica Pubill from the Investor Relations team.

I hope that you have received our earnings report and earnings review 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 from Slide 2 is as follows: We will begin talking about the highlights of the quarter to then analyze in detail this quarter results. And after that, we will provide an update on the growth opportunities. And following the presentation, there will be time to participate in the Q&A session.

Now please go to Slide #3 to review the highlights of this quarter. First, during the third quarter of 2018, Colbún has signed new power purchase agreements in the medium term with unregulated customers for approximately 500 gigawatt hour year. In accumulated terms, the company has contracted approximately 2,800 gigawatt hour of its generation with new clients.

Second, as a recognition to the company in matters of sustainability, in September 2018, Colbún was selected to list for the third time in the Dow Jones Sustainability Index Chile, and second time in the Dow Jones Sustainability Index MILA in its 2018 versions.

Now going to Slide #4. We will review the main consolidated figures. Consolidated EBITDA last 12 months reached $679 million, and net income reached $243 million. On its part, financial debt reached $1,633 million, in line compared to December 2017.

Financial investments totalized $785 million, mainly explained by the final dividend payment for $213 million performed in May 2018. Given the above, our net debt totalized 845 -- $849 million.

Finally, net-debt-to-EBITDA last 12 months remains in line at 1.3x. The average maturity lives of Colbún's long-term financial debt is 6.9 years, and the long-term financial debt interest is at 4.6%.

Now I will turn to Verónica, who will speak about the main drivers of this quarter results.

[Verónica Pubill, executive]

Thank you, Sebastián. Hello to everyone. Please move to Slide 6 for a review of the main figures of the quarter starting with the consolidated EBITDA analysis. Consolidated EBITDA for the quarter reached $156 million, 10% lower than the EBITDA of $174 million in the third quarter of 2017. The lower EBITDA is mainly explained by, first, lower sales to regulated customers; second, higher cost of raw materials and consumables, mainly as a result of an increase in the cost of gas and coal; and third, lower EBITDA contribution from our affiliate company, Fenix. These effects were partially offset by higher sales to unregulated customers.

Now please continue to Slide 7 for our physical sales and generation balance analysis in Chile. Total generation of the quarter slightly decreased by 1% compared to third quarter 2017, reaching 3 terawatt hours, mainly due to lower hydro and coal generation, partially offset by an increase in gas generation and renewable energy from variable sources. Physical sales during the quarter reached 3 terawatt hours, in line when compared to same period of the previous year. Spot market balance during the quarter recorded net sales for 49 gigawatts hour, lower when compared to net sales for 164 gigawatt hour in third quarter 2017. During the quarter, 100% of the company's commercial commitments were supplied with cost-efficient base load generation.

Now please continue to Slide 8 to analyze Chile's EBITDA for the quarter. First, revenues for this quarter reached $320 million, decreasing 4% compared to the previous quarter of 2017, mainly due to lower sales to regulated customers and revenues from transmission tolls due to the change in methodology in the collection of these tolls, which, as of January 2018, are paid directly to the owner of the transmission facility. The lower revenues were partially offset by the increase in sales to unregulated customers.

Raw materials and consumables used totalized $146 million, in line compared to the $147 million recorded in third quarter 2017. Result, EBITDA in Chile decreased by 7%, reaching $149 million.

Now please continue to Slide 9 for the consolidated nonoperating income and net income analysis. Nonoperating income in third quarter 2018 recorded losses of $20 million, in line with the loss of $19 million in third quarter 2017. Tax expenses amounted to $23 million, lower than the tax expenses of $25 million in third quarter 2017. The lower tax charge is mainly explained by the lower profits recorded compared to the same quarter of the previous year, partially offset by the increase in the income tax rate from 25.5% to 27% in Chile. The company recorded in third quarter 2018 a net income of $54 million, lower than the net income of $70 million in third quarter 2017. The decrease is mainly explained by the lower EBITDA recorded during the quarter previously explained.

Now continuing with this conference call, please go to Slide #11, where Sebastián will give you an update on the status of our growth opportunities.

[Sebastián Moraga, executive]

Thank you, Verónica. As we have mentioned before, we continue searching for growth opportunities in Chile, Peru, Argentina, Colombia and Mexico in order to maintain a leading position in the power generation business and to diversify our sources of income. Regarding our growth opportunities in Chile, as we have mentioned before, we have focused our growth based on 3 pillars: First of all, developing a pipeline of projects. And although we believe that the power market is balanced in terms of efficient supply and demand, in a scenario of low growth in power demand and a significant pipeline of renewable projects, our goal is to maintain a relevant position in the sector, for which it is very important to have a diversified portfolio of projects, both in terms of technology and location. For more details on this slide, you can see the list of our current portfolio of projects, or please refer to the latest earnings report available at our website.

Second, through the acquisition of energy from third parties, in this context, we have signed contracts with Acciona for 95 gigawatt hour year and with Total, SunPower for 500 gigawatt hour year. And finally, as a third pillar, the company does not rule out the purchase of renewable assets in [ operation ].

With this, we are concluding Colbún's third quarter 2018 results review. Thanks for listening. Now we are open to answer your questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Paul Cowan with CRISIL.

[Paul Cowan, analyst]

This is Paul Cowan from CRISIL. I would like to ask you to talk about the updates on the projects under development, please.

[Miguel Alarcón, executive]

This is Miguel Alarcón. So we have put it in our corporate presentations and recent analysis. We are starting now a number of projects in different stages. These projects are mainly renewable projects, like Horizonte and Sol de Tarapacá, our wind farm park and our photovoltaic plant and in earlier stages, some hydro projects. The idea here, as mentioned, is to have optionality in order to complement our current matrix generation for the future for the company. These projects, the renewable piece, it's in the earlier stages, mainly its study and basic feasibility phases.

[Operator]

[Operator Instructions] Our next question comes from the line of Javier Zorrilla with JPMorgan.

[Javier Zorrilla, analyst]

I just wanted to ask a little bit about guidance for the fourth quarter. So obviously, last year, you had a very important quarter in the sense of hydrology output. You mentioned in your report that the reserves this quarter are higher than the third quarter. Should we expect -- what should we expect for the fourth quarter in terms of hydrology and results?

[Miguel Alarcón, executive]

This is Miguel again. Although as we have said before, we cannot comment about upcoming figures. What we can say is that we expect pretty much an in-line situation for this quarter compared to the same quarter of last year. That, of course, in terms of hydrology.

[Operator]

Our next question comes from the line of Arturo Murua with Santander Bank.

[Arturo Murua, analyst]

My question is just to clarify a doubt regarding to the gas agreement you have with 3 companies in Argentina. I just want to know if the 3 agreements signed are short-term contract until May. Or there's one that's more long term?

[Miguel Alarcón, executive]

This is Miguel. Up to this moment, although these agreements are short-term natured, so basically, as you know, these contracts are substantially in the period in which Argentina has a surplus of gas. And because of this situation, for the moment, this should last up until April of next year at most.

[Arturo Murua, analyst]

Perfect. My second question, sorry if you already answered in during the call, it's regarding to the weak results in Fenix Power. If you could give a bit of color of the reasons of this? And if we should see weak results in the last quarter of this year also? Fenix Power.

[Miguel Alarcón, executive]

Yes, yes. So we haven't answered that question yet, Arturo. So regarding Fenix, I can say it's mainly that the lower EBITDA for this quarter compared to a same quarter of last year, it can be attributed to mainly 3 reasons: The first one is lower sales to the regulated segments of clients. In second place, higher other operating expenses mainly due to a nonrecurrent income that we recorded in the same period of 2017. And in third place, higher diesel consumption in this quarter due to some operational tests we performed with this type of fuel because of the maintenance of the TGP gas pipeline. Those are the 3 main reason that explain the difference between this year results and last year's results. We, of course, cannot provide further guidance for the fourth quarter of this year.

[Arturo Murua, analyst]

Perfect. But during the next quarter, we should see a supply with diesel in Fenix Power?

[Miguel Alarcón, executive]

No. We don't expect supply with diesel, only operation with gas.

[Operator]

Our next question comes from the line of Miguel Ovalle with CRISIL.

[Miguel Ovalle, analyst]

Just a quick one. Can you comment a little bit on your expectations regarding prices in the local market? I know that this is an issue that is not affecting just you, but all the generator companies. But if you can walk us through the expectation regarding prices would be helpful.

[Miguel Alarcón, executive]

This is Miguel Alarcón. Unfortunately, as you can imagine, we cannot provide guidance about our price expectations, or for that purpose, any other guidance for the future.

[Operator]

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to management for closing remarks.

[Sebastián Moraga, executive]

Well, thank you for the questions. So with this, we are concluding our results review. But before ending this conference call, and on an additional note, we would like to take this opportunity to wish our best to Verónica, our Investor Relation, who has decided to embark on a new professional challenges and will leave Colbún in the following weeks. So in the name of the team of Colbún, we would like to thank Verónica for all the hard work and dedication to the investor community and best luck in everything, Verónica. And with this, for those who have a long weekend, have a very nice long weekend, and bye-bye.