Colbun SA

SGO:COLBUN

Earnings Call Transcript 2019-Q3

[Operator]

Good day, ladies and gentlemen, and welcome to Colbún's Third Quarter 2019 Earnings Call. [Operator Instructions]

At this time, it is my pleasure to turn the floor over to your host, CFO, Sebastián Moraga. Sir, the floor is yours.

[Sebastián Moraga, executive]

Hello, everyone, and welcome to Colbún's Third Quarter 2019 Earnings Review Call. My name is Sebastián Moraga. I am the CFO of the company, and joining me today are Miguel Alarcón, our Deputy CFO; and Soledad Errázuriz 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 the quarter and then analyze in detail this quarter's results. And after that, we will provide an update on our growth opportunities. Following the presentation, there will be time to participate in the Q&A session.

Now please go to Slide #4 to review the highlights of this quarter. First, regarding the commercial strategy, in October 2019, Colbún was informed of the award of our renewable energy supply contract for 3,000 gigawatt hour a year with BHP for Escondida and Spence mine sites. The contract starts in January 2022 for a 10-year period. The agreement will allow the development of our portfolio of renewable projects, especially of the Horizonte wind farm of approximately 600 megawatts of installed capacity. Considering this agreement, during 2019, the company has contracted approximately 3,500 gigawatt hour a year of its generation with new unregulated customers.

Second, regarding the expansion strategy, Colbún continues looking for renewable projects throughout the country, with the target of consolidating a robust and diversified project portfolio, in line with the goal of doubling our current installed capacity, incorporating renewable generation equivalent to a total of 4,000 megawatts. In this line and related to the Horizonte project, progress is being made in the feasibility stage and the wind turbines auction concluded. For its part, the Diego de Almagro Sur solar project received environmental approval during the third quarter of this year.

Third, regarding the fixed cost efficiency plan implemented during 2018, it can be highlighted that Colbún continued its execution. This is reflected on the consolidated financial statement's fixed cost figures.

Fourth, during this quarter, Colbún was selected to list for the fourth consecutive year at the Dow Jones Sustainability Index Chile and for the third year at Dow Jones Sustainability Index Pacific Alliance. In addition, the company led the ranking of Informe Reporta, standing out as a company that best reports information to the market. And the Machicura vacation center was awarded as the best sustainable practice in the Good Practices for a More Sustainable Electric Future contest.

Fifth, the Santa María power plant is declared unavailable since July 28 due to the major maintenance scheduled for 2019 and the finding of a failure in the steam turbine. With the available information on an estimated reparation term and considering the average marginal cost during the unavailable period, the impact of the failure on the company's financial results is not material in the context of Colbún. Colbún estimates that the plant will restart its operation in the first days of November.

Now please go to Slide #5 to review the main consolidated figures of the company. Consolidated EBITDA for the third quarter of this year reached a $179 million, increasing 14% compared to the $156 million EBITDA for the third quarter of 2018, mainly due to lower costs explained by lower gas consumption expenses, mainly driven by a lower price in Chile; and second, to lower coal consumption due to a lower generation with that fuel. Those effects were partially offset by an increase on energy purchases in the spot market in Chile during this quarter.

Consolidated profits reached $55 million, 2% higher than the $54 million in profit in the third quarter of 2018, mainly explained by the higher EBITDA recorded in the quarter. Financial investments totaled $780 million, and net debt to last 12 months EBITDA ratio is set at 1.3x. The average long-term financial debt interest rate is 4.5% in U.S. dollars.

Colbún has a total installed capacity of 3,895 megawatts comprised of 2,252 megawatts in thermal units, 1,634 in hydro and the rest arising from our PV power plant, Ovejería. In terms of transmission assets, it owns 941 kilometers of transmission lines and 28 substations.

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

[Soledad Errázuriz, executive]

Thank you, Sebastián, and hello to everyone. Now please continue to Slide 7 for a typical sales and generation balance analysis in Chile. Total generation of the period decreased 14% compared to the third quarter of the previous year, reaching 2.66 terawatt hours, mainly due to a lower coal, hydro and diesel generation, partially offset by higher wind and gas generation.

Physical sales during the third quarter of this year reached 2.9 terawatt hours, 5% lower than the same quarter of the previous year, mainly explained by lower sales to regulated clients and to spot market, partially offset by higher sales to unregulated clients. Spot market balance during the quarter recorded net purchases of 315 gigawatt hours compared with the net sales of 49 gigawatt hour in the third quarter of 2018 as a result of the lower generation.

Now please continue to Slide 8 to analyze EBITDA from the generation business in Chile for the third quarter of this year. EBITDA of the generation business in Chile reached $145 million in the third quarter of this year, increasing 10% compared to the same quarter of the previous year. The higher EBITDA of the quarter is mainly explained by lower raw materials and consumables used, mostly driven by: first, a lower cogeneration; and second, a lower gas consumption cost due to a decrease in the purchase price of that fuel. These effects were partially offset by an increase in spot market purchases.

Now please continue to Slide 9 to analyze the EBITDA from the transmission business for the third quarter of this year. EBITDA of the transmission business reached $17 million this quarter, increasing 4% compared to the third quarter of 2018, mainly explained by an increase in the revenues from zonal transmission assets due to the release of the 6T decree in October 2018, which modified the pricing of those assets.

Now please continue to Slide 10 for physical sales and generation balance analysis in Peru. Total generation of the period increased 6% compared to the third quarter of 2018, reaching 1.2 terawatt hours, mainly explained by the higher availability of the plant due to a programmed maintenance carried out during the third quarter of 2018.

Physical sales during the third quarter of this year reached 1.2 terawatt hours, increasing 6% compared to the same quarter of the previous year. The increase is explained by higher sales to the spot market and to customers under contract. Spot market balance during this quarter reported net sales for 430 gigawatt hours, increasing 6% -- 16% compared to the third quarter of the previous year.

Now please continue to Slide 11 to analyze the EBITDA in Peru for this quarter. EBITDA in Peru reached $16 million in the third quarter of this year, 117% higher than the EBITDA of $7 million recorded in the third quarter of the previous year mainly due to: first, the higher generation of the quarter; and second, the recognition of the gas distribution contract with Calidda as a financial lease from January 2019 onwards.

Now please continue to Slide 12 for the consolidated nonoperating income and net income analysis. Nonoperating income in the third quarter of this year presented losses of $34 million, 66% higher than the losses of $20 million in the third quarter of the previous year. The higher losses are mainly explained by, first, a negative effect of the variation of the Chilean peso to dollar exchange rate on temporary balance sheet items in local currency during the quarter; and second, higher studies and development expenses recorded in the line other profit/loss; and third, higher financial expenses due to the recognition of the gas distribution contract with for Calidda as a financial lease.

The company recorded in the third quarter of the year profits of $55 million, 2% higher than the $54 million profit in the same quarter of the previous year. The higher profit is mainly explained by the higher EBITDA recorded in the quarter, previously explained.

Now continuing with this 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: first, developing a pipeline of projects. Regarding incorporation of renewable energy from variable sources, up to this date, 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 600 megawatts approximate of capacity located in Atacama Region; Diego de Almagro Sur I and II, 2 PV projects of an overall capacity of 200 megawatts located in the Atacama Region; Inti Pacha, a PV project of 430 megawatts located in Antofagasta Region; Jardin Solar, another PV project of 450 megawatts located in the Tarapacá Region; Machicura, a PV project of 10 megawatts located in the Maule Region.

Additionally, at the end of the third quarter of this year, Colbún holds a portfolio of locations for other wind and solar projects which are in early stages of development. For more details on this slide, you can refer to 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 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 to diversify our sources of income.

With this, we are concluding Colbun's third quarter year's results for you. Thanks for listening. And now we are open to answer your questions.

[Operator]

Thank you. The floor is now open for questions. [Operator Instructions] At this time, I'd like to turn the call back to management.

[Sebastián Moraga, executive]

Okay. Since there are no questions, with this, we conclude Colbún's third quarter results review. Thanks for listening. And hope you all have a great week. Bye-bye.

[Operator]

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