Colbun SA

SGO:COLBUN

Earnings Call Transcript 2021-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the Colbún Third Quarter 2021 Earnings Call. [Operator Instructions]

It is now my pleasure to turn the floor over to your host, Sebastián Moraga. Sir, the floor is yours.

[Sebastián Moraga, executive]

Hello to everyone, and welcome to Colbún's Third Quarter 2021 Earnings Review Call. My name is Sebastian Moraga, I am company CFO; and joining me today is Miguel Alarcón, the 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 Investor section of our website. Our agenda for today on Slide 3 is as follows: We will begin talking about the highlights of this quarter to then analyze in detail this quarter results. And after that, we will 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 continued operating normally and Colbún continues to take actions considering 2 priority focuses: First, to protect the health of personal collaborators, suppliers and our surrounding communities; and second, to ensure the continuity and security of the energy supply.

Regarding the impact of COVID-19 on energy demand, there is still uncertainty about the magnitude and length of this contingency. Energy demand in Chile increased approximately 8.5% during this quarter compared to last year and 3.6% during the last 12 months. While in Peru, there was an increase of approximately 7.2% during the quarter and 8.8% during the last 12 months.

In September of this year, the Board of Directors approved the investment of Horizonte wind farm. The project considers an installed capacity of 778 megawatts, and it is located in the Antofagasta Region. The start of the construction is scheduled for the last quarter of this year and commissioning of the last wind turbines for the fourth quarter of 2024. The total investment amount approved for this project is $850 million.

On September 29, the Environmental Assessments Commission approved the environmental qualification resolution, RCA for Harbin solar PV project. The project located in Pozo Almonte commune in the Tarapacá Region, has an installed capacity of 537 megawatts. The construction of this project is still subject to our Board of Directors' approval.

On September 30, the sale of all the shares of Colbún transmission to Alfa Desarrollo was executed. The final sale price was $1,185 million, with the effect on income before taxes amounted to $830 million.

On September 30, Colbún obtained the second place in Informate, which evaluates the information flow that companies deliver to the market for its 2020 integrated annual report.

Now please go to Slide #5 to review subsequent highlights. As a result of the extraordinary income received from the sale of Colbún Transmission and the company's liquidity position on October 12, dividends were paid for a total of $1,000 million. This payment is comprised of a provisional dividend for $250 million, charged to this year's profit, an eventual dividend charged to the profits of previous fiscal years for $750 million, which was approved during an extraordinary shareholders' meeting held on September 15.

On October 14 Colbún issued its first green bond in international markets for an amount of $600 million with a same-year maturity obtaining a coupon rate of 3.15%. The funds will be used to finance renewable energy projects eligible in accordance with our green financing framework, adopted based on the criteria of the sustainability bond guidelines and the green bond principles of 2021 of the International Capital Markets Association.

Now please go to Slide #6 to review the main consolidated figures of the company. Consolidated EBITDA for this quarter reached $72 million, decreasing 59% compared $175 million in the last quarter -- in the third quarter of last year, mainly explained by a significantly lower hydro generation consequence of the extreme draught that affects Chile and a significant increase in cost of thermal generation and spot market purchases due to the higher fossil fuel prices in international markets.

Also, there were higher other expenses by nature associated with a lower comparative base considering that during the last quarter of last year, third-party services, trainings, travels, among others, were suspended as a result of the pandemic. The company recorded a profit of $601 million compared to the profit of $62 million in the third quarter of last year, mainly explained by the extraordinary affects on results of the sale of the subsidiary, Colbún Transmission. As of this September 30, the company holds roughly $1,385 million of cash.

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

[Soledad Errázuriz, executive]

Thank you, Sebastián, and hello to everyone. Now please continue to Slide 8 for physical sales and generation balance analysis in Chile. Total generation of the period decreased 20% compared to the third quarter of 2020, mainly due to lower hydro generation explained by very unfavorable hydrological conditions and to lower gas generation due to the lower gas availability compared to the third quarter of last year. These effects were partially offset by higher coal and [indiscernible] generation due to a higher economic dispatch and the [ couples ] in the National Electrical Systems.

Physical sales during the quarter reached 2.8 terawatt hour, 20% lower than the third quarter of last year, mainly explained by the lower sales in the spot market due to the lower generation recorded during the quarter and by lower sales to unregulated clients given the expiration of an Anglo-American contract in December of last year.

Total market balance during the third quarter of 2021 recorded net sales of 0.3 terawatt hours compared to a net sales of 0.8 terawatt hours recorded in the same quarter of the previous year. The variation is mainly explained by the lower generation of the quarter.

Now please continue to Slide #9 to analyze the EBITDA from the generation business in Chile for the quarter. EBITDA of the generation business in Chile reached $32 million this quarter, increasing 77% compared to the third quarter of last year. This variation is mainly explained by, first, a significantly lower hydro led regeneration as a consequence of the extreme growth that affects Chile. And second, by a significant increase in thermal generation and spot market purchases due to the higher cost of fuel in the prices in international markets.

Also, there were higher other expenses by nature associated with a lower conservative base continuing during the third quarter of 2020, third-party services, training, products, among others, were suspending as a result of the pandemic.

Now please continue to Slide #10 to analyze the EBITDA from the transmission business for this quarter. EBITDA of the transmission business reached $2 million this quarter, lower than the $18 million EBITDA recorded in the third quarter of last year, mainly due to the decrease in operating income, explained by the recognition of lower income as a result of the clarification process that is still in progress, which would affect the tariff that apply from January 2020 onwards based on the company's best estimate.

Now please continue to Slide #11 for our physical sales and generation balance analysis of Peru. Total generation of the period increased 16% compared to the third quarter 2020, reaching 1.2 terawatt hours, mainly driven by the higher dispatch of the power plant, given the demand recovery in the Peruvian market. Physical sales during this quarter reached 1.2 terawatt hours, increasing 16% compared to the third quarter of last year, mainly explained by higher sales to the spot market as a result of the higher generation of the plant during the quarter and by higher sales to customers in the contracts, driven by the enter into force of 40 megawatts of new PPAs and regulated segment demand recovery from the reduced 2020 levels affected by the pandemic.

Spot market balance during this quarter recorded net sales of 0.7 terawatt hours compared to 0.6 gigawatt hours during the same quarter of the previous year due to the higher generation recorded in the quarter.

Now please continue to Slide #12 to analyze the EBITDA in Peru for these quarters. EBITDA in Peru reached $20 million in the third quarter of 2021, 27% higher than the EBITDA of $16 million recorded in the third quarter of last year, mainly due to the higher operating income explained by higher sales in the spot market, given both the higher generation and the higher average sale price registered during the quarter.

Now please continue to Slide 13 for the consolidated nonoperating income and net income analysis. Net operating income in this quarter recorded gains of $790 million compared to the losses of $25 million in the third quarter of last year. The profit is mainly explained by the extraordinary affects on results of the sales of the sale of the subsidiary, Colbún Transmission.

The company recorded a profit of $601 million compared to the profit of $62 million in the third quarter of 2020, mainly explained by the higher profit recorded in nonoperating results previously mentioned.

Now continuing with this conference call, please go to Slide #15, where Sebastian 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 within 3 pillars. First, developing a pipeline of projects. Regarding the incorporation of renewable energy from variable sources, up to this day Colbún has been able to complete the portfolio of locations for wind and solar projects, which are in different stages of studies and development. Under the construction stage for [ Dasante ], a wind farm of 778 megawatts, [indiscernible] 1 and 2, 2 PV projects for novel capacity of 230 megas.

And Machicura, a PV project of 9 megas; on the environmental study has already approved in [indiscernible], a PV project of 486 megas and [indiscernible] Solar a PV project of 537 megas. On the feasibility stage, [indiscernible] , a wind farm of 360 megawatts. Selda Solar PV project of 156 megas. And additionally, at the end of the quarter, Colbun 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 to the latest earnings report available at our website.

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

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 Colbún's third quarter results. Thanks for listening, and now we are open to answer your questions.

[Operator]

[Operator Instructions] There are no questions in the queue at this time. With no further questions in the queue, this concludes today's conference. Ladies and gentlemen, you may disconnect at this time, and have a wonderful day. Thank you for your participation.