Colbun SA

SGO:COLBUN

Earnings Call Transcript 2018-Q4

[Operator]

Greetings, and welcome to the Colbún Fourth Quarter 2018 Earnings Call. [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Miguel Alarcón, Deputy CFO. Thank you, please go ahead.

[Miguel Alarcón, executive]

Hello, everyone, and welcome to Colbún's 2018 year-end earnings review call. My name is Miguel Alarcón. I am the deputy CFO of the company, and joining me today is [indiscernible] 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.

Agenda for today on Slide 2 is as follows. We will begin talking about the highlights of 2018 to then analyze in detail this year results. And after that, we will provide an update of our growth opportunities. Following the presentation, there will be time to participate in a Q&A session.

Now please go to Slide #3 to review highlights of this year. First, as of December of last year, Colbún has signed new medium-term power purchase agreements with unregulated customers for approximately 1,400 gigawatt hour per year.

In accumulated terms, the company has contracted more than 3,000 gigawatts hour of its generation with new clients. Second, regarding the incorporation of trades of renewal energy from variable resources, at the end of 2018, Colbún has been able to complete a portfolio of locations for 7 wind and solar projects, which are in early stages of development. We're approximately 1,800 megawatts.

In addition, in June of last year, Ovejería photovoltaic solar plant started its commercial operations. Also, as recognition to the company in matters of sustainability, in September of last year, 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.

Finally, during 2018 the company developed a detailed plan of efficiencies focused on fixed costs, which will translate to savings for approximately $20 million per year from 2019 and onwards.

Now please go to Slide #4 to review the main consolidated figures of the company. Consolidated EBITDA for 2018 reached $684 million, and consolidated net income reached $230 million. Financial investments totalized $788 million, and net debt to EBITDA ratio is at 1.2x. The average U.S. dollars long-term financial debt interest rate is 4.5%.

Colbún has a total installed capacity of 3,893 megawatts comprised of 2,250 megawatts in thermal units, 1,634 megawatts in hydraulic units, and 9 megawatts from the photovoltaic power plant Ovejerí.

Now I will turn to [indiscernible] who will speak about the main drivers of last year's results.

[Unknown Executive]

Thank you, Miguel, and hello to everyone. Please move to Slide 6 for a review of the main figures of the year, starting with a consolidated EBITDA analysis. Consolidated EBITDA for 2018 reached $684 million, 1% lower than the EBITDA of $692 million in 2017.

The lower EBITDA is mainly explained by lower sales to regulated customers, higher cost of raw materials and consumables due to an increase in the price of consumption of gas and coal and lower EBITDA contribution from our affiliate company, Fenix. These effects were partially offset by higher sales to unregulated customers and higher hydroelectric generation.

Now please continue to Slide 7 for physical sales and generation balance analysis in Chile. Total generation of the year slightly increased by 2% compared to 2017, reaching 13 terawatt hours mainly due to higher hydro generation and renewable energy from variable sources, partially offset by a decrease in diesel and gas generation.

Physical sales during the year reached 13 terawatt hours, 3% higher than previous year, mainly explained by higher sales to unregulated customers. Spot market balance during 2018 recorded net sales for 1.2 terawatt hours, lower compared with net sales for 1.3 terawatt hours in 2017. During the year 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 2018. First, revenues for 2018 reached $1,370 million, increasing 1% compared to the previous year mainly due to higher sales to unregulated customers and higher hydroelectric generation, partially compensated by lower 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 facilities and lower sales to regulated customers. Raw materials and consumables used totalized $617 million, increased 1% compared to the previous year, mainly explained by higher cost of gas and coal generation. With all, EBITDA in Chile increased by 2%, reaching $648 million.

Now please continue to Slide 9 for the consolidated nonoperating income and net income analysis. Nonoperating income in 2018 recorded losses of $118 million, 19% lower than the loss of $146 million presented in 2017. The lower loss is mainly explained by lower provisions for asset's impairment, other provisions due to the revaluation of lands owned by Hidroaysén due to its accounting at liquidation volume and higher financial income due to higher rates of return on cash surpluses.

Tax expenses amounted to $98 million, higher than the tax expenses of $34 million in 2017. The higher tax charge is mainly explained by the recognition of a deferred tax asset as a result of the cancellation of the Hidroaysén hydroelectric project, and the tax profit registered in 2017 in Fenix.

As a result of the appreciation of the preliminary results during the period, the company recorded in 2018 a net income of $230 million, lower than the net income of $289 million of 2017. The decrease is mainly explained by the higher tax expenses, higher depreciation and amortization costs mainly due to higher maintenances and projects performed in 2018, partially offset by the lower nonoperating losses.

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

[Miguel Alarcón, executive]

As we have mentioned before, we continue searching for growth opportunities in Chile, Peru, Argentina and Colombia in order to maintain a leading position in the power generation business and to diversify other sources of income. Regarding our growth opportunities in Chile, we have focused our growth in renewables -- this is hydro, solar and wind -- based on 3 pillars. One, developing a pipeline of projects. Although the power market is balanced in terms of efficient supply and demand, in a scenario of slow growth in power demand and 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.

As mentioned before, the company is taking relevant steps towards the goal of incorporating 4,000 megawatts of renewable capacity in the next decade. These assets constitute a very good complement for Colbún's excess in generation matrix, which would allow us to provide our customers with a supply of renewable, competitive, continuous and long-term energy. For more details on this topic, please refer to the latest earnings report available at our website.

Second, the company does not pull out the purchase of renewable assets in operation. And finally, acquiring energy from third parties. In this context, we have signed contracts with Acciona for 95 gigawatt hours per year and with Total, SunPower for 500 gigawatt hours per year.

This concludes Colbún's 2018 results review. Thanks for listening. And now we're open to answer your questions.

[Operator]

[Operator Instructions] And it seems that we have no questions at this time. Are there any closing comments you would like to make?

[Miguel Alarcón, executive]

Yes. Sure. Hello?

[Operator]

Yes, go ahead.

[Miguel Alarcón, executive]

Okay, okay. So I think with that, we conclude this conference call. We thank you, everyone, for joining and hope to see you again for the next quarter review. Have a great weekend and bye-bye.

[Operator]

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.