Colbun SA

SGO:COLBUN

Earnings Call Transcript 2022-Q4

[Operator]

Good day, and welcome to the Colbún Fourth Quarter 2022 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Miguel Alarcón. Sir, the floor is yours. .

[Miguel Alarcón, executive]

Hello, everyone, and welcome to Colbún's Fourth Quarter 2022 Earnings Review Call. My name is Miguel Alarcón, I'm the company's CFO. And joining me today is Isidora Zaldívar, Head of Investor Relations. 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 to then analyze in detail this quarter's results. 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. On October 5, the company signed a green term loan with the Sumitomo Mitsui Banking Corporation for a total of $160 million maturing on October 5, 2029. The proceeds from this facility will be used mainly for the financing of renewable energy generation projects.

On October 27, Colbún and Codelco agreed to modify the PPA signed between the parties on 2010 and expiring in 2044. In order to gradually replace the energy supply to Codelco, currently supplied with coal-fired generation from the Santa Maria city unit to one based on renewal generation.

On December 15, the company prepaid the remaining portion of our international bond issued in 2014 for $157.4 million and maturing in 2024. On December 16, an interim dividend for $84 million was distributed corresponding to 50% of the distributable net profit for the period January to September of 2022 in accordance with the current dividend policy.

Now please go to Slide #5 to review the main consolidated figures of the company. Consolidated EBITDA in the fourth quarter of 2022 reached $260 million, increasing 58% compared to $164 million EBITDA in the fourth quarter of 2021. This increase is mainly explained by: one, the higher income from ordinary activities due to greater physical sales to unregulated clients and to a spot market. This effect was partially offset by an increase in the costs of raw materials and consumables used, mainly as a result of a higher average price of gas and coal and greater generation with gas.

The company recorded a profit of $136 million compared to a loss of $52 million in the fourth quarter of 2021, mainly due to: first, the higher EBITDA recorded in the period; and second, higher nonoperating result since during the fourth quarter of '21, the company recorded provisions for impairment of individual assets.

As of December 21, 2022, the company holds $1,154 million of cash and net debt-to-EBITDA ratio is at 1.3x.

Now I will turn to Isidora, who will speak about the main drivers of the fourth quarter '22 results.

[Isidora Zaldívar, executive]

Thank you, Miguel, and hello to everyone. Now please continue to Slide 7 for physical sales and generation balance analysis in Chile. Total generation of the period increased 36% compared to the fourth quarter of '21, mainly explained by first, greater hydrological generation due to better hydrological conditions and second, greater gas generation due to a higher economic dispatch.

Physical sales during the quarter reached 3.5 gigawatt hours, 31% higher than the last quarter of last year, mainly explained by: one, higher physical sales to unrelated clients due to the start of the contract with BHP in January '22. And second, higher sales to the spot market as a result of higher generation recorded in the quarter. This effect was partially offset by the expiration of the contracts with CGE on December 21.

Spot market balance during this quarter recorded net sales of 455-gigawatt hours while in last quarter of last year, net sales for 74 gigawatt hours were recorded. The variation is mainly explained by a higher generation during the quarter.

Now please continue to Slide 8 to analyze the EBITDA from the generation business in Chile for the quarter. EBITDA in Chile reached $226 million this quarter, increasing 55% compared to last year. This variation is mainly explained by higher operating income, partially offset by higher raw materials and consumable used, cost previously mentioned.

Now please continue to Slide 9 for physical sales and generation balance analysis in Peru. Total generation of the period increased 29% compared to fourth quarter '21, reaching 1.2 terawatt hours, mainly due to a higher availability of the plant and economic dispatch during the quarter. Physical sales during this quarter reached 1.2 terawatt hours, increased 30% compared to last quarter, mainly explained by: first, higher energy sales to the spot market as a result of the higher generation recorded during the period and segment higher sales to regulated customers due to the expiration of contracts with other generating companies, we've discussed. Thus increasing the supply associated with current contracts.

Spot market balance during this quarter recorded net sales of 566 gigawatt hours compared to the net sales of 381 gigawatt hours during the same quarter of the previous year due to the higher generation recorded during the quarter.

Now please continue to Slide 10 to analyze the EBITDA in Peru for this quarter. EBITDA in Peru reached $34 million this quarter, 85% higher than the EBITDA of $18 million recorded last year. Mainly due to, one, higher sales to the spot market and two higher physical sales to regulated clients. This effect was partially offset by the higher raw materials and consumable used given the greater generation recorded.

Now please continue to Slide 11 for the consolidated nonoperating income and net income analysis. Nonoperating income this quarter recorded losses of $22 million compared to the $182 million losses recorded last year. The increase in CAP expenses is mainly associated with the recording of provisions for impairment of individual assets last year.

The company recorded a profit of $136 million, compared to the loss of $52 million last year, mainly due to: first, the higher EBITDA recorded in the period; and second, the higher net operating results in during last year, the company recorded provisions for impairment of individual assets.

Now continuing with the conference, please go to Slide #13, where Miguel will give you an update on the status of growth opportunities.

[Miguel Alarcón, executive]

Thank you, Isidora. Regarding our growth opportunities in Chile, relevant updates for this quarter are as follows: for the HORIZONTE project, by the fourth quarter of 2022, 38% progress of the project was reached. The construction of the external access to the park from root 5 was completed. Additionally, the construction of platforms and foundations for the wind turbines is still in progress. Overall, 30 blades and 27 sections of towers were discharged to a site, which will be installed during March of 2023.

About Los Junquillos project, during the month of December, the project reentered its environmental impact assessment into environmental impact assessment system. Regarding Celda Solar project, the environmental impact study for 420 megawatts, For Tarapacá project and to earn them 240 megawatts of BESS with a duration of 5 hours was processed, and is currently in the stage of issuing Addendum #1.

About the Diego de Almagro BESS project, it's in its final start-up phase spending authorization to energize the varies for operational tests. For more information regarding our pipeline of projects, please review our earnings report.

With this, we conclude Colbún's Fourth Quarter of 2022 results review. Thanks for listening, and now we are open to answer your questions.

[Operator]

[Operator Instructions] Your first question is coming from Ezequiel Fernández. Please announce your affiliation, then pose your question.

[Ezequiel Fernández López, analyst]

This is Ezequiel Fernández from Balanz. Thank you very much for the call and the materials. I have 3 questions. I would like to go actually 4 the quick. I would like to go one by one, if you don't mind. The first one is related to the gas provision in this quarter. If you can confirm that almost all the gas that you procured were Argentine imports.

[Miguel Alarcón, executive]

It's Miguel here. Yes, 100% of the cash innovation came from Argentinian gas.

[Ezequiel Fernández López, analyst]

Okay. That's great. The second question is related to the PEC receivables. If you could tell us how much you have booked in your balance sheet for PEC1, the PEC1 access and the PEC2 receivables?

[Miguel Alarcón, executive]

Sure. Let me give you round figures. That's for the sale make it simple. So PEC1 about $15 million. PEC1 excess, about $25 million, PEC2 is roughly $35 million. So all in all, we're talking about like $75 million.

[Ezequiel Fernández López, analyst]

Okay. The first one, the PEC1, it's 15 or 50 ?

[Miguel Alarcón, executive]

No, 1-5, 15 .

[Ezequiel Fernández López, analyst]

Okay. Perfect. And I don't know if you expect to monetize a little bit more of the PEC1, and if you could tell us when would you expect to collect the excess PEC1 and the PEC2 money?

[Miguel Alarcón, executive]

So we are working with, as we did before with the other main generators of the country with a couple of financial institutions alongside I believe that should cover all of the amounts that I just mentioned regarding at least PEC1, PEC1 excess and a portion of PEC2 that depends on whether when the decrease it's approved.

We expect to have it finalized and be able to fund and trust as these accounts, I would say, around March or April. I think we're working with a good pace with the rest of the teams. But nevertheless, as you know, these are complicated contracts as provisions. And because of that, we did some time to take form. So I would say within a couple of months, we should be in a good position to unload these accounts receivable.

[Ezequiel Fernández López, analyst]

Okay. That's great to hear. My third question is regarding Peru. If you have any projects, any renewable projects going on there at the moment? Or if it's just more of the same, evaluating and maybe waiting for Peru to get a little bit more stable?

[Miguel Alarcón, executive]

We have actually Ezequiel a good number of projects under analysis. Those are mainly in early stages of development. So I cannot disclose the specifics about those projects yet, but hopefully within this year, we should be able to provide you with more information and details at least on the more advanced projects. Just to give you a sense, we are analyzing 5 or 6 projects, roughly speaking.

[Ezequiel Fernández López, analyst]

Okay. That's great. And my final question is regarding dividends for this year, if you have any preliminary ideas or if you're just still working with the usual 100% payout assumption?

[Miguel Alarcón, executive]

That's a hard one Ezequiel because as you know we have management only provide a recommendation, but in the end, it's in the shareholders' meeting, in which dividends or sanctions unapproved. Now and for lack of better information, I would stick to the deal policy with is, if you recall, 50%, But that is the percent on our side, but it's [ 50% ] -- but again, that will be decided later in April, towards the end of April in our annual shareholders meeting.

[Ezequiel Fernández López, analyst]

That's great. And sorry about the confusion with 100%. So that's all from my side.

[Operator]

Your next question for today is coming from Alejandra Andrade. Please announce your affiliation then pose your questions.

[Alejandra Andrade Carrillo, analyst]

This is Alejandra Andrade from JPMorgan. I have 2 questions. One is just kind of CapEx expectations for 2023. And then my second one is if you could give an update on where we stand on the PEC2, it's been approved, like where the kind of the next steps? Or is there anything holding up the proper implementation?

[Miguel Alarcón, executive]

Sure. So as you know, this is one of the years with the largest portion of deployment of the Horizonte CapEx. And because of that, I would give you around the close to $600 million. The majority of those, of course, should go to a Horizonte project. So $600 million putting together expansion and maintenance CapEx, And I think it's a [ Sabor approximation ]

Regarding PEC2 that I think referred to the previous question by Ezequiel, that's the financing we're working with other generation companies. I don't foresee and we haven't seen no big issues. The thing is that this is a new piece of legislation. It requires some variations from the PEC1 structure. And because of that, it has taken a lot of time to put all the parties in place and an agreement with how do we transfer risks, pricing associated and such.

And again, the expectation would be to have something finalized in the next couple of months. So whether at the end of March or April. But I don't foresee any major issues or problems regarding PEC2 financing.

[Operator]

[Operator Instructions] There are no more questions in queue.

[Miguel Alarcón, executive]

Okay. [indiscernible]. So thanks to everyone for joining this conference call. And before finishing, I would like to acknowledge and thank the leadership of Sebastian Moraga for these past 8 years as the CFO of Colbún, as you may know,He is taking on a new role in the company, leading the company's development and growth efforts as our Chief Development Officer. So again, we wish him the best, and hopefully, he can achieve a lot for the company going forward. That is it for now. We hope to see you all again for the next quarter review and hopefully have a great weekend. Bye-bye.

[Operator]

Thank you. This concludes today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.