Earnings Call: Q2 2021

Jul 30, 2021

Hello to everyone, and welcome to Colvum's Second Quarter 2021 Earnings Review Call. My name is Sebastian Moraga. I am the company's CFO. And joining me today is Miguel Amarcone and Isiora Saldivar from the Investor Relations team. I hope that you have received our earnings report and 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. 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 and A session. Now please go to Slide number 4 to review the highlights of this quarter. Regarding the COVID-nineteen pandemic contingency, the company's power plants continue operating normally and Colbun has continued to take actions considering 2 priority focuses. 1st, 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-nineteen on energy demand, there is still uncertainty about the magnitude and length of this contingency. Energy demand in Chile increased approximately 6.1% during the Q2 compared to the Q2 of last year and 1.3% during the last 12 months, evidencing a successful vaccination process and ease on restriction on broader sectors of the economy reopening, which have translated in more dynamism of the economy. Meanwhile, in Peru, there was an increase of approximately 31% during the quarter and 6% during the last 12 months. On April 1, Colbrun sold to Chile Electricity Tech, the 2nd group of accounts receivables associated to the energy price stabilization mechanism. Subsequently, on June 30, the sale of the 3rd group of accounts receivable was completed. As a whole, these two sales comprised accounts receivable for a nominal amount value of 56,000,000 dollars It should be noted that the differential between the nominal amount of the accounts receivable sold and the purchase price will be recorded as other losses for fiscal year 2021. In the Q2 of 2021, approximately $15,000,000 were registered for this concept associated with the 2nd and third group of sales. On May 12, dividends were paid for a total of 246,000,000 This payment is comprised of a definite dividend of 81,700,000 and eventual dividend charged to a profit of previous years for 160 $4,600,000 Based on the above and considering the $81,200,000 paid in December 2020 as a provisional dividend, the total distribution of dividends for 2020 results reached $327,000,000 Now please go to Slide number 5 to review the main consolidated figures of the company. Consolidated EBITDA for this quarter reached $147,000,000 decreasing 6% compared to the 150 5,000,000 of EBITDA in the Q2 of last year, mainly explained by higher personnel expenses in U. S. Dollars as a result of the appreciation of the exchange rate compared to the quarter of last year and other expenses by nature associated to a lower comparative basis explained mostly by 3rd party services, training, travels among others, but were suspended during the Q2 of last year due to the pandemic. The company recorded a profit of $33,000,000 compared to the profit of $50,000,000 in the same quarter of last year, mainly explained by the higher losses of non operating results previously mentioned and a lower operating result. Now, I will turn to Isidora, who will speak about the main drivers of the 2nd quarter's results. Thank you, Christian, 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 2% compared to Q2 of last year, mainly due to higher hydro generation, mainly driven by the higher generation on coil wounds complex compared to last year 2, higher coal generation explained by Santa Maria's power plant higher economic dispatch during the quarter. These effects were partially offset by a lower gas generation due to the lower gas availability compared to the Q2 of last year. Physical sales during the quarter reached 3.1 terawatt hours, 2% higher than the Q2 of last year due to higher sales to the spot market, mainly explained by the higher generation during the quarter and higher sales to the regulated segment. These effects were partially offset by lower sales to unregulated clients, given the expiration of Anglo American contract in December 'twenty. Spot market balance during this quarter recorded net sales of 6.20 gigawatt hour compared to the net sales of 5 0 1 gigawatt hours recorded last year. The difference is mainly explained by the higher generation during this quarter. Now please continue to Slide 8 to analyze the EBITDA from the generation business in Chile for the quarter. EBITDA of the generation business in Chile reached BRL115,000,000 this quarter, decreasing 7% compared to the Q2 of last year. This variation is mainly explained by 1, higher personnel expenses and 2, higher other expenses by nature due to the appreciation of the exchange rate compared to the Q2 of last year. Now please continue to Slide 9 to analyze the EBITDA from the transmission business for this quarter. EBITDA of the transmission business reached BRL 17,000,000 this quarter, lower than the BRL 18,000,000 EBITDA recorded in the Q2 of last year, mainly due to the decrease in operating income explained by the change in the discount rate from regulated assets, which changed from 10% before taxes to 7% after taxes. Now please continue to Slide 10 for physical sales and generation balance analysis in Peru. Total generation of this period increased 52% compared to the Q2 of last year, reaching 7.78 gigawatt hours, mainly due to the higher dispatch of the power plant given the demand recovery on the Peruvian market. Physical sales during this quarter reached 878 gigawatt hours, increasing 26% compared to the Q2 of last year, mainly explained by 1, higher sales to the spot market as a result of the higher generation of the plant during this quarter and 2, higher sales to customer under contracts driven by regulated segment demand recovery due to the pandemic and to the entry into force of 40 megawatts of new PPAs during the quarter. Body market balance during this quarter recorded net sales of 2 54 gigawatt hours compared to the 86 gigawatt hour during the same quarter of the previous year due to the higher generation recorded in the quarter. Now please continue to Slide 11 to analyze the EBITDA in Peru for the quarter. EBITDA in Peru reached BRL15 1,000,000 in this quarter, 7% higher than the EBITDA of BRL14 1,000,000 recorded in the Q2 of last year, mainly due to the higher income from ordinary activities explained by: 1, higher sales in the spot market and 2, higher sales from customer under contract previously mentioned. This effect was partially offset by 1, higher gas consumption due to the higher generation and 2, higher other expenses by nature due to an increase in expenses associated with operation and maintenance. Now please continue to Slide 12 for the consolidated non operated income and net income analysis. Non operating income this quarter presented losses of $40,000,000 higher than the losses of the $22,000,000 in the Q2 of last year. The higher losses are mainly explained by: 1, the recording of financial cash and other losses lines related to the selling of the 2nd and third group of accounts receivable generated by the energy price stabilization mechanism of $15,000,000 and 2, a lower positive effect of the exchange rate variation of temporary balance sheet items in the local currency compared to the Q2 of last year and finally, lower financial income recorded during the quarter due to lower interest rates. The company recorded a profit of $53,000,000 compared to the profit of $50,000,000 in the Q2 of last year, mainly explained by the higher losses on non operating results previously mentioned and the lower operating results. Now continuing with this conference call, please go to Slide number 14, where Sebastian will give you an update on the status of growth opportunities. Thank you, Isidora. Regarding our growth opportunities in Chile, we have focused our growth in renewables based on 3 pillars. First, developing our own pipeline of projects. Regarding the incorporation of renewable energy from variable sources, up to this date, Goluboun 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 778 Megawatts approximately, located in the Atacama region. Diego del Magro stood 12, 2 PV projects of an overall capacity of approximately 2 30 Megawatts located in the Atacama region. In Tipacha, photovoltaic project of approximately 4.86 megs located in the Alto Fiesta region. Jardin Solar, a photovoltaic project of approximately 5 37 megas located in Parapaca region. Machikura, another photovoltaic project of 9 Megas located in the Mavia region Los Junquillos, a wind farm of 3 60 megawatts approximately, located in the PEO region. Additionally, at the end of this quarter, Colbun 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. 2nd, the company does not allow the purchase of renewable assets in operations. And finally, the 3rd pillar of our growth in renewables is acquiring energy from 3rd 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 Colvoom's 2nd quarter 2021 results review. Thanks for listening. And now we are open to answer your questions. Thank you. Ladies and gentlemen, the floor is now open for questions. We have no questions in the queue at this time. Our first question today is coming from Rodrigo Mora at Moneta. Your line is live. Please go ahead. Hello, good afternoon. Thank you for the presentation. I have two questions. The first one is related to the hydro situation. If you could make some comments about what is Colborne expecting for the next hydrology, the smelting season and the ability of natural gas? And the second question is related to the growth opportunities. I would like to know if the company what projects are will be first to build Horizonte or maybe to proceed with the construction of Intipaca? Thank you. Hello, Rodrigo. This is Miguel. Nice to hear you. So basically, as I'm sure you know, regarding hydrology, up of June of this year, the hydrology has been with lower rainfalls compared to an average year. In most of the same basins, being the ones with the largest deficits, as we said in our earnings report. Aconcao were more than 70% deficit, Maui close to 60% deficit, Laha 4% deficit and Bovio almost 30% deficit. That, of course, has in turn with the whole system and coal 1 turning into thermal units, Nuenco being the most common power plant being used and even some decent facilities that in some way reflect the current level of magnet cost above 100,000 megawatt hour. Because of that, as you also asked, we're being able to secure more LNG, and that's something that we keep on trying to analyze on a daily basis. Up until now, we have secured the production with 2 combined cycles for the full period of August for the upcoming month. Then we have one combined cycle up until today for September October. And we're, of course, also trying to book for more gas depending on how hydro conditions evolve. From October up until next year, as you know, we also have Argentinian gas secured already. And basically, that's where we're standing right now. Hydrology has been poor. As you know, the melting season, the forecast only comes in mid September. So we don't have further visibility about that. And because of that, we cannot make further comments apart from trying to prepare ourselves by securing more LNG assets as we've done so. I think Isibara will take your next question. Hello, Rodrigo. Regarding the development of our projects, we expect Horizonte to start operations during 2024. And for now, Intipacha is expected to start operations during 2025. It's important to remember that we have another developed project that are in more advanced levels as Diego Almagro and we expect Diego Almiro to start operation during the Q1 of next year. Q1? Yes. Okay. And could you comment about the alternative to make purchase agreement of electricity from 3rd developer? Not sure if I follow, Rodrigo. Maybe you can repeat your question. I understand you have an agreement with SunPower started the second half of this year to buy electricity from a solar project. And I would like to know if are there other chances to buy energy from other third developers? Unfortunately, Rodrigo cannot give you a concrete answer on that. As you know, we're always constantly analyzing potential opportunities to acquire more renewables, and we always compare the chance of securing that energy to a third party or building it by ourselves. So I don't have visibility, to be honest with you, whether or not there is a relevant amount of energy to be contracted. We can certainly try to follow-up and then get back to you once we have that information. Okay. And finally, could you give an idea about the and what step is the transaction of selling the Colvun transmission? Stan, do you want to take that? Or should I take it? So Rodrigo, as you know, we are in what we believe is the final stage of that transaction. We expect to have in the upcoming weeks the resolution from the fiscal year Sena Economica. And with that, hopefully, the idea would be around September probably to have the transaction finalized. That, of course, is a moving date, since again, depends on the condition already mentioned, which is the approval from the Fiscal Year of Nacional Economica that to our best knowledge is not in some way affected or having any issues so far. Okay. Thank you very much. You're welcome. Thank you. Our next question today is coming from Martin Zetsche at Fundamenta Capital. Your line is live. Please proceed. Hi, guys. How are you? Thank you for taking my question. And I was wondering if maybe you could give us some color on what will be the main uses of incoming cash from the transmissions business sale? So as I think we've said in the conference call last quarter, we haven't yet decided the use for the transmission assets proceeds. And the reason for that is that that indicates, for example, of a dividend or something that it's out of what would be to reinvest the money into the company, we need approval from our external shareholders' bidding. What we can say so far is that because of the significant liquidity position of the company, because of the expected income and cash flow in the upcoming years and comparing that against the CapEx need and the debt amortization profile we have, I think a possibility will be to distribute a dividend, but that's something that we will announce in due time once, first of all, the transaction is finalized and then we receive the funds. Okay, great. And second question, could you maybe tell us what load factors are you guys expecting for the projects in your pipeline, solar and the wind projects? Yes, of course, the low part term for these projects are around 35% in average. Okay. And for both sources, right? Yes, yes. Great. Thank you, guys. Sure. Thank you. Our next question is coming from Murillo Riccini at Banco Santander. Your line is live. You may proceed. Hi, guys. Good morning. Many thanks for the call. Actually, I have two questions. What is your view for the marginal cost in the second half of twenty twenty one? As we have seen very high levels during July due to an availability of some official units, should this be an issue for the whole second half of this year in your point of view? We know that also hydro output should increase during this period as well. So that will be very helpful to understand what you're expecting. And the second one is if you are analyzing the use of batteries in your generation portfolio as well, along with this new renewable projects that you are that will be constructing in the coming years? Thank you. Hi, Niguelo, Miguel. Thank you for your questions. So regarding your first one, I would say that that in some way is trying to answer what Rodrigo Mora previously asked, which is our view about hydrology. And we try to be very cautious in the sense of providing forecasts, which we cannot do. What we can say is that in some way, I already mentioned this, is that first of all, hydrology has been poor so far. And at least for the next 10 to 14 days, most of the channels or forecasts don't foresee rain coming in. On top of that, you see that commodity prices and fuel prices in general, the ones relevant for setting the modular cost in Chile has been helping high. And because of that, I think, unfortunately, the system is pretty stretched. And because of that, we see at least marginal costs higher than the ones we saw on the same period last year. We cannot comment on that apart from saying that, as you remind, Olbon has a commercial policy that aims to be out of the spot market and because of that, try to reduce the volatility in our results because sourcing our contracts with our own generation. That's what I would say for the first question. For the second one, yes, we're fighting batteries. We have certain, I would say, projects and prototypes that try to, in some way, increase our knowledge of that technology. And that also applies to a number of different, I would say, advances in this industry. We don't have a concrete information to share right now, but as soon as I think we have a more in deep progress about batteries, we for sure are going to disclose that to the market. Great. And maybe a follow-up question. Have you experienced any inflation pressures in your in the construction of your renewable projects? You said in Q1? Yes. So the price of the equipment's like higher than expected because of the inflation that we are seeing in the country? No. Yes, I would say that we haven't had any material pressures linked to inflation or prices. What is happening worldwide is that, of course, procurement of the equipment is in some way being more stretched because of all the congestion affecting ports and I think supplies worldwide. Apart from that, we haven't had any material deviations from the CapEx program that Isiran mentioned. But that's the only issue that we need to fine tune with much more care the procurement and survival equipments in order to keep on track with estimated progress for each of those projects, but nothing apart from that. Thank you. We have no further questions in the queue at this time. Are there any closing comments you'd like to finish with? Just to thank everyone for joining this call, for your interest in the company, and we'll see you in the next quarter results in 3rd month. Have a great weekend too. Bye bye. Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.