Earnings Call: Q4 2020

Jan 29, 2021

Good day, ladies and gentlemen, and welcome to the Colbin 4th Quarter 2020 Earnings Call. At this time, all participants have been placed on a listen only mode. It is now my pleasure to turn the floor over to your host, Sebastian Moraga. Sir, the floor is yours. Hello to everyone, and welcome to Colvun's Q4 2020 earnings review call. My name is Sebastian Moraga. I am the company's CFO. And joining me today are Miguel Alarcon, our Deputy CFO and Soledad de Vasruis and Isidora Saldivar from our 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. Our agenda for today on Slide 3 is as follows. We will begin talking about the highlights of this year, then to analyze in details this year's 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 45 to review the highlights of this year. Regarding the COVID-nineteen pandemic contingency and as we have been informing the last quarters, the company's overall operations and specifically its power plants keep operating normally, taking into consideration the protection and health of our personnel suppliers and our surrounding communities. Regarding the impact of COVID-nineteen on energy demand, it is worth mentioning that in Chile, it increased approximately 1.6% during the Q4 of 2020 compared to last year and 0.4% during 2020 compared to 2019. While in Peru, there was a decrease of approximately 0.3% in the last quarter and 7% during the whole year 2020. During 2020, Colvun continued participating in various energy bidding processes. This year, new energy contracts were signed with 52 clients for almost 700 gigawatt hour. Among the main contract signed are the renewal of energy supply agreements with Walmart, Sonda, Grupo Camanchaca and Conchaikoto Winery. On March, Colpon issued a new bond series in international markets for $500,000,000 with a 10 year maturity, obtaining a 3.3% yield. Of the obtained funds, dollars 343,000,000 were used to partially refinance the $500,000,000 bonds of the same type that matured on 2024. On June 2020, the Board of Directors approved the construction of 2 PV projects. First, Diego del Magro Sur 1 and 2 for 2 30 megawatts of installed capacity located in the Atacama region. Construction started on the Q3 of last year and the commissioning is estimated for the Q1 of 2022. Total investment approved for this project is R147 $1,000,000 2nd, Machikura of 9 megawatts, which is located in the Maui region. Construction started in the Q3 of last year and the commissioning is estimated for the Q3 of this year. Total investment approved for this project is RMB7 1,000,000. In September of this year, Colbun announced the acquisition of Episity, a company focused on energy solutions in the national market with the purpose of enhancing the company's value proposition by incorporating solutions related to energy management. Today, Afisity holds a diversified client portfolio in the industrial, mining, real estate, retail, educational, hospitality and health sectors, among others. During the Q3, Colbun was selected to list in the Dow Jones Sustainability Index Chile for the 5th consecutive year and for the 4th year in the Dow Jones Pacific Alliance ranking. In addition, the company led to the Informa Report ranking, standing out as a company that best reports information to the market. Regarding the company's transmission assets, in September, the Board of Directors agreed to carry out a process that involves the invitation of actors with experience in power, infrastructure and financial transmission industries in order to explore their interest and the conditions in which it's possible participation could be agreed either as a strategic partner, acquiring a majority position or acquiring all the shares of its subsidiary, Colons Transmission. To date, the mentioned process continues to progress in accordance with the timeline estimated by the company. On January 21 this year, Colbun reached an agreement with Goldman Sachs pursuant to which the company will gradually sell the accounts receivables generated by the tariff stabilization mechanism under the law number 21,185 for a total amount of approximately $95,000,000 Additionally, Colbun also reached an agreement with the IBB Bank pursuant to incorporate the mentioned institution in the financing of the acquisition for RMB42 1,000,000 of the aforementioned accounts receivable. Now please go to slide number 6 to review the main consolidated figures of the company. Consolidated EBITDA for this year reached R683 1,000,000, decreasing 2% compared to the R697 1,000,000 in 2019, mainly explained by the lower operating income recorded during the period, which was offset mainly due to the lower gas consumption in Chile. Controller's profit reached $163,000,000 compared with the $203,000,000 profits in 2019, mainly explained by an accounting record of an impairment provision at Fenics subsidiary in Peru for a net of deferred taxes amount of BRL127 1,000,000. This was to reflect the lower recoverable amount compared to the assets book value due to the lower marginal costs and energy prices observed during the last years, driven by lower than expected growth rates, explained by a slowdown in economic activity, delays in regulatory matters and exogenous events such as political and natural disasters. These conditions intensified during 2020 as a result of the COVID-nineteen impact, resulting in a 7% decrease in energy demand compared to the year 2019. This has deepened an oversupply situation in the energy market and it is likely that restoring the balance between supply and demand will take more time than previously considered. It is worth mentioning that considering Colbun's share in Fenics of 51%, the impact of the mentioned provision on the profits attributable to the owners of the parent company amounts to RMB65 1,000,000. Financial investments totalized 967,000,000 and our net debt to EBITDA ratio is at 1.2 times. The average long term financial debt interest rate in U. S. Dollars is 4%. Porvoo has a total installed capacity of 3,800 Megawatts comprised of almost 2,200 Megawatts in thermal units, 1600 in hydro units and 9 Megas from 1 PV unit. In terms of transmission asset, it owns almost 900 kilometers of transmission lines and 27 substations. Now I will turn to Isidora, who will speak about the main drivers of 2020 results. Thank you, Sebastian, and hello to everyone. Now please continue to Slide 8 for physical sales and generation balance analysis in Chile. Total generation of the period increased 1% compared to 2019, reaching 12.1 terawatt hour, mainly explained by higher hydro generation as a result of improved hydrological conditions and to a higher coal generation, mainly due to unavailability of Santa Maria thermal electric power plant during last year. These effects were partially offset by a lower gas and wind generation. Physical sales during 2020 reached 12.0 terawatt hours, 1% lower than last year due to lower sales to regulated clients, mainly explained by 1, the expiration of the contract with Saesa and 2, a lower energy demand driven by the state of emergency. These effects were partially offset by higher sales to unregulated clients and to the spot market. Spot market balance during this year recorded net sales for 1.5 terawatt hour, increasing 81% compared to 2019, mainly explained by the higher generation of the year. Now please continue to Slide 9 to analyze the EBITDA from the generation business in Chile for the year. EBITDA of the generation business in Chile reached $551,000,000 in 2020, in line with the EBITDA recorded as of December 2019. Now please continue to Slide 10 to analyze the EBITDA from the transmission business for this year. EBITDA of the transmission business reached $67,000,000 this year, decreasing 7% compared to the $72,000,000 EBITDA recorded last year, driven by the lower income recorded compared to last year, mainly explained by 1, the change in the discount rate that began to apply as of January 20, with change from 10% before taxes to 7% after taxes and 2, the reclassification of some solar assets announced by the regulators. Now please continue to Slide 11 for physical sales and generation balance analysis in Peru. Total generation of the period decreased 23% compared to 2019, reaching 2.9 terawatt hour due to 1, the COEs request to stop operating during part of the second and third quarter and 2, the GT-twelve gas turbine repair and its maintenance performed during the 1st and the third quarter of this year. Physical sales during 2020 reached 3.3 terawatt hour, decreasing 17% compared to last year. The decrease is mainly explained by: 1, lower physical sales to customer under contract, explained by the state of emergency decreased by the Peruvian government due to the COVID-nineteen pandemic and 2, lower sales to the spot market due to the lower generation during the year, driven by the COAS request to stop operating during part of the second and third quarter until the GT12 glass turbine repair and the maintenance performance during the 1st and third quarter of this year. Spot market balance during 2020 recorded net sales of 307 gigawatt hour compared to the net sales of 7.56 gigawatt hour during last year due to the lower generation of the period. Now please continue to Slide 12 to analyze the EBITDA in the Peru for this year. EBITDA in Peru reached $65,000,000 7% lower than the $70,000,000 recorded last year, mainly explained by the lower operating income recorded during the year considering that last year included a nonrecurring income of $6,000,000 This was partially offset by lower raw materials and consumables unit cost. Now please continue to Slide 13. For the consolidated non operating income and net income analysis. Non operating income in 2020 presented losses of $304,000,000 higher than the losses of $176,000,000 last year. The higher losses are mainly explained by 1, an accounting record of an impairment provision at Fenics previously explained and 2, the lower financial income earned driven by the lower investment rate of cash started at local and international level. The company recorded in 2020 a controller's profit of $163,000,000 20 percent lower than the $203,000,000 profit of last year. The lower profit is mainly explained by the impairment provision at Fenics previously explained. Now continuing with this conference call, please go to Slide number 15, 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, solar, wind and hydro based on 3 pillars. 1st, developing a pipeline of projects. Regarding incorporation of renewables energy from variable sources, up to this date, Colombo 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 607 Megawatts located in the Atacama region. Diego del Magro Sur 12, which are PV projects, an overall capacity of 2 30 megas located in the Atacama region Machikura, the PV project of 9 megas located in the Maule region. In Quipacha, a PV project of 4.86 mega located in Antofagasta region Arden Solar, a PV project of 5 37 Megas located in the Tarapaca region. Los Junquillos, a wind farm of 2 65 Megas located in Biovio region. Additionally, at the end of quarter, Colbun holds a portfolio of locations for their wind and solar projects, which are in early stages of development. For more details on this slide, you can refer to the latest earnings reports available at our website. 2nd, the company does not rule out the purchase of renewable assets in operation. Finally, the 3rd pillar of our group in renewables is acquiring energy from third parties. Regarding our transmission business, Colbun has several projects for the expansion and enhancement of the company's current transmission assets with a total awarding investment value of approximately RMB84 1,000,000. 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. This concludes Colvun's Q4 of 2020 results review. Thanks for listening and now we are open to answer your questions. Thank We have no questions in the queue at this time. We do have a question coming from Thomas Lehmans. Please announce your affiliation, then pose your question. Hi, everyone. This is Thomas from Biren. I wanted to ask about the impairment on Phoenix. Just trying to understand if the implicit support that you give Phoenix will change given this impairment that you did? Thomas, Miguel, how are you? Hi, Tomas. We don't expect any change in the support we're providing from Colbun or the other shareholders to Phoenix because of the impairment. As I'm sure you know, the impairment is basically an accounting issue due to IFRS 36, in which you have to run a test. And because of the test and the difference between the carrying value and a DCF calculation that leads to a potential impairment. But again, we don't expect any changes in the support we've been showing so far to that affiliate company. That's great. And can you also remind me what's the like the credit line that you have given to Phoenix? And how for how many years of that service is it? Yes. It's a cash support agreement that basically covers a 3 year period of debt payments, capital and interest. In the let's say, the approximate amount is close to $110,000,000 in total. Sure. Thank you. Do you have any closing comments you'd like to finish with? Yes. Hello, everyone. This is Sebastian Moraga. So if there are no further questions, I would like to thank everyone for joining this conference call. And we hope to see everyone again in the next quarter review. So again, thanks. And for those who are going out on vacation, especially in Chile, I wish you all very happy holidays. So goodbye everyone. Take care. Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.