Earnings Call: Q3 2020

Oct 30, 2020

Good day, ladies and gentlemen, and thank you all for joining us for this Cold Loon Third Quarter 2020 Earnings Conference Call. As a reminder, today's session is being recorded and all lines are in a listen only mode, but you will have the opportunity to ask questions after the prepared remarks. To get us started today, I am pleased to turn the floor over to Mr. Sebastian Moraga. Please go ahead, sir. Hello to everyone, and welcome to Golbun's Q3 2020 earnings review call. My name is Sebastian Moraga. I am the company's CFO. And joining me today are Miguel Adarcon, our Deputy CFO and Solea Des Vazolis and Isidora Saldivar 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 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 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. 1st, regarding the COVID-nineteen pandemic contingency, the company's power plants are operating normally and Colbun has taken actions considering 2 priority focuses. 1st, to protect the health of personal suppliers in our surrounding communities and related to this home office was established for all the positions that can carry out their function with Bismol. This corresponds to 98% of our headquarters employees. Secondly, for positions with functions in which an on-site attendance is critical, this working mode is maintained, but with the necessary safeguards. Also to ensure the continuity and security of the energy supply, measures were adopted to ensure the procurement of the necessary supplies for the correct operation of all power plants. And power plants maintenance were postponed after assessing Now regarding the impact of COVID-nineteen on energy demand, Now regarding the impact of COVID-nineteen on energy demand, there is still uncertainty about the magnitude and length of this contingency, but energy demand in Chile has decreased approximately 2% during the Q3 of this year compared to same quarter of 2019. While in Peru, there was a decrease of approximately 4%. In August of this year, Colvun and Walmart Chile extended their energy supply contract. The contract will be supplied with 100% of renewable energy for 3.30 gigawatt hour a year for a 6 year period. The agreement also includes the installation of 9 charging stations for electric cars and supermarkets in the metropolitan region and other regions of the country. In September of this year, Colbun announced the acquisition of 100 percent of Efficity, 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. Ephesity is a company specialized in energy services, which aims to improve competitiveness of its customers by promoting energy efficiency through innovative solutions. Today, Episity holds a diversified client portfolio in the industrial, mining, real estate, retail, educational, hospitality and health sectors among others. Finally, regarding company's transmission assets, in September of this year, 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 up all the shares of its subsidiary in Colbun Transmision. Now please go to Slide number 5 to review the main consolidated figures of the company. Consolidated EBITDA for this quarter reached $175,000,000 decreasing 2% compared to the $179,000,000 posted in the Q3 of 2019, mainly explained by the lower operating income recorded during the period. This effect was partially offset by lower raw materials and consumable use costs in Chile and lower fixed expenses, especially those denominated in local currency, driven by the exchange rate depreciation compared to the same quarter of last year. Consolidated profits reached $62,000,000 14% higher than the 55,000,000 dollars in profit in the Q3 of 2019, mainly explained by the lower non operating loss of record. Financial investments totalized $966,000,000 and net debt to EBITDA ratio is at 1.2 times. The average long term financial debt interest rate in U. S. Dollars is 3.9%. Colvun has a total installed capacity of 3,811 Megawatts comprised of 2,188 in thermal units, 1614 in hybrid units and 9 megawatts from the PV planet. In terms of transmission assets, it owns 8 99 kilometers of transmission lines and 27 substations. Now I will turn to Soledad, who will speak about the main drivers of this quarter's results. Thank you, Sebastian, and hello to everyone. Now please continue to Slide 7 for our fiscal sales and generation balance analysis in Chile. Total generation of the period increased 37% compared to the same quarter of last year, reaching 3.5 terawatt hour, mainly due to: 1st, a higher gas generation driven by additional contracts that allowed to operate with the 2 combined cycles during the quarter 2nd, a higher coal generation due to the lower availability of Santa Maria during the Q3 of 2019, explained by the major maintenance schedule and the finding of a failure in the steam turbine. And last, due to a higher hydro generation explained by more favorable hydrological conditions. These effects were partially offset by a lower wind generation, mainly due to the expiration of the Santero power plant contract in May 2020. Physical sales during the quarter reached 3.5 terawatt hours, 19% higher than the Q3 of 2019 due to, 1st, higher sales to the spot market, mainly explained by higher generation during the quarter and second, higher sales to unregulated clients due to new contracts entering into force in that segment. Those effects were partially offset by lower sales to regulated clients, driven by the expiration of the contract with Isaiesta in December 2019 and by a lower energy demand driven by the state of emergency, currently declared. Spot market balance during this quarter recorded net sales for 7.87 gigawatt hours compared with the net purchases for 3 38 gigawatt hours in the same quarter of last year, mainly as a result of the 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 of the generation business in Chile reached 141,000,000 dollars this quarter, decreasing 3% compared to the Q3 of 2019. The lower EBITDA per quarter is mainly explained by the lower operating income recorded during the period. This effect was partially offset by lower cost of raw materials and consumables used and by lower fixed expenses, especially those denominated in local currency as a result of the depreciation of the exchange rate compared to Q3 of 2019. Now please continue to Slide 9 to analyze the EBITDA from the transmission business for this quarter. EBITDA of the transmission business reached $19,000,000 this quarter, increasing 7% compared to the BRL 17,000,000 EBITDA recorded in the Q3 of 2019, mainly explained by an increase in operating income driven by an increase in the national segment income. That's mainly due to the commissioning of enhancement and expansion projects of the company's current transmission assets and by tariff revenues reassessment corresponding to the period March 2019 January 2020. Now please continue to Slide 10 for our physical sales and generation balance analysis in Peru. Total generation of the period decreased 12% compared to the same quarter of last year, reaching 1 terawatt hour, driven by, 1st, the lower plant availability explained by the gas turbine scale maintenance on August 2020 for 10 days and second, the cost request to stop operating 3 days during July given the lower system energy demand. Physical sales during this quarter reached 1 terawatt hour, decreasing 12% compared to the Q3 of 2019. The decrease is mainly explained by lower sales to the spot market, driven by the maintenance performance on August and as a consequence of the COGS request not to dispatch for 3 days in July due to the lower system energy demand. The decrease is also explained by lower sales to customers under contract, mainly due to a state of emergency decreed by the Peruvian government due to COVID-nineteen pandemic and to lower sales to regulated clients due to expiration of the Cirus contract in December 2019. Stock market balance during this quarter recorded net sales of 3 42 gigawatt hour compared to the net sales of 430 gigawatt hours during the same quarter of the previous year due to the lower generation of the period. Now please continue to Slide 11 to analyze the EBITDA in Peru for this quarter. EBITDA in Peru reached $16,000,000 in line with the EBITDA recorded in the Q3 of 2019. Now please continue to Slide 12 for the consolidated non operating income and net income analysis. Non operating income this quarter presented losses of 25,000,000 dollars lower than the losses of $34,000,000 in the same quarter of last year. The lower losses are mainly explained by a positive effect of the exchange rate variation on temporary balance sheet in local currency during the quarter, while that effect was negative in the Q3 of 2019. This effect was partially offset by the lower financial income earned during the period, driven by lower interest rates applicable to cash flow process at local and international levels. The company recorded this quarter profits of $62,000,000 14% higher than the $55,000,000 profit of the same quarter of last year. The higher profit is mainly explained by the lower non operating losses recorded already explained. Now continuing with the conference call, please continue to Slide 14, where Sachin will give you an update on the status of our growth opportunities. Regarding our growth opportunities in Chile, we have focused our growth in renewables based on 3 pillars. 1st, developing a pipeline of projects. Regarding the incorporation of renewable energy from variable sources, up to this date, Colbun 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 6 0 7 Megawatts located in the Atacama region. Diego del Magro Sur 1 and 2, 2 PV projects of an overall capacity of 230 megawatts located in the Atacama region. The total investment amount approved for this project is $147,000,000 Matsikura, a PV project of 9 Megawatts located in Maui region, total investment approved for this project is $7,000,000 in Tipacha, a PV project of 486 Megawatts located in the Pampacast region. Jardin Solar, a PV project of 5 37 Megawatts located in Parapaca region. Los Conquillos, a wind farm of 2 65 Megawatts located in Biobio region. Additionally, at the end of this quarter, Corbun 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 earning reports available at our website. 2nd, the company does not rule out the purchase of renewable assets in operation. And finally, the 3rd pillar of our growth in renewables is acquiring energy from 3rd parties. Regarding the transmission business, Colbun has several projects for the expansion and enhancement of the company's current transmission assets with a total awarded investment value of approximately 34,000,000 dollars 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 Colbun's Q3 of 2020 results review. Thanks for listening and now we are open to answer your And gentlemen, we do have a signal from the phone audience. Mr. Rodrigo Mora with Moneta. Please go ahead. Hi, good morning, everyone. Do you hear me? Yes, Rodrigo. Hi. Okay. Thank you for the presentation. I have a couple of questions. The first one is related to the action to factorize the account receivables. If you please give some details about this transaction. The second one is related to the hydro condition for this melting season. If you please give us more color about these hydrology conditions. And the third question is related to the ability of Argentinean gas for this summertime. Yes, sure. So let's take 1 by 1, right? This is Miguel, by the way. So first of all, regarding the stabilization mechanism financing, as you know, over the past month, we've been working in a financing solution for the accounts receivable generated by the mechanism I just explained with the IDB, Inter American Development Bank and also a commercial bank. The financing mechanism is same as the structure of a true sale, that would mean that we would sell the account receivables without any recourse to Colvun or other generation companies that can participate into our facility. That financing is still underway, still in progress, and we expect to close this financing by year end. Apart from that, I think we cannot provide any more details about, of course, the financing terms and conditions since this is still something being currently structured. Okay. Do you want to go to the next question or do you have a follow-up? Yes. Okay. So regarding the next question, Rodrigo, as you know, in terms of the study the hydrological year, meaning from April to March, we are a bit below what is an average year in the different basins of the company being the one most affected the Aconcawa basin as indicated in the previous years. In terms of reservoir levels, basically, we're seeing a similar level that we saw last year. For example, the Colvula Surboy is currently 426 meters above sea level, which is 4 meters high compared to the same period last year. And finally, as you mentioned, according to a 3rd melting forecast published by the coordinator some 3 weeks ago, we see that there's an average exceedance probability for the system that is lower than the one registered in the same forecast, the same report in 20 greater water inflows than the ones from the same period last year. Sorry, could you repeat the situation at Aconcawa Valley, please? Yes. So just to have in mind that I'm making figures in comparison to an average year, not the previous year. So I said that compared to another year, the basin most affected is the Concowa basin And the least affected, of course, is the Laha Basin, which actually presents close to sorry, not the Laha, the Chaco Basin, with actually percent and surplus, 0.4% surplus. Over a normal year? Yes, an average year. In Aconcawa? No, sir. In the Chapo, in Aconcagua, it's 40% Okay. Now, where is that the south of region? Yes. And the northern part is the one mostly affected, close to 40% in El Porvada. 40% less than a normal year? Yes. All of these figures, Rodrigo nevertheless are reported in our earnings report, separated by Basel. Okay. Okay, perfect. And the situation in Maule and La Jambio? And then Chapo is 0.4% less than a normal year. So Chapo is 0.4% over a normal year, it's better than a normal year? Over a normal year. Yes. The Concawa is 40% below a normal year. And the basins in between, I would say also in between those figures. But again, not to take everybody's time, I think we can either go with a separate call or you can refer to the earnings report that we report that we published last or a couple of days ago. Okay. Regarding gas, you also asked about gas, right? Yes. The ability of gas for this summer time from Argentina? I'm not sure if gas is going to be available or not at this point of view, because currently we are in negotiations with local suppliers for potentially this summer period and for the Q1 of next year. Having said that, you have to recall first that these agreements needs approval from the government since they work as export licenses, but more important than that, because of the current marginal cost level, which is, let's say, at $30 per megawatt hour on average, we don't at this point at least, I'm considering also the melting forecast I just described. I don't see a particular need for nominating gas at least up to this point. This of course is dynamic and might evolve in the coming weeks. But again, the message is that we are currently under negotiations to see if gas is going to be available and after that if we decided not to nominate that gas. So the decision is not made until now? Yes, it is not because on one side, we're still negotiating potential agreements, while on the other, it is not clear at least to me if that gas is needed or not considering the marginal cost level and the potential improvement in water inflows. Yes. Okay. But so you are expecting that the average marginal cost of the first quarter 2021 will be in average $30 per megawatt hour? No, Rodrigo, no Rodrigo. I'm making the comment from the summer time for the upcoming month for the Q1 of next year. I think it's safe to assume at the past that the system and Colbun will need gas for the combined cycles, and we're working in the most efficient way to source that gas. That's still under development. I'm not trying to make a forecast on the manual cost for the Q1 of 2021. Okay. May I ask you a last question? Related to the Colvun transmission business, when the Board will make a decision about the alternatives that the company is exploring at the market? Yes. So regarding the point, first of all, Rodrigo, as you recall, it was back in September 8, when we published this essential fact stating the Board's decision that was to agree to carry out a process that involved inviting those actors local international in order to see potential alternatives regarding our transmission assets, right. In terms of the status, I can say a few things. First of all, is that the process has generated high interest from national and international potential investors. We of course cannot further comment on details about which parties are the ones that already have signed documentation in order to access for more information. The discussion at this point with those parties have been on the assets, technical, operational and financial information and the progress into those areas. Unfortunately, to your question, Rodrigo, we cannot provide further details on the process or timeframes in both, on when do we expect to reach a decision. But it's going according to our schedule. Okay. Miguel, just only one question related to yesterday or the lower chamber Chile approved the idea to the closure of all coal power plant at 2025, I would like to have the impression of Colvun's and the impact that Colvun will have to have and maybe legal actions that Colvun will have to take against the Chilean state in case this law would approve? Yes, Rodrigo, we are following of course that discussion with a lot of interest. I would say that it's too soon to maybe discuss what you're asking because that's still something that needs to go through different stages along the way and the actual decision and the conclusion might change along the way. Having said that, of course, that we've been part of the decarbonization process led by the Ministry of Energy. We have participated in decarbonization table along with the other generators. And we of course, I would say as a general idea, we share the we agree with the concerns and arguments presented by the Ministries of Energy and Government and Environment, sorry, as well as the CME. Other than that, of course, at least I cannot comment about potential consequences and impact for Colbun about this issue because as I mentioned, this is still a process in progress and the final outcome cannot be anticipated at this time. But do you understand that the shareholder at the next shareholder meeting will demand to the board that in case that the parliament, the Chilean parliament approved this law to closure coal power plant at the end of 2025, the shareholder will demand to the Board take class action against the Chilean state, right? Rodrigo? Yes, please go ahead. Rodrigo, good afternoon. This is Sebastian. We obviously cannot comment what supposedly will happen on the future shareholders meeting Rodrigo and whatever the shareholders demand. Well, the time will come and we'll see what happens at the shareholders meeting. We cannot advance or give any thoughts on what could happen. So we cannot cover your concerns in this conference call, Rodrigo. Okay. Thank Mr. Alarcon and Mr. Moraga, we have no signals from the phone audience. Gentlemen, I will turn it back to you for any additional or closing remarks. Okay. I would like to take this opportunity to thank you for attending our 3rd quarter conference call. It was great being with you and hopefully we'll see you on our next conference call meeting when we have our closing figures for the year 2020. So I wish you a very good afternoon and a happy weekend. So take care and bye bye to everyone. Ladies and gentlemen, this does conclude today's ColdBoom conference call. Thank you all for your attendance. You may now disconnect your lines and we hope that you enjoy your weekend.