Earnings Call: Q2 2020

Jul 31, 2020

Ladies and gentlemen, hello and welcome. Thank you for joining us for this Coalboon Second Quarter 2020 Earnings Conference Call. As a reminder, today's session is being recorded and all phone lines are in a listen only mode. But after today's prepared remarks, you will be given the opportunity to ask questions. To get us started with opening remarks and introductions, I am pleased to turn the floor over to Mr. Sebastian Moraga. Mr. Moraga, good morning. Hello to everyone, and welcome to Colvun's Q2 2020 earnings review call. My name is Jose Moraga. I am the company's CFO. And joining me today are Miguel Adacon, the Deputy CFO Soledad de Vasudis and Isiodora Saldivar 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 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, protect the health of our workers, collaborators, suppliers and our surrounding communities. Home Office was established for all the positions that can carry out their functions with this month, and this corresponds to approximately 98% of our headquarters employees. For positions with functions in which an on-site attendance is critical, this working mode is maintained, but with the necessary safeguards. Different preventive measures have been adopted in the company's power plants to prevent contagions, such as equipment segmentation, safeguarding feeding places, temperature controls, collective and individual cleaning and disinfection practices and special transportation to and from the home of our workers. Secondly, to ensure the continuity and security of the energy supply, the measures have been adopted to ensure the procurement of the necessary supplies for the correct operation of all our power plants. And some power plants maintenance have been postponed after assessing in the cases that it didn't risk the operational continuity and integrity of each generation unit. 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 decreased approximately 2% during the Q2 of 2020 compared to the one in 2019, while in Peru there was a decrease of approximately 23%. Regarding Colborne's project pipeline, on June 2020, our Board of Directors approved the construction of 2 PV projects. First, Diego del Mangro Sur 12, which are located in the Atacama region with an installed capacity of 2 20 megawatts. Construction is scheduled to start in the Q3 of this year and the commissioning should occur on the Q1 of year 2022. The total investment of this project is approximately $147,000,000 2nd is the project PV Machicura, which is located on the Mauro region with an installed capacity of approximately 9 megawatts. Its construction is scheduled for Q3 of this year and its commissioning for the Q1 of year 2021. Total investment of this project is approximately $7,000,000 Now regarding the Fenix plant gas supply, in June of this year, there was a modification to the gas supply contract with Plus Petrol, which mainly introduced the following changes. The take or pay clause was significantly reduced compared to the previous contract. The allotted maintenance period was increased, therefore, giving greater flexibility to the company. This contract was extended until December 2029, and all of these changes were applied to the contract retroactively from December 2019 onwards. Now please go to Slide 5 to review the main consolidated figures of the company. Consolidated EBITDA for this quarter reached $155,000,000 decreasing 9% compared to the $170,000,000 EBITDA in the same quarter of last year. This difference is mainly explained by the lower operating income recorded during the period. Now this effect was partially offset by lower raw materials and consumables used cost in Chile and lower expenses denominated in local currency driven by the exchange rate depreciation compared to the one of the same quarter in last year. The consolidated profit reached 50,000,000 dollars 20% lower than the 62,000,000 posted on same quarter of last year, which is mainly explained by the lower EBITDA recorded during the quarter and higher tax expense. These effects were partially offset by lower non operating losses. Regarding financial investments, this totalized 854,000,000 dollars And regarding net debt to EBITDA ratio, it is at 1.2x. Now looking at the average long term financial debt interest rate of our company, it currently stands at 3.9% measured in U. S. Dollars. Colbun has a total installed capacity of 3.8 teras, comprised of 2.1 tera in thermal units, 1.6 teras in hydro units and 9 megawatts from the PV power plant of Egeria. In terms of transmission asset, it owns roughly 9.40 kilometers of transmission lines and 31 substations. Now I will turn to Isidora, who will speak about the main drivers of our 2nd quarter's results. Thank you, Sebastian, and hello to everyone. Now please continue to Slide 7 for physical sales and generation balance analysis in Chile. Total generation of the period decreased 7% compared to the Q2 of last year, reaching 3.1 terawatt hours, mainly due to: 1, lower hydro generation driven by less favorable hydrological conditions for most of the quarter 2, lower coal generation driven by lower economic dispatch during 13 hours of the day and 3, lower wind farm generation explained by the expiration of San Pedro plant contract in May 2020. These effects were partially offset by a higher gas generation. Physical sales during the quarter reached 3.0 terawatts, 8% lower than the Q2 of last year due to 1, lower sales to regulatory clients, mainly explained by the expiration of the contract with Saesa in December 2019 and a lower energy demand driven by the state of emergency and 2, to lower sales in the spot market, partially offset by higher sales to underlayered price. Both markets balance during this quarter recorded net sales of 5 11 gigawatt hours compared with the net sales of 5 66 gigawatt hours in the Q2 of last year as a result of the lower generation during the quarter driven by the lower energy demand due to the state of emergency. Now please continue Slide 8 to analyze the EBITDA from the generation business in Chile for the quarter. EBITDA of the generation business in Chile reached BRL 123,000,000 this quarter, decreasing 8% compared to the Q2 of last year. The lower EBITDA of the quarter is mainly explained by the lower operating income recorded during the period. These effects were partially offset by lower cost of raw materials and consumable use and lower expense denominated in local currencies as a result of the depreciation 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 $18,500,000 this quarter, in line with the $18,400,000 EBITDA recorded in the Q2 of last year. Now please continue to Slide 10 for physical sales and generation balance analysis in Peru. Total generation of the period decreased 45% compared to the Q2 of last year, reaching 5.30 gigawatt hours, mainly explained by the lower economic dispatch of the plant driven by the state of emergency decreased since March 15. Physical sales during this quarter reached 6 28 gigawatt hours, decreasing 36% compared to the Q2 of last year. The decrease is mainly explained by the lower sales to customer under contract, mainly explained by the state of emergency decreasing the Brazilian government since March 18 due to the COVID-nineteen pandemic and to lower sales to regular clients due to the expiration of VCU's contracts in December and 2, lower sales in the spot market as a consequence of the COAS request to self dispatch from March 18 until April 30 due to the demand decrease recorded in the country after the state of emergency previously mentioned. Since May, the government gradually began to activate some economic sectors and the plant started to be dispatched. Body market balance during this quarter recorded net purchases of 5 gigawatt hours compared to the net sales of 209 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 $14,000,000 in this quarter, 27% lower than the EBITDA of $19,000,000 recorded in the Q2 of last year, mainly due to the lower operating income recorded during the period. Now please continue to Slide 12 for the consolidated non operating income and net income analysis. Non operating income of this quarter presented losses of $22,000,000 lower than the losses of $25,000,000 recorded in the Q2 of last year. The lower losses are mainly explained by a positive effect of the exchange rate variation of temporary balance sheet items in local currencies during the quarter. The company recorded this quarter profit of $500,000,000 20% lower than the $62,000,000 profit of the same quarter of last year. The lower profit is mainly explained by the lower EBITDA according during the quarter and by higher tax expenses. These effects were partially offset by lower non operating losses. 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. 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 approximately 607 Megawatt located in the Atacama region, Deo del Mangro Sur 12, 2 PV projects of a capacity of 2 20 megawatts as commented earlier. Intipacha, a PV project of 4 86 Megawatts located in the Atofagasta region and the Insolar, a PV project of 5 37 Megawatts located in the Tarapaca region Machikura, a PV project of 9 megawatts located in the Mabolo region, which was commented earlier Los Jujiquillos, a wind farm of 265 megawatts located in Bovio region. On addition to all of these projects, at the end of this quarter, Colborne 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 our latest earnings report available on our website. 2nd, the company does not rule out the purchase of renewable assets that are in operation. And finally, the 3rd pillar of our growth in renewables is acquiring energy from 3rd party. Regarding our transmission business, Colvun has several projects for the expansion and enhancement of the company's current transmission assets with a total awarded investment value of approximately $40,000,000 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 ink. With this, we are concluding Colbun's Q2 of 2020 results review. Thank you very much for listening. And now we are open to answer your questions. Thank you very much for your remarks. You. We'll hear first from Marilo Russini. Go ahead, please. Good afternoon. This is Morello Rucini from Santander. Thanks for the call, guys. We are seeing a better hydro output in July and spot price that could be at low levels during the second half of the year. How do you see this dynamic for Cobun? And do you expect to benefit from this situation in the second half? And my second question, this is a follow-up on the receivable. How much receivables are you accumulating to date? And how are the negotiations to find alternatives for this to fund these receivables? Thank you. Hi, Maurilo. This is Emil. Thank you for your questions. So regarding hydrology, as you mentioned, since last week since the last week of June, higher rainfalls in average were recorded. With that, as of July of this year, hydrological year presents higher rainfall in most of the basins in the system. Colugo reservoirs present a higher level than last year, and it's probable that there should be more snow accumulation, although up to this date, we don't have no official quantification released. So we estimate that this, of course, could translate into a better hydro output in the second half. I think we cannot comment more than that up to this point. Okay. Thank you. And regarding the receivables, do you have the number that you are accumulating to date? Just give me a second, please. Sure. Thank you, Ian. So up to this point, as of June of this year, the total amount is approximately from, let's say, $60,000,000 to $80,000,000 roughly speaking. Or maybe just we are a narrower range, I would say, around $70,000,000 dollars Great. Thank you, Miguel. Okay. Thank you, sir. Our next question comes from and I do apologize if I mispronounce your last name. Our next question will come from John Wisske at HSBC. Hey. Just a quick follow-up to Marcelo's question. What are you anticipating in terms of different amounts for the stabilization impact in the second half and why? And could you provide some details on the nature and timing of the factoring that's being contemplated for these accounts? And separately, are you prompt such an injection? Hi, John. This is Miguel again. I didn't get your second question, but let's go with the first I'll say beginning. So basically, I would say that for the second half of this year, we should accumulate something close to 50% of the current balance, let's say, another $30,000,000 to $35,000,000 That, of course, has to do with a number of factors, the FX exchange rates and demand among others. That's the first question. And your second question, it is sorry, what? You can repeat. So I understand that there are plans to factor or the intention to factor some of these accounts. I was wondering if you could give some detail as to the nature of those plans and the timing. Yes, yes, yes. Sorry. But I think this has been somehow mentioned in the press. So we are working on a financing solution with a number of other GenCos and some commercial banks in order to, as you mentioned, structure what would be a sale of these accounts receivable. We are working in that financing, and we should expect to have news in the next 2 to 3 months. But we're still working in the time line, and it's no time to provide more update on that. Okay, great. And then with respect to anticipating a capital injection to Phoenix, could you give some color on that? So first of all, I would say that up to this point, Fenics has a cash position that is closer to $20,000,000 as of for the Q2 of this year. As you know, John, and we've discussed this in the past, the shareholders provided a form of support to Pfenex with a cash support agreement that was signed last year and that I think that should cover any shortfall in the liquidity needed for Pfenex in terms of its funding need and especially its debt repayment schedule. I think up to this point, we cannot comment, it's fair to comment about our capital injection because among other things, and this is also something that I think we've discussed in previous calls, We had an insurance claim that was underway, and that's mostly collected because as you remember, there was a failure in the PG12 in October of last year. That meant a claim for the insurance companies closer to $20,000,000 and that's almost completely already funded into Phoenix. Okay, great. Thanks, Miguel. Sure. Thank you for your question, John. Next, we'll hear from and again, I apologize if I mispronounce your last name, Gabriela. We'll hear from an associate at Pine Ridge, Gabriela Bahiail. And I have I'm sorry, we couldn't hear you, Kim. Yes. Can you hear me? We can hear you now. Please go ahead. Welcome. Okay. Hi. Thank you. So, hi. I have two questions. So the first one is, if you could please confirm your total CapEx plan for 2020, including the new projects of Diego El Mero and Machucura? And the second question would be, if you could please provide an updated EBITDA guidance and leverage guidance for 2020? Thank you. Hi, Gabriela. This is Solea from Colbun. So regarding the CapEx update, I'd say that it is still close to the one we projected by the beginning of the year. So around $60,000,000 to $80,000,000 in maintenance CapEx. And also, we have to add the CapEx of Diego and Maira Matipura project. That would be around $80,000,000 for this year. And regarding the EBITDA guidance, sorry, but we cannot give any guidance on that matter because of our Investor Relations policy. Thank you. Sorry, Salazar, a follow-up question on the CapEx plan. So I remember from a call like 2 months ago that the CapEx that you had estimated for the entire year, the investment CapEx was 100 wait a minute, a little bit like $100,000,000 Yes, dollars 100,000,000 just for investment besides the Mayans CapEx. So what I wanted to confirm is that if the new projects of Diego del Mangro and Matricura are included in this CapEx or that's additional? So the figure of 100,000,000 probably contains some of the investment CapEx. So the maintenance CapEx for the year is around EUR 60,000,000 to EUR 80,000,000. To that, you have to add the expansion CapEx from the Diego Almayro and Achikura project. So the total CapEx for Diego Almayro is around $150,000,000 but roughly 50% will be expensed this year. And to that, you have to add a small CapEx from Matipura, which the total CapEx of this project is around $7,000,000 and we will extend most of that CapEx this year. So with that, you'd have a total of around $100,000,000 of new CapEx this year and $60,000,000 of maintenance CapEx. That's on roughly figures. Perfect. Thank you. And to our leadership team for Kole Boone, I'd like to let you know that we have no further questions at this time. But if we may, I'd like to allow a few extra seconds to give everyone a chance to We have no further signals from the group. I'll turn it back to you, Mr. Moraga, for any additional or closing remarks. Yes. I just wanted to thank everyone for joining this conference call. I hope everyone is safe at home or at work, and I wish you have a very pleasant and good weekend. So bye bye to all.