Earnings Call: Q2 2019

Aug 2, 2019

Good day, ladies and gentlemen, and thank you all for joining us for this Coalboon Second Quarter 2019 Earnings Conference Call. And with that, I will now turn the floor over to the management team. Hello to everyone, and welcome to Corboon's Q2 2019 earnings review call. My name is Miguel Lacom. I am the Deputy CFO of the company. And joining me today are Soriano de Rosolis and Insura Javier from the Investor Relations team. I hope that you have received our earnings report and an earnings review presentation that we are prepared to complement the analysis of our figures. Otherwise, you can download them in the Investors section of our website. Agenda for today on Slide 3 is as follows. We will begin talking about the highlights of the quarter to then analyze in detail this quarter's results. And after that, we will provide an update on our growth opportunities. Following the presentation, there will be time to participate in the questions and answer session. Now please go to Slide number 4 to review the highlights of this quarter. 1st, on May 7, 2019, dividends for $256,100,000 were paid. This payment consisted of 1, a final dividend of BRL156,100,000 which added to $84,200,000 paid in December of last year amounted to 100% of the net distributable profit of 2018 and 2, an eventual dividend charged to previous fiscal year profits for $100,000,000 2nd, regarding the commercial strategy, during this year, the company has contracted approximately 5.90 gigawatt hours per year of its generation with new and growing customers. 3rd, regarding expansion strategy, during the Q2 of this year, Colton continues looking for renewable projects throughout the country with the target of consolidating our robust and diversified project portfolio in line with the goal of doubling our current installed capacity incorporating renewable generation equivalent to a total 4,000 megawatts. Thus and related to the Horizonte project, progress is being made in the feasibility stage and the wind turbine auction concluded. For its part, the Diego Almagro Sur solar project continues in the environmental processing stage. Regarding the San Pedro project, at the end of April, the environmental authority issued the first XR. 4th, regarding the fixed cost efficiencies plan implemented during 2018, it can be highlighted that Corvone has continued its execution. This is reflected on the consolidated financial statements fixed cost. 5th, at the closing of Q2 of this year, in Fenix subsidiaries, financial statements reflect the adoption of the accounting standards IFRS 15 and IFRS 16 and the capitalization of the plant major maintenance performed in April of this year. For more details, see Appendix 1 on Page 30 of the earnings report. Now please go to Slide number 5 to review the main consolidated figures of the company. Consolidated EBITDA for Q2 of this year reached $174,000,000 increasing 13% compared to the $154,000,000 EBITDA for the Q2 of 2019, mainly due to lower costs as a result of 1, the recognition of the gas distribution contract with CALIA as a financial leasing, which were $8,000,000 for the first half of this year. And second, higher average sales price to 100 customers in Chile. Consolidated profits reached $61,000,000 37 percent higher than the $45,000,000 in profits in Q2 of the previous year, mainly explained by first higher EBITDA recorded in the quarter previously explained and second, the positive effect of the variation of the exchange rate Chilean peso to U. S. Dollar on temporary balance sheet items in local currency during the quarter. Financial investments $667,000,000 and net debt to EBITDA ratio is 1.5 times. The average long term financial debt interest rate in U. S. Dollars is 4.5%. Coalbond has a total installed capacity of 3,893 Megawatts comprised of 2,250 Megawatts in Thermal Units, 1634 Megas in Hydraulic Units and 9 Megas from the photovoltaic power plant Oecheria. In terms of transmission assets, it owns 9 41 kilometers of transmission lines and 28 substations. Now I will turn to Isidora, who will speak about the main drivers of last quarter's results. Thank you, Miguel, and hello to everyone. Now please continue to Slide 7 for physical sales and generation balance analysts in Chile. Total generation of the period decreased by 5% compared to the Q2 of the previous year, reaching 3.3 terawatts, mainly due to the lower gas and hydro generation, partially offset by an increase in coal and variable renewable energy generation. Physical sales during Q2 of this year reached 3.3 terawatts, 4% lower than Q2 of the previous year, mainly explained by lower sales to regulated clients, partially offset by higher sales to unregulated clients and to the spot market. Spot market balance during the Q2 of this year recorded net sales for 5 72 gigawatts, 11% higher compared with net sales for 5 17 gigawatts in the Q2 of the previous year. Now please continue to Slide 8 to analyze the EBITDA from generation business in Chile for the Q2 of this year. EBITDA of the generation business in Chile reached $133,000,000 in the Q2 of this year, increasing 7% compared to the same quarter of the previous year. The higher EBITDA of the quarter is mainly explained by the lower gas consumption cost, mainly due to 1, a decrease in the purchase price of that fuel and 2, a lower gas generation, partially offset by an increase in the coal consumption cost explained by the increase in the purchase price of that fuel. Now please continue to Slide 9 to analyze the EBITDA from the transmission business for the Q2 of this year. EBITDA of the transmission business reached $18,000,000 in the Q2 of this year, increased 9% compared to the same quarter of the previous year, mainly explained by an increase in the revenues from solar transmission assets due to the release of the 60 decree in October 2018, which modified the pricing of those assets. Now please continue Slide 10 for statistical sales and generation balance analysis in Peru. Total generation of the period increased by 6% compared to the Q2 of the previous year, reaching 9 37 gigawatts, mainly explained by the lower plant availability due to the major maintenance carryout during the month of April 2019. In 2018, on the other hand, our routine maintenance was performing during the Q1 of the year. Physical sales during the Q2 of this year reached 9 83 gigawatts, similar to the Q2 of the previous year. The decrease in sales to customer under contract was offset by higher sales to the spot market. Spot market balance during the Q2 of this year recorded net sales for 209 JW, increasing by 20% compared to the same quarter of the previous year. Now please continue to Slide 11 to analyze the EBITDA from the generation business in Peru for the Q2 of this year. EBITDA in Peru reached $22,000,000 in the Q2 of this year, 80% higher than the EBITDA of $12,000,000 recorded in the Q2 of the previous year, explained by 1, the recognition of gas distribution contract with Caria as a financial lease from January 2019 onwards due to the adoption of IFRS 16 accounting standard and 2, the major maintenance performed during the month of April 2019. Now please continue to Slide 12 for the consolidated non operating income and net income analysis. Non operating income in the Q2 of this year presented losses of $27,000,000 12% lower than the losses of $31,000,000 in the Q2 of the previous year. The lower losses are mainly explained by a positive effect on the variation of the exchange rate, philippo to U. S. Dollar on temporary balance sheet items on local currency during the quarter. In the Q2 of the previous year, this effect was negative. It was partially offset by higher financial expenses due to the recognition of the gas distribution contract with Carya as a financial listing. Tax expenses amounted to $19,000,000 similar to expenses registered in the Q2 of the previous year despite the higher income before taxes recorded during the quarter, mainly due to a deferred tax profit recorded in the Q2 of this year in Fenech as a result of the Peruvian sole appreciation during the period, given that FENICS's taxes accounting is carried out in Peruvian status according to the Peruvian tax legislation. The company recorded in the Q2 of this year profits of $61,000,000 $37,000,000 higher than the $45,000,000 gain in the Q2 of the previous year. The higher profit is mainly explained by: 1, a higher EBITDA recorded in the quarter previously explained and 2, the positive effect of the variation of the exchange rate, Chilean pesos to U. S. Dollar on temporary balance sheet items in local currency during the quarter. Now continuing with the conference call, please go to Slide number 14, where Miguel 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, meaning hydro, solar and wind based on 3 pillars. 1, developing a pipeline of projects. Regarding incorporation of renewable energy from variable sources, up to this date, Corboon 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 El Magro Sur, 1 and 2, 2 photovoltaic projects of an overall capacity of 200 Megawatts located in the Atacama region. Sol de Terabaka, a photovoltaic project of 180 megawatts located in the Terabaka region. And additionally, at the end of this quarter, Colbun holds a portfolio of locations for another 4 wind and solar projects, which total capacity is approximately 800 megawatts. These projects are in early stages of development. For more details on this slide, you can see the list of our current portfolio of projects or please refer to a latest earnings report available at our website. 2nd, the company does not rule out the purchase of renewable assets in operation. 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, which are total investment value of approximately $50,000,000 In terms of our international expansion strategy, as we have mentioned before, we continue searching for growth opportunities in Peru, Colombia and Argentina in order to maintain a leading position in the power generation business and to diversify our sources of income. This concludes Colbun's Q2 2019 results review. Thank you for listening and now we are available to answer your questions. Thank you for your prepared remarks. And to our audience joining today, now is the time. We'll take our first question from the line of Martin Perez with S&P Chile. Go ahead. Your line is open. Good morning, Miguel, Sudea, Isola. Thank you for the presentation and congratulations for the good results. My question is regarding the expansion projects, please. In the press release, you have 7 projects individualized there. And I would like to ask you 2 things regarding the projects, if I may. First, what's the amount of total CapEx involved in each one? And secondly, what's the expected time line? And in particular, when do you expect them to start construction and then operation? I know that this second part might be a moving target, but probably you have an estimation already. The status of each project depends on the progress made for each one specifically. For example, in the ones we specifically mentioned in the earnings report, you'll see that, for example, it's on the feasibility stage, while others, for example, Diego Almario, it's the environmental approval phase. I think those 2 are the ones with the most advanced and its execution will depend on our ability to re contract our energy in the near term or in the medium term, while the others probably will follow the same strategy of progressing, first of all, its feasibility and then expect news on the commercial side. Having said that, we will inform the market timely once we have further news about the execution of each project. Regarding the second part of your question, I think it is too soon to provide a CapEx estimation for either each project or for the complete portfolio. Having said that, and I'm sure you're aware, we're having an Investors Day in the upcoming week. And I think, in that scenario, we will provide further details about the CapEx, at least for the Very good. Thank you very much. We expect to be there on Wednesday. So let's see. Thank you, Mr. Perez. At this time. Isadora, I will turn it back to yourself and the rest of the leadership team for any kind of additional or closing remarks that you may have. Okay. So thank you everybody for joining this conference call and hope to see you again for the next reporting in Q3, 2019. Have a great weekend and bye bye. Ladies and gentlemen, this does conclude today's conference and we thank you all for your participation. You may now disconnect your lines and we hope that