Earnings Call: Q4 2018

Feb 1, 2019

Greetings, and welcome to the Cobalt 4th Quarter 2018 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the presentation. And as a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Miguel Arcon, Deputy CFO. Thank you. Please go ahead. Hello, everyone, and welcome to Colbun's 2018 year end earnings review call. My name is Miguel Laccon. I am the Deputy CFO of the company, and joining me today is Carlo Aposevagen from the Investor Relations team. I hope that you have received our earnings report and an earnings review presentation that you are 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 2 is as follows. We will begin talking about the highlights of 2018 to then analyze in detail this year results. And after that, we will provide an update of our growth opportunities. Following the presentation, there will be time to participate in a Q and A session. Now please go to Slide number 3 to review highlights of this year. First, as of December of last year, Colvun's has signed new medium term power purchase agreements with Android customers for approximately 1400 gigawatt hour per year. In a cumulative terms, the company has contracted more than 3,000 gigawatt hour of its generation with new clients. 2nd, regarding incorporation of projects of renewable energy from variable sources, at the end of 2018, Colbun has been able to complete a portfolio of locations for 7 wind and solar projects, which are in early stages of development for approximately 1800 megawatts. In addition, in June of last year, our Hodejeria photovoltaic solar plant started its commercial operations. Also as a recognition to the company in matters of sustainability, in September of last year, Colbun was selected to list for the 3rd time in the Dow Jones Sustainability Index Chile and 2nd time in the Dow Jones Development Index Mila in its 2018 versions. Finally, during 2018, the company developed a detailed plan of efficiencies focused on fixed costs, which will translate to savings for approximately EUR 20,000,000 per year from 2019 and onwards. Now please go to Slide number 4 to review the main consolidated figures of the company. Consolidated EBITDA for 2018 reached $684,000,000 and consolidated net income reached 230,000,000 Financial investments, totalized BRL 788,000,000 and net debt to EBITDA ratio is at 1.2 times. The average U. S. Dollar long term financial debt interest rate is 4.5%. Colbun 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 over Syria. Now I will turn to Carolla, who will speak about the main drivers of last year's results. Thank you, Miguel, and hello to everyone. Please move to Slide 6 for a review of the main figures of the year, starting with the consolidated EBITDA analysis. Consolidated EBITDA for 2018 reached EUR 684,000,000, 1% lower than the EBITDA of $692,000,000 in 20.17. The lower EBITDA is mainly explained by lower sales to regulated customers, higher costs of raw materials and consumables due to an increase in the size of consumption of gas and coal and lower EBITDA contribution from our affiliate company, FENICS. These effects were partially offset by higher sales to unrelated customers and higher high directed generation. Now please continue to Slide 7 for physical sales and generation balance analysis in Chile. Total generation of the year slightly increased by 2% compared to 2017, reaching 13 terawatt hours, mainly due to higher hydro generation and renewable energy from variable sources, partially offset by a decrease in diesel and gas generation. Physical sales during the year reached 13 terawatt hours, 3% higher than previous year, mainly explained by higher sales to unregulated customers. Spot market balance during 2018 recorded net sales for 1.2 terawatt hours, lower compared with net sales for 1.3 terawatt hours in 2017. During the year, 100 percent of the company's commercial commitments were supplied with cost efficient base load generation. Now please continue to Slide 8 to analyze CDISC EBITDA for 2018. First, revenues for 2018 reached €1370,000,000 increasing 1% compared to the previous year, mainly due to higher sales on an elevated customers and higher hydroelectric generation, partially compensated by lower revenues from transmission tolls due to the change in methodology in the collection of these tolls, which as of January 2018 are paid directly to the owner of the transmission facilities and lower sales to the related customers. Raw materials and consumables used totalized EUR 617,000,000 increased 1% compared to the previous year, mainly explained by higher cost of gas and coal generation. With our EBITDA in Chile increased by 2%, reaching EUR 648,000,000. Dollars Now please continue to Slide 9 for the consolidated non operating income and net income analysis. Non operating income in 2018 recorded losses of EUR 118,000,000, 19% lower than the loss of EUR 146,000,000 presented in 2017. The lower loss is mainly explained by lower provisions for assets impairment, our provisions due to the revaluation of lands owned by E Raizen due to its accounting at liquidation value and higher financial income due to higher rate of return on cash surpluses. Tax expenses amounted to 98,000,000 dollars higher than the tax expenses of $34,000,000 in 20.17. The higher tax charge is mainly explained by the recognition of a deferred tax asset as a result of the cancellation of the Iracin hydroelectric project and the tax profit registered in 2019 in Phoenix as a result of the appreciation of the Peruvian salt during the period. The company recorded in 2018 a net income of €230,000,000 lower than the net income of €289,000,000 of 20.19. The increase is mainly explained by the higher tax expenses, higher depreciation and amortization costs, mainly due to major maintainances and projects performed in 2018, partially offset by the lower known operating losses. Now continuing with this conference call, please go to Slide number 11, where Miguel will give you an update on the status of our growth opportunities. As we have mentioned before, we continue searching for growth opportunities in Chile, Peru, Argentina and Colombia in order to maintain a leading position in the power generation business and to diversify our sources of income. Regarding our growth opportunities in Chile, we have focused our growth in renewables, This is hydro, solar and wind based on 3 pillars. 1, developing a pipeline of projects. Although the power market is balanced in terms of efficient supply and demand in a scenario of low growth in power demand and significant pipeline of renewable projects, our goal is to maintain a relevant position in the sector for which it is very important to have a diversified portfolio of projects, both in terms of technology and location. As mentioned before, the company is taking relevant steps towards the goal of incorporating 4,000 megawatts of renewable capacity in the next decade. These assets constitute a very good complement for Colbun's existing generation matrix, which will allow us to provide our customers with a supply of renewable, competitive, continuous and long term energy. For more details on this topic, please refer to the latest earnings report available at our website. 2nd, the company does not pull out the purchase of renewable assets in operation. And finally, acquiring energy from 3rd parties. In this context, we have signed contracts with Axione for 95 gigawatt hours per year and with total SunPower for 500 kilowatt hours per year. This concludes Colbun's 2018 results review. Thanks for listening, and now we're open to answer your questions. Thank you. And it seems that we have no questions at this time. Are there any closing comments you would like to make? Yes, sure. Hello? Yes, go ahead. Okay. Okay. So I think with that, we conclude this conference call. So thank you, everyone, for joining and hope to see you again for the next quarter review. Have a great weekend and bye bye. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.