Earnings Call: Q3 2018

Oct 31, 2018

Greetings, and welcome to the Coldbloom Third Quarter 2018 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Sebastian Moraga, Chief Financial Officer. Please go ahead. Thanks, and hello, everyone, and welcome to Golbons' Q3 2018 earnings review. My name is Sebastian. I am the CFO of the company and joining me today are Miguel Alarcon, our Deputy CFO and Veronica Pubil from the Investor Relations team. I hope that you have received our earnings report and earnings review and 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 2 is as follows. We will begin talking about the highlights of the quarter to then analyze in detail this quarter results. And after that, we will provide an update on the growth opportunities. And following the presentation, there will be time to participate in a Q and A session. Now please go to slide number 3 to review the highlights of this quarter. First, during the Q3 of 2018, Holbun has signed new power purchase agreements in the medium term with unregulated customers for approximately 500 gigawatt hour a year. In accumulated terms, the company has contracted approximately 2,800 gigawatt hour of its generation with new clients. 2nd, as a recognition to the company matters of sustainability, in September 2018, Corboon was selected to list for the 3rd time in the Sao Jones Sustainability Index Chile and 2nd time in the Sao Jones Sustainability Index Mila in its 2018 versions. Now going to Slide number 4, we will review the main consolidated figures. Consolidated EBITDA last 12 months reached $679,000,000 and net income reached $243,000,000 On its part, financial debt reached $1633,000,000 in line compared to December 2017. Financial investments totalized 785,000,000 dollars mainly explained by the final dividend payment for $213,000,000 performed in May 2018. Given the above, our net debt totalized $845 49,000,000 Finally, net debt to EBITDA last 12 months remained in line at 1.3 times. The average maturity lives of Colvoom's long term financial debt is 6.9 years and the long term financial debt interest is at 4.6%. Now, I will turn to Veronica, who will speak about the main drivers of this quarter results. Thank you, Sebastian, and hello to everyone. Please move to Slide 6 for a review of the main figures of the quarter, starting with our consolidated EBITDA analysis. Consolidated EBITDA for the quarter reached $156,000,000 10% lower than the EBITDA of 174,000,000 dollars in the Q3 of 2017. The lower EBITDA is mainly explained by: 1st, lower sales to regulated customers 2nd, higher cost of raw materials and consumables, mainly as a result of an increase in the cost of gas and coal and third, lower EBITDA contribution from our affiliate company Fenix. These effects were partially offset by higher sales to unregulated customers. Now please continue to Slide 7 for our physical sales and generation balance analysis in Chile. Total generation of the quarter slightly decreased by 1% compared to Q3 2017, reaching 3 terawatts hour, mainly due to lower hydro and coal generation, partially offset by an increase in gas generation and renewable energy from variable sources. Vehicle sales during the quarter reached 3 terawatt hours, in line when compared to same period of the previous year. Spot market balance during the quarter recorded net sales for 49 KWH hour lower when compared with net sales for 164 kilowatt hour in Q3 2017. During the quarter, 100 percent of the company's commercial commitments were supplied with cost efficient baseload generation. Now please continue to Slide 8 to analyze Chile's EBITDA for the quarter. First, revenues for this quarter reached $320,000,000 decreasing 4% compared to the previous quarter of 2017, mainly due to lower sales to regular customers and 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 facility. The lower revenues were partially offset by the increase in sales to unregulated customers. Raw materials and consumables use totalized 146,000,000 dollars in line compared to the $147,000,000 recorded in Q3 2017. With all, EBITDA in Chile decreased by 7% reaching $149,000,000 Now please continue to Slide 9 for the consolidated non operating income and net income analysis. Non operating income in Q3 2018 recorded losses of $20,000,000 in line with the loss of $19,000,000 in Q3 2017. Tax expenses amounted to $23,000,000 lower than the tax expenses of $25,000,000 in Q3 2017. The lower tax charge is mainly explained by the lower profits recorded compared to the same quarter of the previous year, partially offset by the increase in the income tax rate from 25.5 percent to 27% in Chile. The company recorded in Q3 2018 a net income of $4,000,000 lower than the net income of $70,000,000 in Q3 2017. The decrease is mainly explained by the lower EBITDA recorded during the quarter previously explained. Now continuing with this conference call, please go to Slide number 11, where Sebastian will give you an update on the status of our growth opportunities. Thank you, Veronica. As we have mentioned before, we continue searching for growth opportunities in Chile, Peru, Argentina, Colombia and Mexico 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, as we have mentioned before, we have focused our growth based on 3 pillars. 1st of all, developing a pipeline of projects. And although we believe that the power market is balanced in terms of efficient supply and demand in a scenario of low growth in power demand and a significant pipeline of renewal 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. For more details on this slide, you can see the list of our current portfolio of projects or please refer to the latest earnings report available at our website. 2nd, through the acquisition of energy from 3rd parties. In this context, we have signed contracts with Axione for 95 gigawatt hour a year and with total SunPower for 500 gigawatt hour a year. And finally, as a third pillar, the company does not rule out the purchase of renewable assets in operation. With this, we are concluding Colvun's Q3 2018 results review. Thanks for listening. Now we are open to answer your questions. Thank you. At this time, we will be conducting a question and answer session. Our first question comes from the line of Paul Cowen with Chrystal. Please proceed with your question. Good afternoon. This is Paul Gauhan from Cristal. I would like to ask you to talk about the updates on the projects under development, please. Thank you. Hi, Paul. This is Miguel Del Arcon. So we have put it in our corporate presentations and recent analysis. We are starting a number of projects in different stages. These projects are mainly renewable projects like Horizonte and Solte Terabaca, a wind farm park and a photo or type plant and in earlier stages some hydro projects. The idea here as mentioned is to have optionality in order to complement our current matrix of generation for the future for the company. These projects the renewable piece it's in the earlier stages, mainly it's study and basic feasibility phases. Our next question comes from the line of Javier Zavrilla with JPMorgan. Please proceed with your question. Hi, good afternoon. I just wanted to ask a little bit about guidance for the Q4. So obviously, last year, you had a very important quarter in the sense of hydrology output. You mentioned in your report that the reserves this quarter are higher than the Q3. Should we expect what should we expect for the Q4 in terms of hydrology and results? Thank you. Hi, Javier. This is Miguel again. Also as we have said before, we cannot comment about upcoming figures. What we can say is that we expect pretty much an in line situation for this quarter compared to the same quarter of last year. That of course in terms of hydrology. Our next question comes from the line of Arturo Murua with Santander Bank. Please proceed with your question. Hi, Veronika, Miguel, Sebastian, thank you for the call. My question is just to clarify a doubt regarding to the gas agreement you have with 3 companies in Argentina. I just want to know if the 3 agreements signed are short term contract until May or there is one that's more long term? Hi, Arturo. This is Miguel. Up to this moment, all of these agreements are short term natured. So basically, as you know, these contracts are substantially in the period in which Argentina has a surplus of gas. And because of this situation, for the moment, this should last up until April of next year at most. Perfect. And my second question, sorry if you already answered during the call. It's regarding to the weak results in Fenix Power. If you could give a bit of color of the reasons of this and if we should see weak results in the last quarter of this year also? Yes. The highest power. Yes. So we haven't answered that question yet, Arturo. So regarding Fenics, I can say it's mainly that the lower EBITDA for this quarter compared to the same quarter of last year, it can be attributed to mainly three reasons. The first one is lower sales to the regulated segment of clients. In 2nd place, higher other operating expenses, mainly due to a non recurrent income that we recorded in the same period of 2017. And in third place, higher diesel consumption in this quarter due to some operational tests we perform with this type of fuel because of the maintenance of the TGP gas pipeline. Those are the three main reasons that explain the difference between this year result and last year's result. We of course cannot provide further guidance for the Q4 of this year. Perfect. But during the next quarter, we should see a supply with diesel in Phoenix Power? No, we don't expect supply with diesel, only operation with gas. Okay, perfect. Okay, that's all from my side. Thanks a lot. Okay. You're welcome. Our next question comes from the line of Miguel Ovale with Crisco. Please proceed with your question. Hi. Thank you for taking my question. Just a quick one. Can you comment a little bit on your expectation regarding prices the local market? I know that this is an issue that is not affecting just you, but all the generator companies. But if you can walk us through the expectation regarding prices would be helpful. Thank you. Hi, Miguel. This is Miguel de la Con. Unfortunately, as you can imagine, we cannot provide guidance about our price expectations for that purpose, any other guidance for the future. Okay, great. Thanks. Ladies and gentlemen, we have reached the end of the question and answer session. And I would like to turn the call back to management for closing remarks. Well, thank you for the questions. So with this, we are concluding our results review. But before ending this conference call and on additional note, we would like to take this opportunity to wish our best to Veronica, our Investor Relations, who has decided to embark on a new professional challenges and will leave Colbun in the following weeks. So in name of the team of Colvun, we would like to thank Veronika for all the hard work and dedication to the investor community and best luck in everything Veronika. And with this, for those who have a long weekend, have a very nice long weekend and bye bye.