Earnings Call: Q2 2018

Aug 3, 2018

Greetings, and welcome to Cobun Second 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. Please go ahead. Hello, everyone, and welcome to Colvoom's Q2 2018 earnings review call. My name is Artem Moraga. I am the CFO of the company, and joining me today are Miguel Arcon, our Deputy CFO and Veronica Povil from the Investor Relations team. I hope that you have received our Q2 2018 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 2 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 a Q and A session. Now please go to Slide number 3 to review the main highlights of the quarter. 1st, regarding the commercial strategy. In June 2018, Corbun signed a power supply agreement for 5 50 gigawatt hour with Mineira Saltigas from renewable power sources for a period of 10 years starting in July 2020. 2nd, related to the company's international credit rating, in June 2018, Moody's assigned the BAA category with a stable outlook to Galpon and its best securities issued in the international market. Added to the BBB stable rating assigned by Standard and Poor's and Fitch rating, thus consolidating its investment grade rating. Finally, in terms of growth, in June 2018, the Obegeria PV project began its commercial operation. The power plant qualifies as a PMGD is located in the metropolitan region with an installed capacity of 9 megawatts. Now please go to Slide number 4 to review the main consolidated figures of the company. Consolidated EBITDA last 12 months in this quarter reached EUR 696,000,000 and net income reached BRL 259,000,000. As of June 2018, financial investments totaled BRL 696,000,000 and mainly explained by the final dividend payment for BRL 213,000,000 performed in May 2018. On its part, net debt to EBITDA ratio slightly increased to 1.3x closing, and the average long term financial debt interest rate is 4.5%. 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 year, starting with our physical sales and generation balance analysis in Chile. Total generation of the period increased by 4% compared to the Q2 of 2017, reaching 3.5 terawatt hours, mainly explained by the higher hydro and gas generation, partially offset by a decrease in diesel and coal generation. Physical sales during the quarter reached 3.4 terawatt hours, increasing by 4% compared to the same period of the previous year, mainly explained by higher sales to unregulated customers and sales to the spot market, partially offset by lower sales to regulated customers. Spot market balance during the quarter recorded net sales for 5 0 7 kilowatt hours compared with net sales for 4.76 kilowatt hours in Q2 of 2017. During the quarter, 100 percent of the company's commercial commitments were supplied with cost efficient base load generation. Now please continue to Slide 7 to analyze Chile Federica for the quarter. First, revenues for this quarter reached $349,000,000 slightly increasing compared to the Q2 of the previous year, mainly explained by higher sales to unregulated customers and higher generation. The higher revenues were partially offset by lower revenues from transmission methodology in the collection of these sold, which as of January 2018 are paid directly to the owner of the transmission facilities and second 3rd, to regular customers and third, energy and capacity sales in spot markets. Raw materials and consumables used increased by 3% in the quarter, mainly explained by higher cost of gas and coal consumption. The higher cost of the quarter were partially offset by lower diesel consumption and transmission toll costs. With all, EBITDA decreased by 4%, reaching BRL 142,000,000 as of January 2019. Now please continue to Slide 8 for a review of the main financial figures of FENICS, starting with our physical sales and generation balance analysis. FEMEX thermal gas power generation reached 1 terawatt hour during this quarter. Physical withdrawals from customers under contract reached 805 kilowatt hour and spot market balance recorded net sales of 174 kilowatt hour in the quarter. Now please continue to Slide 9 to analyze Fenics EBITDA for the quarter. Revenues during the quarter reached $52,000,000 while raw materials and consumables used amounted $38,000,000 On Spark, personnel and other operating expenses were $10,000,000 We saw EBITDA totalized $12,000,000 in the period. Now let's move to Slide 10 for the consolidated non operating income and net income analysis. Non operating income in Q2 2018 recorded loss of $31,000,000 which compares with the loss of $1,000,000 in Q2 2017. The higher loss in the quarter is mainly explained by: 1st, a non recurring income of $23,400,000 as a result of the recognition of our deferred tax assets in our subsidiary, Phoenix second, the negative impact of the variation of the exchange rate over temporary balance accounts in local currency during the quarter and third, accounting record in the lines other profit losses of provisions for impairment of specific assets for BRL 4,000,000. These effects were partially offset by: 1st, higher financial income due to higher rates of return on investments of cash surpluses and second, an increase registered in the lines profit loss of companies accounted for using the equity method as a result of the dissolution of Hypersense in November 2017, which prior to the dissolution presented losses. Tax expenses amounted to MXN 19,000,000 dollars in line with the Q2 of 2017. Although Q2 of this year shows lower profits before taxes than the same quarter of the previous year, tax expenses remain in line mainly due to the increase in the income tax rate from 25.5 percent to 27% in Chile and the constant profit at business combination level in our subsidiary FENICS registered in the Q2 of 2017, previously explained if not taxable income. The company recorded in Q2 of this year a net income of BRL 45,000,000 lower than the net income of BRL 78,000,000 of the Q2 of the previous year. The lower profit is mainly explained by the higher non operating losses recorded during the Q2 of the previous year previously explained. Now continuing with the conference call, please go to Slide number 12, 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, Colombia and Argentina 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 based on 3 pillars. The first one is developing a pipeline of projects. And within this, although 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 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. For more details on this slide, you can see the list of our current portfolio of projects, but please refer to the latest earning reports available at our website. 2nd, acquiring energy from 3rd parties. And in this context, we have signed contracts with Axiona for 90 5 gigawatt hour year and with total SunPower for 500 gigawatt year. And finally, as a third pillar, the company does not rule out the purchase of renewable assets that are currently in operation. With this, we are concluding Corvone's 2nd quarter results review. Thanks for listening, and now we are open to answer your questions. Thank you. At this time, we will be conducting a question and answer Our first question comes from Arturo Murua with Santander Bank. Please proceed with your question. Hi, guys. Sebastian, Belonica, thanks for the call and the presentation. And my question is regarding to the provision for the impairment. If I'm not mistaken, it's about Santa Sofia, which is a solar project. I want to know why the impairment, if you have yet to go through to renewal. So just a bit of color about this impairment. Arturo, hi. This is Miguel speaking. So regarding your question, this asset impairment corresponds mainly to a photovoltaic project that we acquired as part of the finalization transaction that occurred about 2 years ago, in which Corvone finally decided not to pursue this project for the moment as part of its ongoing review that we currently perform for our portfolio of projects. We purchased this project as part of the financial PBAs. But as mentioned, we decided not to pursue since these assets compressed mainly of rights of way and studies. Perfect. Thanks. Thanks a lot, Miguel. Our next question comes from Miguel Ovale with ColdBuen. Please proceed with your question. Hello, Tim. Thank you for taking my question. Just one question regarding the color for the remaining of the year and your expectations regarding maybe revenues on the performance of the units? And if you have some guidance or any color regarding EBITDA, it will be helpful as well. Thank you. Hi, Miguel. This is Miguel again from Colborne. So as I think we have mentioned before, unfortunately, we cannot provide guidance or estimations about either hydrology, performance of the units or results in general. Okay. Understood. But do you have like any kind of expectations about the like the performance of the company in the short term given the lower EBITDA registered in the period? Do you expect if you're going to pursue something like that? And just on the recall, it would be helpful on that. I would say Miguel that again in general although we cannot provide an estimation or color on what you're asking. As you know, typically, we work considering unexpected hydrology based on an average of the previous years. And with that, we put together a certain expectation of output on the different units and linked to that results for the company. Having said that, again, it is too soon to give information about hydrology and we need to wait for the melting forecast that will come in August and before that on the actual waiting for in the months to come. Ladies and gentlemen, we have reached the end of the question and answer session. And I would like to turn the call back to Sebastian Moraga for closing remarks. Hi, this is Miguel. So thank you everyone for joining this conference call and we hope to see you all again for the next quarter review. Have a nice