Greetings. Welcome to the Colbún first 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Sebastián Moraga, CFO. Please go ahead.
Hello, everyone. Welcome to Colbún's first quarter 2018 earnings review. My name is Sebastián Moraga. I am the CFO of the company, and joining me today are Miguel Alarcón, our Deputy CFO, and Verónica Cubillos and Soledad Razzoli, members of the investor relations team. I hope that you have received our first quarter 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 two is as follows. We will begin talking about the highlights of the quarter to then analyze in detail the quarter's results. After that, we will provide an update on our growth opportunities. Following the presentation, there will be time to participate in a Q&A session.
Please go to slide number three to review the key facts of the quarter. First, in terms of growth activities, in March 2018, Colbún reached an agreement with First Solar to acquire a PV solar energy project under development, which is part of the company's strategy to increase the share of renewable energy projects from variable sources in its generation mix. The project acquired corresponds to the photovoltaic park Sol de Tarapacá, located in Pozo Almonte's municipality, Tarapacá region, which considers a nominal power of 150 MW. On April 27, 2018, our shareholders' meeting approved a total dividend of $271 million, amounting a distribution of 100% of the net income for 2017. Please go to slide number four to review the main consolidated figures of the company. Consolidated EBITDA last 12 months for this quarter reached $701 million. Net income reached $293 million.
As of March 2018, financial investments totaled $881 million, increasing 9% compared to the balance as of December 2017, mainly explained by cash inflows from our operational activities. On its part, net debt-to-EBITDA ratio decreased from 1.2 to 1.1 times closing in March 2018. The average long-term financial debt interest rate is today 5%. I will turn to Verónica, who will speak about the main drivers of last year results.
Thank you, Sebastián, and hello to everyone. Please go to slide six for a review of the main figures of the year, starting with a physical sales and generation balance analysis in Chile. Total generation of the period increased by 8% compared to first quarter 2017, reaching 3.5 terawatt-hours, mainly explained by the higher hydrologic generation, partially offset by a decrease in natural gas and diesel generation. Physical sales during the quarter reached 3.4 terawatt-hours, increasing by 10% compared to the same period of the previous year, mainly explained by higher sales to unregulated customers and sales in the spot market, partially offset by lower withdrawals from regulated customers. Spot market balance during the quarter recorded net sales for 525 GWh, compared with net sales for 356 GWh in the first quarter of 2017. During the quarter, 100% of the company's commercial commitments were supplied with cost-efficient base load generation.
Now, please continue to slide seven to analyze Chile's EBITDA for the quarter. First, revenues for this quarter reached $354 million, increasing 6% compared to the first quarter of the previous year, mainly explained by higher, first, sales to unregulated customers. Second, energy and capacity sales in the spot market. Third, hydro generation. The higher revenues were partially offset by lower sales to regulated customers and 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. Raw materials and consumables used increased by 4% in the quarter, mainly explained by higher cost of gas and coal consumption. The higher cost of the quarter was partially offset by lower diesel consumption. We saw EBITDA increase by 7%, reaching $154 million as of March 2018.
Now, please continue to slide eight for a review of the main financial figures of Fénix, starting with a physical sales and generation balance analysis. Fénix thermal gas power generation reached 605 GWh during the quarter, decreasing by 15% compared to 715 GWh in the same period of the previous year. The lower generation is mainly explained by the lower availability of the power plant, mainly due to a longer annual major maintenance. Physical withdrawals from customers under contract during this quarter reached 754 gigawatt hours, 13% higher compared to the first quarter of the previous year, mainly due to the beginning of bilateral supply contracts and higher withdrawals of customers under contract. Spot market balance recorded net purchases of 154 gigawatt hours in the quarter versus net sales for 26 gigawatt hours in the same quarter from the previous year.
Now, please continue to slide nine to analyze Fénix EBITDA for the period. First, revenues during the quarter reached $53 million, increasing by 11% compared to the previous year, mainly explained by higher sales to unregulated customers due to the beginning of bilateral supply contracts, partially offset by lower sales to regulated customers. Raw materials and consumables used increased 19% compared to the same quarter from the previous year, mainly explained by the increase in energy and capacity purchases in the spot market as a result of the extended major annual maintenance compared to the first quarter 2017, at a higher marginal cost due to the failure occurred in the TGP gas pipeline in February 2018. Second, other operating costs resulting from a payment component that was previously recorded as energy and capacity purchases.
Third, as of January 2018, due to the regulatory changes, is recorded as other operating costs. The higher costs were partially offset by lower gas consumption due to the lower generation of the quarter. With all, Fenix EBITDA totalized $10 million, lower than the EBITDA of $11 million recorded last year. Now, let's move to slide number 10 for the consolidated non-operating income and net income analysis. Non-operating income recorded losses of $17 million, which compares positively with the loss of $21 million in the first quarter 2017. The lower loss in the quarter is mainly explained by, first, an increase registered in the land profits of companies accounted for using the equity method, as a result of revaluations of lands owned by HidroAysén due to its accounting at liquidation value.
Second, higher financial income due to a greater balance in cash and cash equivalents, and higher rates of return on investments on these cash flows. These effects were partially offset by the negative impact on the valuation of the Chilean pesos to US dollars exchange rate over temporary balance accounts in local currency during the quarter. Tax expenses amounted to $24 million, which compares with the tax expense of $14 million in first quarter 2017. The higher tax expense is mainly explained by, first, the higher profit before tax of the quarter in Chile. Second, the increase in the income tax rate from 25.5% to 27% in Chile. Third, the profit registered in first quarter 2017 in Peru as a result of the appreciation of the Peruvian sol during the period, an effect that does not occur in first quarter 2018.
The company recorded in first quarter 2018 a net income of $64 million, higher than the net income of $61 million of first quarter 2017. The higher profit is mainly explained by the increase in EBITDA recorded during the quarter. Continuing with this conference call, please go to slide number 12, where Sebastián will give you an update on the status of our growth opportunities.
Thank you, Verónica. 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. That's hydro, solar, and wind, based on three pillars. First, 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 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, or please refer to the latest earnings report available at our website. 2, acquiring energy from third parties. In this context, we have signed contracts with Acciona for 95 GWh a year, and with Total SunPower for 500 GWh a year. Third, finally, as a third pillar, the company does not rule out the purchase of renewable assets in operation. With this, we are concluding Colbún's first quarter 2018 results review. Thank you for listening. Now we are open to answer your questions.
Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question comes from the line of Joe Kogan with Scotiabank. Please proceed with your question.
Thank you very much for hosting the call. I was hoping you could talk some about the direction of electricity prices in both Peru and Chile. In Peru, I'd just love to hear an update on what's happening with spot prices, because I know they had hit lows
About a year ago, I understand have been coming up since. Then in both countries, both Chile and Peru, I'd love some more information about the rates at which you've been able to renew longer term contracts. I imagine you can't talk about individual contracts, but any comfort you could provide with regards to the prices of those contracts relative to spot prices would be helpful.
Hi, Joe. This is Miguel speaking. How are you? Thank you for your question. Regarding the first part of your question about the Peruvian market, I think it's a combination of numerous factors being a higher, better hydrology throughout the year and last year, the entrance of significant new capacity also in 2017. Finally, because of that, and also we've got a decrease in demand that has had its effect on marginal costs being around $10. That, of course, and also the delay on some of the major investments in the mining sector, it's pushing price downwards, and because of that, we see prices in the level I just mentioned. Regarding Chile, as you can mention, we cannot comment on actual specific prices.
What we can say, and this has been publicly disclosed, is that throughout the last year, we have been able to close new agreements, PPAs, with non-distribution companies who are the free clients. That has been, I would say, in better conditions to the prices we saw in the previous two regulated auctions. These are contracts of six years on average, mainly in the industrial sector, and a relevant portion of those, in terms of number of clients, not necessarily volume, come from this new sector of mid-size clients because of the change in regulation.
All right. Thank you very much.
You're more than welcome.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. One moment, please, while we pull for questions. Our next question comes from the line of Andrew McCarthy with Citigroup. Please proceed with your question.
Hi there. Good morning, all. Thanks very much for the question. I saw the change in the dividend payout ratio for this year up to 100%. I was just wondering if you can comment at all on how you see that evolving going into next year and beyond, please.
Hi, Andrew. This is Miguel again. Thank you for your question. As we mentioned on the last shareholders meeting, we approved a change in dividend policy in which we went from 30% as the, I would say, target ratio to 50% from 2018 onwards. As you may remember, during the past two years, we already paid the 50% of net dividends, although the policy was 30%. For this year, we're paying, I would say, at least for the moment being a one-time situation of paying 100%. I think going forward, of course, the actual payout will depend on how the results will evolve, the cash position, and of course, the growth opportunities we encounter going forward. I think what is our target, it's what's been approved in the shareholders meeting, which is 50%.
Thanks a lot.
Okay.
Our next question comes from the line of Miguel Ovalle with Crisol. Please proceed with your question.
Hello, everyone. Thank you for taking my question. Just a couple of follow-ups. Maybe if you can give us some more color regarding the Sol de Tarapacá project regarding CapEx or when do you expect the unit to begin? The second question is regarding the Fénix unit. You mentioned that you presented lower energy generation for maintenance. Is it planned? It was planned or it was something somehow unexpected? What can we expect about the energy, the power generation for the couple of next months? If you can give us some more color on the pipeline of other projects such as La Mina, Ojo de Pato, and San Pedro will be helpful. Thank you.
Miguel, hi. It's Miguel Alarcón speaking. I didn't get your first question, I'm going to answer the second one then ask you to repeat the first part. Regarding Fénix, as you mentioned, in February of this year, we had our annual maintenance, which was programmed to be longer than expected. Typical maintenance would last around 22, maybe 23 days, and this was about 30 days. Reason for that is that we took the time to replace the two main transformers of the units. We used to have Crompton Greaves transformers. That, according to our own assessment, needed a change, because of that, we installed two brand new Toshiba units. That's basically the reason for the longer maintenance, which was, as I mentioned, completely expected.
Okay, thank you.
Please repeat the first part of your question, which I did not get.
Our next question comes from the line of Sebastian Ramirez with Doseka Asset Management. Please proceed with your question.
Hi, guys. Congrats on the results. I have two questions. One is regarding the Chilean market. Specifically, I want to understand how are you seeing forward the dispatch of regulated client contracts? We saw a decrease during this quarter, which was totally expected. I want to understand if the current levels that we're seeing, it's what we should expect for the full of the year. Are you expecting even further dilution? What should we get from that? Secondly, I would like to understand, in the Peruvian market, if you can walk us through to the contraction level that you have for 2018 to 2020 in the mid to short term, and if you can comment something about what is your expectations if the new regulation is taken in place and actually force a declaration of a more real spot gas cost.
That would be beneficial for you or will be detrimental given that last year you contracted a lot of energy, which I think that most likely would be with the last year prices, not with a new reality of higher prices. Those two questions are from my side.
Sebastian, Miguel here. How are you? For the first part of your question, I would say that what we saw on this quarter, which is about a 10 or 11% decrease in physical sales on the regulated sector, is somehow what we expect for the full year. It's hard to say at this point because we're just starting the year. At least to me, I would say most of the effect, it's already incorporated either in last year's figures or for this year. Again, with the limited information we have so far, I see no relevant changes going forward. Although that's true, that's why, as you know, we've been incorporating new PPAs in our PPA portfolio in order to compensate for those lower sales on the regulated spectrum. Regarding your second question.
In Fénix, up until, I think it's the third quarter of this year, we are fully contracted in terms of our PPAs versus energy. Going forward, about a 75% contracting ratio up until 2023. Basically, we're looking for new contracts to compensate what's happening 2019 onwards. Regarding the change in regulation, it's hard to comment at this point. There are some discussions and some progress being made in order to better reflect the actual cost of producing with gas. At this point, I think it's not safe to comment on how that might impact Fénix going forward.
Perfect. If I may add one small question regarding SG&A within the Chilean operation. We've seen an increase on that. I'm just wondering, given that you're working on a lot of new renewable projects, that should be the explanation for that, or is it driven by any other thing?
Can you please elaborate a bit more on what you're seeing, what specific line you're looking on the SG&A line, Sebastian?
Just give me one sec to Our administration costs, plus other expenses by function. This quarter, those were $20.833 million and $58.619 million. Those two lines. That's taking out what you already are declaring for the Peruvian side. Maybe I can send you those numbers later.
Yeah.
On the range of-
What I can say, Sebastian, is we have not made relevant changes in our renewables teams or any other team in order to cope up with the challenges on building these new projects. We plan to do so with what we have already in the company. Having said that, more than happy to look at the numbers in detail and give you a proper answer.
Okay, great. Many thanks.
We have a follow-up question from the line of Miguel Ovalle with Crisol. Please proceed with your question.
Hi again. Sorry, I lost the line. The first question was regarding the project Sol de Tarapacá that you mentioned at the beginning of the presentation. Maybe I was wondering if you can give us some color regarding the project, the estimated CapEx. When do you expect the beginning of operations of the project? What do you expect in terms of EBITDA, or revenues, or any color that you can give us? Thank you.
Miguel, thank you for your question. I think it's a bit too soon to discuss specific figures. What I can say is that it's a greenfield project in which we need to go through the whole environmental approval process and further studies. Because of that, at this point, I think we're going to spend most of this year in that process. After that, we're going to have a better estimate in terms of CapEx and timing for construction. I think that's all we can say at this point, because once we decide on construction and have more details about the specific equipments and of course, included CapEx, we'll in turn would have more information about load factors, estimated production, and with that you can derive EBITDA. I think not at this point.
Okay. Thank you. That's clear.
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.
Okay, thanks everyone for attending this conference call, and look forward to see you again for the June 30 results. Have a great weekend. Bye-bye.