Conference Call Codensa and Emgesa 3Q 2014

Transcription

1 Conference Call Codensa and Emgesa 3Q 2014 Novermber 6, 2014 Richard: Welcome to the third quarter 2014 Emgesa and Codensa results conference call. My name s Richard and I ll be your operator for today s call. At this time all participants are in a listen-only mode. Later we will conduct the question and answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Juan Manuel Pardo Gómez Finance administration and invest relation officer. Mr. Pardo, you may begin. Mr. Pardo: Okay, well, thank you very much for joining us this morning. Welcome to our quarterly investor conference call. Today, we ll present Emgesa s and Codensa s results for the first nine months of We ll start by presenting the main highlights of the generation and distribution businesses in Colombia for the third quarter of this year. Then, we ll present the operating and financial results for Emgesa and Codensa for the nine months of the year; and finally we ll open the conference call for a Q & A session. Now, please join me to present Emgesa s and Codensa s nine months highlights from our three strategic goals: growth, competitiveness and sustainability. As you can see in slide four, since October 23rd of this year Enersys, Emgesa s and Codensa s controlling shareholder, is held directly by Enel to Spanish entity called Enel Energy Europe and not anymore to Endesa Spain. With this transaction, Enel continues to be the final controller of Enersys; this transaction is part of the reorganization activities of the Enel group in Iberia and Latin America. In the next slide, as you can see, Emgesa and Codensa maintain their previous shareholder structure and the changes only appear at the Enersys level, and Enel continues to be the final controller of Emgesa and Codensa. Now let s turn to slide number six, and we can see that, in terms of growth, during the third quarter of 2014, Emgesa s main highlights include: First, Emgesa continues to advance in the physical execution of its main expansion projects including the construction of El Quimbo, a directive plan, and the repowering of the Salaco chain in the Bogota River. Regarding El Quimbo project, we have already reached an 80% physical advance with an accumulated investment of 788 Million dollars out of the 1.09 Billion dollar budget. During this year, we started to force harvesting in the area in which the bottom of the reservoir will be located and we also started the civil works of excavation and leveling down of the area of the construction of the Tesalia substation. On the social and environmental front, in February 2014 Emgesa was notified of our ruling from the constitutional court regarding the senses of the population

2 affected by the construction of El Quimbo. This ruling required Emgesa to consider the inclusion of new population in the social plan was the company could verify the validity of the proofs provided by the people about the economic or social impact of the construction of the project in their previous way of life. As of September 2014 Emgesa has received about requests to be included in the sentence, and we are currently analyzing the validity of those requests. As for the advances in the repowering of the sixth unit of the Salaco chain in the Bogota River, we had a 93% physical execution as of the September This project will allow us to add Megawatts of installed capacity in generation to the former chain of minor plants. Accumulated investment in this project already reached 34.9 Million dollars from a total budget of 43.7 Million. During 2014 we started operations with the second unit of the Salaco plant, formerly known as San Antonio, and the fifth unit of the Dario Valencia plant, formerly known as La Tinta and La Junca, with the completion of this project in the following months we expect to increase Emgesa s total installed capacity to Megawatts by the end of this year. Finally, during 2014 we started operations as a gas supplier and we were allocated three contracts to purchase a total of Million of British thermal units on a daily basis to overcast to the wholesale market starting next year. In slide number seven we can see that on the competitiveness and financial front during the third quarter of 2014, it is important to highlight that the Emgesa had positive hydrological conditions with higher than average rain levels in the regions where its main reservoirs are located. Rain levels for the Betania, Guavio and Bogota reservoirs were above the historical average. The Guavio powerplant reached its highest historical montage generation with 860 gallons/hour a month in average. Regarding the financial highlights for the period, it is important to notice that Emgesa presented the open balance sheet under IFRS as of January 1st 2014 to the superintendences of public services we organized a visit to the construction site of El Quimbo and Betania power plant with a group of local investors and financial analysts during October 2014, and we may give it in payment to shareholders for 259 Million dollars year-to-date. In the following slide regarding Codensa s main highlights in terms of growth it is important to mention that during the third quarter of 2014 Codensa had important advances in three main electric substations under construction. The Nueva Esperanza substation located in the southern part of the city of Bogota received the environmental license in July This substation will convert 500 to 150 Kilowatts to serve the increasing electricity demand in Bogota and central region of the country. In the Norte substation located in the north part or central region of the country, Codensa located the contract to provide the technical equipment. This substation will improve the quality of service in the region. In the construction of Bacatá substation we had a 40% advance in civil works and a

3 97% execution in the civil and mechanical engineering. The main goal of this project is to ensure the supply of the increasing electricity demand in the Bogota area while the Nueva Esperanza and Norte substations are built. Second, Codensa has also been actively working in the past two years with the District of Bogota to promote the electric mobility as an environmental friendly initiative for public transportation in the capital city. During the third quarter of 2014 the Bogota Electrical Public-Private association in which Codensa participated as a technical advisor submitted the feasibility study to the District of Bogota for an initiative to include electric buses in Phase 1 and Phase 2 of Transmilenio, the massive transportation system of the city of Bogota. This initiative represents a total investment of more than 2.7 Billion dollars in a thirty years term, with investments in electric infrastructure from Codensa of about 148 Million dollars. In terms of competitiveness in a distribution business, during the third quarter of 2014 the Colombian regulator published resolutions number 79 and 112 regarding the tariff revision on the distribution component that they have been carrying out since These two resolutions established the guidelines and the preliminary criteria to determine the UAC applicable to calculate the return and the investment in electrical assets for distribution companies. Distribution companies reviewed and commented the resolutions and submitted those comments to the regulator. We expect to have a final version of the resolution by the end of the year, so that it will be applicable during the second half of next year. Codensa had also advances in the project to modernize the public lightning in Bogota. This project aims to replace about light bulbs of sodium with electronic ballast bulbs and to install LED lights bulbs in Bogota between 2014 and Total investment for this project is 83 Million dollars. During the third quarter of 2014 Codensa selected the supplier for part of the LED bulbs to start installing during December of About the financial highlights for the period it is important to notice that during July 2014 feature ratings confirm Codensa s local ratings in Triple-A with a stable outlook. These rating options took into account the current tariff revision in the distribution business in Colombia. Also it is important to mention that in September 2014 Codensa issued the third crunch under its local pro bond program for an equivalent in pesos of 91 Million dollars with a seven year tenure and a final coupon of CPI plus 3.53%. This issuance has 2.1 times oversubscribed. The resources from this transaction will be used to finance the cash flow needs of the company in the long term including Codensa s working capital investment plans. Codensa also presented the opening balance sheet and their IFRS after January 1st 2014 to the superintendences of public services, and finally in the slide number ten, in terms of sustainability, Codensa and Emgesa have been working in educational programs with communities such as Educando con energía and Luces para

4 aprender, El bosque renace that is an environmental initiative to contribute to the perfection and restoring of the Bogota River ecosystem, an alliance between Codensa and Andes University to participate in the project Solar Decathlon 2015 which would take place in Cali in December of 2015 and it aims to promote the development of renewable energies, specially solar energies for social housing. We also received recognitions to the work Emgesa and Codensa have done in terms of corporate governance and social responsibility that include the renovation of the IR recognition by the Colombian stock exchange to the issuers that meet the highest standards of transparency and corporate governance in Colombia, and to the companies with the best practices in investor relations. Codensa was also recognized as one of the most sustainable companies in Colombia for its efforts to promote innovation within the company through a system called Ideo by El Espectador, a local newspaper. Now, please join me in slide twelve to present Emgesa s and Codensa s operating results between January and September of Let s begin with Emgesa s operational results for the first nine months of 2014 in slide number twelve as you can see in the upper part of the graph total generation reached Gigawatts/hour with 93% of total generation coming from our hydric plants and 7% from our thermo plants. Total generation during the first nine months of the year increased by 9.4% as compared to the same period of 2013, due to higher rain levels in the areas in which Emgesa s reservoirs are located. The average availability level of our plans was 91.3% slightly below the levels of the same period of In terms of install capacity, our market share increased to 20.7% due to the entrance into operation of two additional units of the Salaco chain. Moreover, in terms of total generation, our market share increased to 22%. Going to Emgesa s sales volume, during the first nine months of 2014, you can see that total sales reached Gigawatts/hour, representing 0.3% increase compared to the same period of 2013 as a result of higher hydro generation by our plants. Out of total sales, you can see in the upper part of the graph that 67% were made to contracts, and the remaining 33% was sold in the spot market. Out of the sales made to contracts, 70% were made to clients in the wholesale market, which includes distribution companies such as Codensa, and 30% were made to clients in the IR regulated market, which includes large industrial companies. Our commercial policy aims from an ideal mix of sales on the spot market and to contracts that minimizes volatility of the variable margin of the company, and at the same time our commercial practice aims to hedge the sales to contracts with the company s own generation. During the first nine months of 2014, Emgesa supported 86% of its sales with its own generation and 13% with purchases in the spot market. The market spot price, as you can see in the lower part of the graph, of electricity during the first nine months of 2014, averaged 239 pesos per Megawatt/hour increasing considerably compared to the first nine months of

5 2013, as a result of the expectation of a strong dry season, called El niño, by the last quarter of In the following slide, we ll present Codensa s operational results for the first nine months of As you can see in slide 14, national electricity demand growth reached 4.16% for the last twelve months, ending in September 2014 above the figures for the same period of This result is due to the important growth in energy demand from the mining and oil industries. Electricity demand in Codensa s area grew by 2.2% on an annual average rate basis, still below the growth in national demand, but showing an important recovery in the growth rate due to the increase in demand from the manufacturing industry located in Codensa s area of interest. In slide 15 you can see that Codensa s electricity demand reached Gigawatts/hour in the first nine months of 2014, that s a 2.17% increase compared to the same period in Codensa remained the largest distribution company in the country, serving 23.2% of total national demand. In terms of sales volume by type of market, Codensa s sales to regulated customers represented 62% of the total electricity demand in Codensa s area, while demand for the use of Codensa s networks by other commercialization companies represented 31% of the total, and the use of Codensa s networks by other network operators represented 7%. In slide 16 you can see that during the first nine months of the year, Codensa added , new clients, exceeding 2.75 Million clients by the end of September. If we add the client base of Empresa de energía de Cundinamarca, we reached three Million clients at the end of September. The client base had a 3.3% growth with respect to the numbers of clients of September 2013, adding clients on a yearly basis. Regarding the quality of service, we present the results for the side D and the side C indexes. As you may recall, the side D measures the average interruption time in the electricity service, and the side C index measures the average number of interruptions of this service on a monthly basis. During the first nine months of 2014, Codensa experienced an increase of 10.1% in the number of interruptions and 14.9% in the length of the interruptions of the service, compared to the results of the same period of These results are a consequence of several factors that include: strong rain in certain areas where Codensa operates, the execution of schedule mains works and the failure in the Usme substation in May that affected more than clients for about 26 hours. Codensa has been working in including remote control devices in the medium section network and to modernize metering equipment to reduce the time of failure detection with an investment of about 124 Million dollars between and 2018.

6 As of September 2014, we reached 7.06% lotus index level. We continue to see positive results from de renewal and technological update of our macro measurements infrastructure in order to better control theft and irregular activities in real time, and the implementation of new programs to promote a culture of payment. Now, please join me in section three of the presentation to show you Emgesa s and Codensa s financial results for the first nine months of As you can see in slide 20 Colombia is an important asset for the Enel group; it was the first Ebitda contributor in Latam, representing 43% of the total region s Ebitda. In terms of business units, Emgesa contributed with 42% of the Ebitda in the generation business in Latin America, while Codensa represented 39% of the region s Ebitda in the distribution business. Regarding our aggregated results in slide 21, we can see that Codensa and Emgesa during the first nine months of 2014 that the revenues for the two companies for this period totaled 2.3 Billion and the aggregated Ebitda reached 1.1 Billion dollars. Total assets reached 7.8 Billion dollars as of September 2014 which were back by 4.3 Billion dollars in total equity both are companies already triple A, locally by Fitch and Emgesa holds a triple B international credit rating by Esan P and Fitch rating. Regarding Emgesa s results In slide 22, we can see that for the first nine months of 2014 Emgesa s operating revenues grew by 12.2 % in pesos as compared to the same period of 2013, reaching 1 Billion dollars as a consequence of higher energy sales crisis on the spot market, and a 14.7% growth in sales volume in the spot market. The cost of sales decreased by 3.1%, due to a lower thermo generation compensated by a higher hydro generation. The company had a 21.4% increasing Ebitda in the first nine months of 2014 as compared to the same period of 2013, totaling 670 Million dollars due to the above mentioned operational results. Net financial expenses increased by 7.6% as a result of higher debt balances and higher interest rates than the averages that we had in the first nine months of As a result, net income increased by 24.9% totaling 398 Million dollars. Between January and September 2014 Emgesa s margin and Ebitda margin increased to 39.4% and 65.7% respectively, confirming the flexibility embedded in our commercial strategy. About 63% of our operating revenues came from contract sales and reliability payments, that granted stability and predictability to our cash flow and financial results. Regarding Emgesa s key trade metrics, as of September 2014 we had a debt to Ebitda ratio of 2.1 times, decreasing from the level of December 2013, as a result of the growth in Ebitda during the year despite of the increasing of our financial debt. The Ebitda tuition expense covered ratio calculated from the PNL

7 figures increased to 14.4 times and the same ratio using interest rate increased also to 7.9 times given the growth in the Ebitda. Total financial debt outstanding amounted 1.8 Billion dollars increasing by almost 14% in pesos compared to the balance as of December 2013 and net financial debt totaled 1.2 Billion dollars increasing by 10.8% compared to the one as of December This result is due to the issuance of the sixth crunch of bonds under the local bond program for 291 Million dollars in May, to fund part of El Quimbo s 2014 investment to pre-fund a local bond maturity that we had in July and to fund part of the working capital needs for Debt over equity increased from 55% in December of 2013 to 63.4% in September of 2014 due to higher debt balance. Financial debt over assets ratio also increased to 34.6% for the same reason. In slide number 24, you can see that as of September 2014 we have already invested more than 788 Million dollars in El Quimbo since the beginning of its construction. During the first nine months of 2014 we invested 282 Million dollars in El Quimbo and the repowering of the Salaco generation chain. Main CAPEX for our grown assets, which is mainly preventive, reached 23 Million dollars in the first nine months of Now let s move to Codensa s financial results for the first nine months of As you can see, revenues in pesos increased by 7.2% during the first nine months of 2014 as compared to the same period of 2013, mainly as a result of growth in energy demand increased in the generation component of the price to regulated clients the increase in the PPI year-to-date in which Codensa s revenues are indexed and to higher revenues associated with maintenance of electrical infrastructure. The cost of sales increased by 7.7%, as a result of higher prices of electricity purchases in the spot market. Codensa purchased 11.6% of the energy required to self-demand in the spot market and the residual amount was purchased to contracts at prices that are not indexed to spot prices. Codensa s Ebitda reached 417 Million dollars showing a 4.5% increasing pesos as compared to the same period of 2013, as a result of the reasons above mentioned. Net financial expenses increased as a result of higher interest rates, but mostly because during 2014 we did not continue capitalizing expenses related to projects since we didn t have its corresponding debt. Consequently, the company s total net income reported was 194 million dollars, up by 1.4% compared to September of Our time base remains mainly composed of residential and commercial clients, adding up to 83% of the total sales in Gigawatts/hour. Codensa s key trade metrics remain strong and consistent with the Triple-A local rating of the company. You can see that debt to Ebitda stood at one time, thanks to the Ebitda growth in the first nine months of the year, and to a

8 lowered advantage as compared to the one in December of Ebitda s tuition s expenditure cover ratio decreased to 14.5 times for the last twelve months, ending on September 2014, due to an increase in rates, mainly CPI, at which a hundred percent of Codensa s debt is indexed. Total debt stood at 580 million dollars, decreasing by 5.2% in pesos, with respect to December 2013, while net financial debt increased to 371 million dollars by September of This is a result of the maturity of local bonds, with the equivalent in pesos of 123 million dollars in March 2014, and to the issuance of the third crunch of bonds under the program, for an amount of 91 million dollars in September 2014 with a 7 year tenure. Sorry for the interruption. As you can see in slide 26, financial debt over assets decreased to 22% mainly as a result of the amortization of debt in the first quarter of 2014, while financial debt over equity decreased to 39% as a result of the declaration of dividends in March 2014; they couldn t do 100% of the net income of In slide 27 you can see that during the first nine months of 2014 Codensa invested a total of 98 million dollars in CAPEX out of which 40% was dedicated to improve quality of service, 39% was focused in serving new demand, 15% on safety and 7% to control non-technical losses. Finally, we want to conclude the presentation with the main highlights of the companies in Colombia for the first nine months of As we saw, we had important growth in operational results, with strong and positive impacts in the financial results. We had important progress in the execution of El Quimbo plan, and the Salaco chain repowering, two major generation investments that will increase Emgesa s install capacity by more than 18% by And we had solid, sustained financial trade metrics, allowing average indicators, both in Emgesa and Codensa, that support our local Triple-A and international Triple-B grade risk ratings. This ends our presentation for today; thank you very much for your attention and do not hesitate to contact me or the indexed relations team at any time, if you need further information. We ll now open the conference call for our Q&A session. Richard: Thank you. We will now begin the question and answer session. If you have a question, please press start and 1 on your touch tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you re using a speaker phone, you may need to pick up the handset first, before pressing the numbers. Once again, if you have a question, please press start and 1 on your touch tone phone, and we re standing by for questions. We have a question online from David Ubilla, go ahead. David: Thank you very much. I want to know something about the future of the Emgesa and Codensa thinking about the project, and specifically: do you know something about the rate of growth in this company that we can know? And if

9 you can give me some guidance about the projects from Codensa and Emgesa in order to know something about the rate of growth. Thank you very much. Pardo: Well, in both companies we have an important expansion plan in the distribution business and the generation business. We are already executing such plan. In the generation business, we are finalizing the repowering of the Salaco chain and the construction of El Quimbo that, as was mentioned, will add about 18% to our install capacity, but we also have an important portfolio of projects that we are analyzing and that are in different stages of study. We want to be ready in order to add capacity into the system as the demand of electricity in Colombia requires more capacity. So, we continue to monitor and to identify new opportunities in order to add more capacity into the system as long as the system requires more capacity. In terms of the distribution business in Codensa, we also had an expansion plan that is important, that we started to execute it in It is the purchase of Empresa de Energía de Cundinamarca, along with our shareholder Empresa de Energía de Bogotá, but we are also implementing initiatives in order to motivate the increase in the electricity demand in Bogota area. We are very focused on motivating the electric public transportation and we also will continue monitoring the (?) in order to grow the operations of the company. David: Okay, thank you very much. Richard: Once again, for any question press start then 1 on your touch tone phone. I have a question on line from Mr. Diego Buitrago (From Bancolombia) Colombia. Please go ahead. Diego: Thank you for the presentation. My question is regarding the term energy obligation of Emgesa s thermal plants. I want to know to what year Emgesa has made this energy payment obligation. Thanks. Pardo: Excuse me, could you please repeat the question? Diego: Until what year Emgesa has made the payment obligation of its thermal plants in terms of availability of field, coal or liquid fields. Pardo: I don t know the details of that information; I will send it to you through the , because right now I don t have the details for that question. Diego: Okay, thank you. Richard: Again, press start and 1 on your touch tone phone for any questions. And at this time I see we have no questions in queue. Pardo: Are there more questions?

10 Richard: There are no further questions for this time. Pardo: Okay, well, thank you very much once again and please feel free to contact us if you need any further information. Richard: Thank you ladies and gentlemen. This concludes today s conference. Thank you for participating. You may now disconnect.