Aguas Andinas S.A. (AGUAS-A.SN) Earnings Call Transcript & Summary

Thank you very much for being with us this opportunity. We're going to comment the main aspect of the results in our 30 September 2025. We have the CFO of the company, [indiscernible] and Christian Torres, the Manager of Management and Accounting. [Operator Instructions] We would like to remind you that later on, we will have a replay available on the web and there is simultaneous interpretation and you can press the button to [indiscernible] And now I'll give the floor to Miquel Sans to start up this presentation.

Hello. Good morning. Good morning, everyone. As usual, before going into the details of the results of these first months of the year, I would like to deal with some contextual topics. First of all, we have the hydrological levels of the first 9 months in the city. And this was lower compared to last year. It was the second most important since '17 with the third quarter with the rainfall that was very similar to the rainfall last year it was distributed in a different manner. Last year in August, we had intense rainfalls and this year has been better distributed throughout the year. In the Mount range, the water accumulated is lower than compared to 2024, but we still have the dam at 84%, which is very comparable to the levels that we have day by day. As part of our optimization from the operational point of view, we have this available in the basin. In this quarter, we have agreed some transfers that have been helpful to maintain this level at this time. And also preserving the resources that we have. Now concerning the different rates, I will give you a summary of the present situation, the publication of the decree of water and that was published the same day that we have the conference for the results in the first quarter at the end of August this year. Last week, the decree of our [indiscernible] was published, which will allow to build with the new rates in this company. And then we have the basic rates that we have also information available for the next publication. Regarding the rates related to the standard changes at the end of October, we have the authorization of the regulator in order to apply the additional rate of 0.5. We [indiscernible] effect September 15. Concerning the projects that will go in the short term in the case we have this course as [indiscernible] into operation in the next coming weeks. This will mean that the rate will be effective in the first quarter next year. I would like to comment to you that in the last Board of Directors, we approved the distribution of the provisional dividend of the result of over CLP 42 million, which is CLP 683 per action and the payment will be effective on December 2. Now concerning the ratings. In the last quarters, we have been ratified as A- by Standard & Poor's in international rating and the positive in the local rating. And finally, I wanted to highlight a fact that happened a month ago. Aguas Andinas was recognized in all the categories of the rating with the best companies in the 6 participating countries, a leader in sustainability and relationship with investors, which is a reason of pride for us as a company. I will give the floor now to Christian, who will give further details what happened in the first 9 months of the year.

Thank you, Miquel. Good morning, everyone. We have the closing of the third quarter that is ratifying once again the positive evolution and the pathway of the operational results in the company. In terms of EBITDA, we have an increase of 8.1% as compared to the same period of last year. In June, this was 6% and in March 4. is to say that as a result of the coming into force of the new rates from the tariff process of the [indiscernible] the evolution of the company's income. And at the closing period has an increase of 7.8% as compared to last year. The main effect is what I was commented that is associated to the new rates as well as the indexation by that were reflected last year. In the case of the last indexation was in September last year with 3.2% and in March this year with the coming into force of the new process with 2.6%. In terms of the volumes and the growth in consumption, we have a variation of 1.2%. And in the last quarter, it was increased positively in 2.8%. The first part of the year was rather steady and flat. In the last quarter, it goes up. This is quite linked to a management, commercial management, very active that is taking place at the level of the company with different projects that seek to improve the commercial efficiency in terms of measuring and also building. And there are two projects to highlight, one of them related to the installation of meters and the second one, the management of the green areas of Santiago. And this allowed to recover the measurement and the building of some sectors of the city that were not recorded. In terms of the non-sanitary income, the variation is positive and because of the nonregulated branches and also the better income related to the gains for the services to clients. And last year, we had two incomes that were not recurrent. So for example, the insurance reimbursement and also the engineering services that are related to the construction of Line #7 of the subway. So at the income level, we can say that the sanitary income has an important significant growth rate. On the other hand, also we have the volumes as a result of the new rates that are in force and being applied right now. On the side of the cost, they are going up by 7.5%. It is important to highlight 66% of the increase of costs are explained asset vitiate or organic nature. What do I mean by this? This is to say the growth rate is related to the variation of the consumer price index, CPI and also a part is related to the variable cost of production. We have higher costs and a part of it is related to the cost. We also have the cost related to income by the non-sanitary side and also as a result, of course, related to the new additional rates that are already into force. And first of all, we have one of them that is related to the transfers of water that are offset partially. And as we said before, we already were authorized for the plan of alternative supply. And this is all the logistics that the company is putting in place as the cases of force majeure or as of acts of God. And we were explaining also the 66% of this increase in cost. Another relevant information that we can highlight, first of all, is the cost of staff and there were some regulatory changes that are already in place. 1/3 of this increase of the cost is explained by this. And would like to highlight something that is related to the working hours, 40 hours a week, so that the ships have to be accommodated consequently. And as of August, we have sold the new labor reform and this goes as a charge for the employer. We have to consider the increase of the minimum salary and this is also reflected in the compensation that is paid to all the payroll. 1/3 of this is explained by this and another 1/3 is explained as accounting element associated to the evaluation of the actuarial value that is related to the reserve by the number of services that is part of the collective bargaining that the company has with the work. Another 1/3 is explained by greater costs associated to personnel necessary personnel in order to maintain service continuity, increase standards and also to develop new projects, new initiatives within the framework of the transformation projects, which also implies efficiencies that the company has been capturing. Another cost concept that has been relevant during this fiscal year is electric energy. As you know, it has been an issue in the country, and this is reflected in an increase of the regulated tariffs of the operational entities of the company. This is an increase. And also at the level of consumption, the company has developed initiatives that have allowed to optimize and reduce energy consumption. And during the period, the consumption has reduced by 7.5% regarding the production of water using less wells, as well as the biofactory with great generation. So this 7.5% represents a savings of around CLP 2.5 million. This -- without these actions, the impact because of the electric rates would have been even better or even greater. The other operational costs, as we have been saying, is the development of certain activities that are relevant and strategic for the company. For example, the implementation of some -- implications for business support that this entered into force in the past quarter of last year. And with this, we already have been applying it for 1 year, and it is part now of the structural cost of the company. Also, we have continued working actively in our networks regarding the -- this obstruction of collectors, as well as the detection of leaks associated to our water efficiency plans. Amongst other commercial management, it is important to state that there is an active management due to the cut because of clients that have debt. And this is part of the collection actions that the company is carrying out. This elimination of the service, the model says that when we visit the client, we offer the possibility of paying right there their debt before the service is cut. And this plus other measures that the company has carried out has allowed the debt level and the bank debt to be stabilized in terms of percentages of the income by the end of this period is at 1.3%. And if we compare this with the last year, it was 1.4%. So for us, this is good news because the evolution of the debt has become stable consistently after the pandemic period. And finally, it is important to state that amongst other plants, that the company is developing, we have the transformation program, which is the umbrella that generates most of the initiatives in order to look for economic efficiency and operational performance for the company. At the end of this period, we have captured efficiencies for more than CLP 2.6 million. And one part of that come from this project as well as the purchasing management of the company. So in summary, the income has increased by 7.8% compared to 7.5%. And this explains the positive evolution of our EBITDA and operational results, which we closed at CLP 254 billion. Under the EBITDA, we need to highlight one, the financial results here. There are three components that explain the financial results of the company. The first is the financial costs associated to the debt of the company. By the end of this period, we have a greater debt compared to last year and also the composition of the debt change. And in the first part of the year, we paid for bank loans and credits that had been obtained at very low rates. Now we have a debt composition that is at the market rate. The other relevant issue is the monetary correction of our financial debt because this represents a variation of almost CLP 3.8 billion. And finally, this is compensated because at the level of financial income, we had an improvement compared to the surplus management that the company has. And at the level of our results, the variation is negative, basically because last year, we had the effect, a nonrecurrent effect or a one-off effect that was the sale of our landlord for an amount equivalent to CLP 4 billion. And this explains the variation in this line of other results. And at the level of income tax, the effective rate for income tax includes the monetary correction of the assets or the capital. And therefore, this generate a positive variation of CLP 720 million. And in the last line, the net profit, we closed this period with a profit of around CLP 97 billion, and this represents an improvement growth of 6.5% compared to the same period in the past year. In terms of cash generation, this is still positive and robust for the company. In terms of the operational cash flows, the collection has been stable and positive. And this allows us to compensate the working capital with the payment for suppliers. A significant effect that we have commented has been at the level of taxation because starting from this year, we applied the accelerated depreciation of our taxable fixed assets, and we had a recovery of almost CLP 26 billion, which are incorporated in the cash of the company. To this, we need to add that starting in May, we are already paying a rate of a PPM, which is a provisional payments and income tax monthly that is done periodically. And therefore, this contributes to an improvement in terms of this concept for CLP 30 billion. Another important matter is the CapEx paid, the payment of investments, and this is associated to the seasonality of the execution of the projects. This is not linear. So this depends on the type of projects and when they are executed. Therefore, this explains the positive variation in this period. As a result of the free cash flow, we have CLP 51 billion positive compared to the previous period. And then we have the asset sales that last year we had. And at the level of taxes, there is a variation, a positive variation. We need to consider that the payment of the minimum dividend was done -- the provisory dividend was done in January of this year and not in December as it is usually done every year. With this, at the level of cash flow generation, we have a positive variation of CLP 21.7 billion. When we see the variation of our cash position, this is reflected just as the variation of the net financial debt. The variation of the debt increase due to the monetary correction, particularly the debt monetary correction, more than CLP 59 billion but it is compensated by this positive generation of cash flow during the period. At the level of debt structure, there have not been any variations in the past quarter. Just to remember that during this fiscal year, the company went out to the local market with a placement with a bond of $4 million. And right now, 33% of our debt has the category of green and social. And 81.1% of the debt is based on the U.S., which explains the variation at the level of financial results. And with a composition of variable fixed rate of 96.4%, and this provides a lot of stability and risk mitigation given the volatility in the market. And in terms of investments, the company maintains its investment strength in order to ensure the secure supply in this context of climate change. And this is leveraged in our pillar of BiocitY, which are those strategic projects in the short and midterm, which have the purpose of providing this safety in the supplies. And this has been collected in the last result of the rating period. Our investments are based fundamentally in the renewable of networks, both drinking water as well as wastewater that are part of this category of development plan. And also the management of renewable -- renewal of meters in terms of the corrective part. As part of the project that will have future rates, we are developing and we are at an advantage stage, the deauthorization in the La Farfana Biofactory. And in September, it has been with a very good percentage of progress. Other projects associated to capacity of the water treatment plant as well as the wastewater treatment plan. So this concentrates the execution of the projects that we have executed to date. And this is with the focus of ensuring the sustainability, economic and operational sustainability of our business. And finally, all of this translates in the fact that we have economic ratios that are solid and stable. And as Miquel said, these were ratified by the risk classifications, both local and also, we need to highlight the International Standards & Poor with this A-category, which leaves Aguas Andinas in a good position as a private company internationally and also domestically. In the case of EBITDA, we are maintaining a stable indicator by the end of the period at 3.64x and also the leverage is below 1.4. With this, we have a greater stability, and this has been also observed by the risk classificators. In terms of the EBITDA, we have the update on November 12, and we are over 10x. And this ratifies the positive performance, both economic, as well as financial, that the company has been showing in the past accounting period. So this is what I wanted to say, and it was a pleasure to be here with you again.

Thank you all for being present in this video conference. We have a couple of questions that have arrived. The first question is related to the volumes and the sales and it says, the growth of our volumes in the third quarter has to do more with a better metering due to the renewal of meters. This is a company that the company has been reinvesting in this item? Or is it because of greater demand? This question is for Miquel.

Thank you, Denisse. Well, in -- since 2022, approximately, we have renewed almost 40% of the meters and it is important that the company has been doing for a while. And although it is true that this year, we have carried out more intensive initiatives. So the weight of the metering improvements could be greater. But in previous years, it has been significant in terms of the change of metering. So maybe the results have been more this year 2025, but we see a base growth. We need to -- we have to take into account an additional topic that is to say that we have 1 less day this year. And we get a way already from February, but it means some additional decimal points if we standardize that information, and therefore, the growth rate that we would have would be higher compared to the exhibited in the closing period of September.

And we have another question concerning the CapEx and the investments. the execution or implementation of this investment by $117 billion in the 9 months of 2025. It shows a lower path compared to the investment pattern that was already higher value indicated in the past. Do you think that the execution of the works agreed by the superintendents will be higher than expected? We'll give this question to [ Jaime ] Torres.

Concerning the investments, there is a plan that is linked to the execution of such projects. And we can say for certain that in 2025, where we have the lower investment rate in the period of time with the curve of performance and execution of the projects. And therefore, what we are seeing, that is for the present year, it will be lower than expected. But in the next coming years, this will be maintained and this guidance will not change because these are projects that are already committed and associated to the rates.

And we have another question. Maybe you can answer this question. This is in connection with the labor costs. we are assessing as a company some measures to mitigate the effects of the labor cost. How do we expect to have the evolution of this impact as a result of the last measures that were adopted by the law. And how much is still to be reflected in the figures for the coming years?