CELSIA S.A. E.S.P. (CELSIA) Earnings Call Transcript & Summary

[Foreign Language] infrastructure and school, the -- a company of organization and productive of many organizations or businesses and the support to health care. And last year, aware of the world crisis generated by COVID. And organization of the government with the name Celsia Contigo, we delivered more than [indiscernible] of bioprotection goods, 117 medical equipment to hospitals, ICU units and robots to improve automotized task more than 3,250,000 liters of water and 15,800 packages of nutrition packages. We wanted do this review before speaking about the taxes because we will need to recover so that the company fabric, our virtuous ecosystems, we need to advertise for people to understand the dynamics and the importance of the private sector of the country. The company has contributed with more than COP [ 1 ] trillion taxes COP 1 trillion in the last 3 years. And the different geographies where we have presence, it includes all kinds of taxes, territorial, local, national, of course. In Colombia, the taxes paid were more than COP 960 billion, with the program of works for taxes. We ensure that tax generated stays in the territory. It's marvelous program in the government. We have executed 8 programs related to education and infrastructure building with more than COP 60 billion, which have benefited more than 42,000 people. This is represented 5 projects for the consideration of the IRT that would employ resources for COP 4.7 billion to benefit more than 7,000 people. We are confirming news of the art system -- beautiful good news for the Department of Antioquia because they hadn't classified projects that we had presented for schools that will serve many municipalities of Antioquia in different regions in a joint work between Grupo Argos, Cementos Argos, Nutresa and Celsia. We wish that to be confirmed soon. It's news of incredible impact for the Antioquia department, the project of education. In Celsia, we are contributing to the construction and development of the country, as all of you who are listening, now we don't stop. All we do is to move forward to the following challenges in a virtuous circle of delivering superior service. Let's see how we have done in the first quarter. In the last call, we mentioned that 2021 was going to be a year focusing the execution of growth projects has had important effect for 2022 and the following years in the platform. Solar platform, we expect to have 620 megawatts between construction and we regulated. We opened Celsia Solar El Carmelo farm with 9.8 megawatts in Candelaria, Valle del Cauca. It's a beautiful farm connected to customer that is big with this. It's a project that helps in the recovery of the employment successful project because in the period of construction, generated more than 182 employments and 23% out of the 60 -- 23% were women, 63 men. It was an experiment -- live experience on how to -- we masculinize the operational tasks, and it worked with expected results. We are very happy with that. We are trying to generate gender equity, the masculinizing works. We are hiring babysitters, women who like to work in the operation. We will avoid with this farm, the emission of more than 640 tons of CO2 which is 106,000 trees -- planting 106,000 trees. We are initiating the construction of Celsia Solar La Paila. It is important. We are very happy because there will be an industrial customer connected that is very important in Valle del Cauca. We are about to start over 2 photovoltaic project. We are going for those 600 megawatts. In Panama, we have an advance of 95% of Celsia Solar Prudencia project. The first solar farm that we're going to build ourselves in the country. We have bought a small farm that -- it will have the capability of almost 10 megawatts and will generate 17 gigawatts a year. It is the energy for 4,000 homes is farm when we connect it to a substation of our hydroelectric central. You see on the left is a different central that you don't see in Colombia. There is a big central on top of the mountains that has a dam. Dam that generates important water stream in the river. That water is taken -- flows through a long channel with 3 small hydroelectric plants. And this is one of them from Dos Mares chain in the Chiriquí in Panama. It's a beautiful plant. We use solar energy to complement. Look how beautiful it is in the area. We hope this plant starts operating in June this year. The project, thermal electric, El Tesorito gas has progressed very well in the internal roads and access roads, and we keep all the environmental management and social management. To the 31st of March, we had almost 400 people employed in an area that is affected by the unemployment, communities that need -- they have several needs. So we hired 252 people from the 2 municipalities, San Antonio and the hamlet, Los Laureles, that is Sahagún. The teams are working to in the operation of the project. The project has 200 megawatts of capability. We hope to go in before the limit date, the due date, that is December 2022. It has a good rhythm. It should be in operation in the first quarter of the year, the substation that connects the system, that is exactly in Tesorito. It's 50 meters. We are building ourselves. It will be ready in October. So all the equipment, all the material of this central is ready. It is in the process of transport. So we are happy, thrilled, and excellent reaction with authorities and the community. And I think it's generating a social impact of development that is beautiful in the region. Let us speak about the investments for the strengthening of the grid distribution in the quarter. We did a COP 76.6 million in investment and improved services. In budget, the investments surpassed COP 42 billion. In Tolima were COP 34 billion in the last 18 months. We have worked in construction and reempowering modernization of substations and control system to continue to trust it and liable. The first quarter, SAIDI in Tolima, there was an improvement of 37%. See, the improvements we have achieved in Tolima, it's crazy. The SAIFI, the 7.6x. That is a frequency duration. It went down 7%. So it translates into a reduction of complaint-by-service between 2020 and 2021 of 21.5% and 25% compared to the previous quarter, which is more important. Listen to this fact. When we received this in 2019, we received it with amount of complaints by service. And they were not even 24/7, you can place. There was a schedule office schedule, working schedule for the complaints. The calls now are free. You can call 24/7. You have in April. Despite we have opened channels decrease of complaints in 2 years in Tolima is 55%. So we are happy because we know in Tolima, the customers see the change. They see the investments. They start feeling the change. That is important in the department that has everything to continue developing. As a second area, for people who live in the country, especially in Bogotá, there's logistic center to develop tourism. So good service of power. Service is vital for everyone. Our availability of assets in the Tolima is above 99%. So -- also the importance to help the economic recovery of the cities and the companies with our customers, we continue with a tariff option during the quarter. It allowed our customers to have less tariff compared to the 1 approved by CREG. It represented COP 35.5 billion. COP 35,500 million, of which COP 23,500 million belong to the market of Tolima. Also, we applied subsidies by COP 58 million. And in Tolima, we apply COP 23.3 million. Something beautiful, we achieve the customers of social class III in Tolima didn't have subsidy access with a tariff and subsystems consumption or livelihood. When we arrived in Tolima, we tried to get authorization of the government for that and the government immediately, they helped us. In the end of last year, we achieved that, so today, our customers in Tolima of economic Class 3, they have a reduction of 15% monthly. If you calculate. It is like today, they have the subsidy with the taxes of whole Colombian's a month of tariff, a year, they don't have to pay. So we are happy for all this contribution. The consolidation of recovery of the demand of energy in the country, it goes with the advance of COVID, the possibility of accelerated production in different sector of the economy with finalization of blockage activity that we have had that have generated loss of employment and work for the country. Before we go to the results with Esteban, and I'd like to tell you about the event of the insolvent BLM process in Panama. After a process, that is long bodies friendly of negotiation with creditors and the government that is our partner, remember that the government has practically half of the mines. We are close to achieve signature of memorandum of understanding to allows us in the -- allowing monthly generation of the assets of the venture and cancellation of debt. It is important because we believe this week, we can achieve the understanding -- memorandum of understanding. It's important chapter. It was an asset that had problems with obsolescence, competitiveness in the market and historical financial load the company had before we bought it. These came in the package of purchase. So I finish in that point, my presentation. I invite Esteban to provide us with details of financial systems.

Thank you, Ricardo. I'd like to remind you that the operational details and financials, you can consol them in the reports on the site. So the consolidated income in the end of March reached COP 980 billion, 5.6% more compared to the previous year. This behavior is due to more generation we had compared to the previous year, remember, we had an important change in the amount of generation due to hydrological conditions. And the operation of the new generation assets, particularly PCH San Andres and both solar farms, El Espinal and El Carmelo, we had income above in connection Colombia was 87.5% in income. Central America is 12.5%. The cost of sales consolidated sales is COP 665 billion, with an increase of 7%. The growth is explained mainly by more cost of depreciation due to the assets in service and more cost of maintenance and material associated to the strategy of improvement of service quality, especially in Tolima. The administration expenditure in the quarter was COP 75 billion with the variation of 14.6% of the increase. Our base to less expense -- expenditures in 2020, we mentioned that in the conference, we had a reversion of a provision for $2.7 million. The expenditures were low, almost COP 10 billion. So we are normalizing the behavior. Additionally, in 2021, we have more expenditures on COP 2,900 million associated to the activities of attention for COVID-19. Something we didn't have in the first quarter of 2020. But from the second quarter, we reflected that we have COP 7,200 million of provision of portfolio in 2020 was in the second and third quarter of the year. The EBITDA for these 3 months reached COP 336 billion, with an increase of 1.7% compared to the same period in the previous year, and the EBITDA, 34.3%. If you see that level of the region, Colombia contributed with 86% of EBITDA adding COP 289 billion. Central America contributed with 14% of the EBITDA, that is COP 47 billion. We see at a level of business, the EBITDA generation reached to COP 112 billion distribution and commercialization COP 91 billion. And commercialization in the financial -- consolidated financial segments COP 33 billion in Tolima. We don't have the assets. There is a property of Caoba. The financial expenditure was COP [ 71 ] billion with a decrease of 21%, due fundamentally to the decrease of IPC and less interest rates in the creation of short-term employed in the operation. The net profit was COP [ 115,700 ] million with an increase of 33.4% compared to previous year. This explains for the operational performance less financial expenditure and less provision of taxes in Celsia S.A. that has different results compared to the previous year when we had the income of thermal projects. And we see the minority interest, the net results of the property of the controller has a profit of COP 83,500 million, an increase of 28.4%. Speaking about debt. The company closed the first quarter with a debt of COP 4.2 trillion indicator of leverage of 3.1x net debt-to-EBITDA. Compared to 2020 the effect of devaluation of the debt in Central America was at COP 6 billion. The company closes the quarter with a consolidated cash flow of a COP 286 billion. Colombia has COP 82 billion; Central America, COP 204 billion. Now speaking about Caoba, we mentioned the numbers in the first quarter. The profit was COP 42 billion, increasing 2.5% due to greater demand with an increase of IPP and comparing 2020 has more assets built in operation in Caoba behind the expansion plans of Tolima that last year were developed. EBITDA was COP 36 billion with an increase of 8.4%, and net profit was COP 371 million, with a decrease of 93.9%. Do remember in Caoba, due to the long-term financing of the third quarter 2020, they took the capital structure, approximately 80%, 90% of equity that is why the first quarter, the debt was not paid. So it was low. Thanks to this. We have more flexibility. The structure has more flexibility that provides the remuneration of this equity. When we have more debt in the quarter compared to first quarter, we have an increase of the expenditure and decrease in the net profit. You know that is reflected in our states through a matter of participation. I finish here the analysis of the main financial numbers with results and allow us to continue our growth plans, fostering the economy of the country and working together with the stakeholders contributing to the development of the regions where we work. Thank you very much. We are happy for these financial statements. EBITDA was very good as you could see, and EBITDA that is historical, the EBITDA -- when you add the EBITDA, that we handled of Caoba that were -- how much in the quarter? 40,000? Yes, 400,000 -- 340,000. So it's an EBITDA that we manage almost COP 400,000 million. So COP 400 billion. So it is a number that we like. And the net profit was very good. Many of the analysts have highlighted that interesting combination, very good operational performance with the combination of taxes and financial expenditures. So that helps. Anyways, all these results are achieved. Thanks to our customers, the preference of our customers, the support of our collaborators that have won the heart in these hards days of pandemic. I wanted to see quickly about what has happened in the last years? To see the trend of Celsia, it's an interesting trend. As you can see, just a reflection of the quarter. First, if you remember, we had this year, investments that are strong in stock investments. We reached COP 1.4 trillion and COP 2.2 trillion in platform. That is basically all solar with 620 megawatts, out of which we have a leadership position that is interesting in the country. But with this 620 mega is a portfolio that continues to grow. We hope to keep the leadership because all the players are entering the category of solar farms. We have the Tesorito plant and Caoba business here included. So this makes us happy. The other thing is, remember the investments we carried out in the assets of Tolima that doubled the business of distribution. It was a business that we found with quality indicators that were below the mean of the chart, the average. We, in the conference, heard how this team has the abilities to do fast investments, investments that are with quality, efficiency, productivity within the standard required we achieved the integration of the company in record time, and we believe the Celsia culture deeply in more than 300 people that are part of the project. It was a success, the acquisition. The other thing was the Caribe plant that allowed us to earn COP 500 million in business and transform that in Caoba in the transmission platform that we have today, that we wish could be -- could grow more. In projects, we have the development of the substation of Tesorito, we have the project of transmission line based in Sucre and Bolívar, Toluviejo. And we are in the process. We are happy because this is generating first, growth -- additional growth capabilities and all that transaction of COP 100 million investment generated a profit of COP [ 560,000 ] million. So we are very happy for that. Remember that we had a strategic disinvestment. So we started working our presentation in assets that didn't comply with our measurements. Our profit on the employ equity, so based on that, we made difficult decision of an asset that we had was Zona Franca in Barranquilla. And this led to an important equity for profit above 15% on the investment we had carried out. All this combination of actions is allowing us today, and I didn't wanted to speak about this to a difference between our walk and 200 basis points of value between one, the equity cost and the profit. Still, we have more to do to create value in investments. We are carrying out clearly -- are generating more positive delta than the one we have today at a level of all the assets. I close with this. The conference of results so that we move to the Q&A session. So welcome.

[Operator Instructions] Go ahead, Esteban.

There is a question here from [ Diego Buitrago ] why the decrease of the value of the assets of Celsia in the market in the stock market? That is a more difficult question. The shares go up and down. It depends on the track record results, but there are many forces that move around the price in the stock. They have been affected for the volatility of the market, especially the Colombia market. And let me tell you a fact, last year, the delta we had on the market was almost 25%. When you see the difference between what we achieved and the [ coal ] cap reduced, it was -- lead to 25%. I think it was. So we have had a good moment with a [ coal ] cap. But of course, we are making our effort, and we believe that our company is worth more than it is valued in the stock today. We hope that the price in the stock reflects that in the future. Ricardo?

Let us combine between the questions on the chat and the ones who are raising their hand. Let us give the floor to Roberto Paniagua.

Can you hear me?

Yes, Roberto. Yes, we can.

Perfect. And especially for the message that you gave in the beginning of the conference on the social, grid, fabric and we are aligned to protecting the private sector. Thank you very much for the message that is very important. I have a couple of questions. I'd like to understand how you see the strategy in Central America looking forward with the withdrawal of BLM? How you see the nonconventionals? Second, now you have COP 5 trillion income present in 3 countries. Do you want to restate your strategy? And last is, the equity in Caoba in the close of the quarter.

Perfect, Roberto. Thank you very much for your comment. We have to stand for this, all of us, and the young people. There is a recent survey for many -- young people doesn't -- don't know how to define a company. That is a concern because the most you -- the companies are the ones who are offering more employment. So we are in a crusade to understand the company fabric in Colombia. Thank you very much for your comments, Central America. We are with an interesting strategic outlook, the step with BLM with the management team that leads Central America is fundamental. This is an orderly liquidation that will take a couple of years. It is not that we closed that and know more. You close the equity, but you need to continue with some steps. So the Central America team will be freed of managerial load, operational load. That is important. The team will dedicate to B2B. We have grown in roofs in big customers, the business of energy efficiency that is growing in Colombia. We hope to take it to Central America. So we are in that approach. That is more of service and asset-light than what we have today. So we are in that approach with the team. There are many opportunities in those fronts in Central America, especially in Panama and Honduras. We don't want to open up a lot. We want to focus on business models in those geographies. That is a little bit Roberto, we remain with the equity of [ eolico ], [ eolico ] in Costa Rica. It's almost a bonus. We still have some years before we give it back to the government of the Costa Rica. So look, how mega changes. Mega -- we have mega as geographic expansion. We realize that the geographic expansion of the 6 countries, maybe is not the way, maybe, concentration is more valuable. We see concentration with diversification in Colombia, mainly on investments when you see Celsia. Today, it has a particularity. Celsia, Colombia, where we have important business of generation, we have created a platform of solar generation. We have a big business of transmission. We have created a transmission platform that is Caoba. We have a partner that is Cubic with the half of the business that allows us to grow exponentially. So that opens a growth pass. We -- on top of that, we have distribution business of retail, where we are introducing retail products of energy efficiency, high-speed Internet for low economy, customers in the categories that the customers didn't have access to. So that is to provide you with a complete outlook, mega, regarding countries completely restated. And regarding profit, we are making our effort to generate profit that is why we have this aggressive plan of investment. It's -- I don't know, Esteban, if you would like to complement?

Caoba has a debt of COP 1.6 trillion and an equity of COP 260 billion. So assets of COP 1.3 billion. Those are the facts in the end of the quarter.

Davivienda -- Katherine from Davivienda Corredores.

Can you hear me?

Yes, Katherine.

Ricardo, before my question, I agree with the last comment regarding the progress in Celsia in the development of the country, particularly a person from Tolima, I'd like to congratulate you because the work you have done in Tolima has been a very good job for the citizens of the region. Now going into the question, I'd like to understand what happened in this quarter in terms of taxes, particularly the deferred taxes? We could see that again in the next quarters because in our case, this was explained, the positive surprise we had. So I'd like to understand this. And this how can be forecasted?

Perfect, Katherine. Thank you for the comment. I didn't know you were from Tolima. And let me tell you another thing from Tolima. We are going to try an attention, a care model for the big cities that is disruptive. With service of motorcycles, we carried out data analytics for the location. If we achieve a great problem, big problem in Tolima, Katherine is that despite we have lowered the SAIFI and SAIDI. Things -- Tolima is so rural. We have care times that are long. We take long time to serve in average, not so much in the big cities, but in Tolima, it's a big long time. So if that bet goes well, we do a disruption in the damage model in Colombia. So the experiment will be in Tolima. Let's see how we do.

Thank you very much for your comment, Esteban. Katherine really the deferred tax, we hope it will be a quiet year, small movements, particularly when we go into tax benefits of the big projects. But what happened in 2020. As you said, it was a big difference compared to 2021. Celsia, it's in the limiting the liquid rent and the movement of deferred tax is the nature of Celsia S.A. and the movement we do in Celsia. Our most important tax line will be electricity are not deferred. The trick here is unique to see the behavior of the, Celsia S.A. that can generate a structure of profit and movement in the deferred.

Javier Garcia.

Do we know about plans of property of the national government?

Freddie. We understand the process. They are looking for in banking, lawyers. The process is doing well. We hope for the government to get to offer official information. We are starting the ones that would be object of privatization, and we are starting with the team to see the characteristics if they fit or not, what can we create for the customers? We are in the preparation, but there is nothing official yet. Let me go on with the questions in the chat, if you want, you may ask a question, you can go ahead and raise your hand. And there'll be specialized and businesses and finances, the blockages. The blockades have affected the operations. Will this affect negatively the results of the second quarter?

Yes, clearly, it has had the problems on how we are operating. We had, as I told you, a lot of adjustment in the operation. Since the supply chain led by Esteban team with storage places, the displacements for an entanglement, they were our entanglement. Curiously, part of the fleet were electric vehicles, and we have had the fortune that we didn't have difficulties with fuel, but part of the fleet uses fuel. So it's been 2 weeks, quiet weeks regarding damages, very quiet. So each day, we have had 200, 300 damages in [indiscernible]. And our teams have been able to serve. So there has been everything. We had a damage to a substation. The National Police helped us with a helicopter to reach the place to repair. We also had to ask for interventions of Mayors to attend damages in treatment plants of the municipality where we couldn't reach. So there has been everything, we have had demonstrations in our assets, and we have handled that with dialogue with different granters and teams. So that they haven't been easy, but our operation has suffered vandalism. Some stores have had looting problems, not looting but just breaking the windows. So our collaborators having been mistreated, et cetera, or we have been stolen a couple of calls. But in general terms, we are okay. We are concerned because our company fabric customers, they are suffering -- there is anguish for the company sector in Valle del Cauca that has suffered and a relevant factor of the [indiscernible] President of the Chamber. He says the Chamber of Commerce of Cali, the damage, yesterday was COP 2 trillion, 10% of the reform in 15 days at 9%, between 7% and 9%. I don't remember very well of the companies, possibly they could close, and that is hard. Because it is a loss of social and company fabric and employment that we need a crusade for employment. So we are doing well. Thank God. Thanks to all the support of the customers who protect us and all the authorities that have been civilians and the military supporting for the service of power service is delivered without interruption.

There is another question in the chat. The person is not identified. The profit, what is the action measures you have so they do not become a competitor in the future.

Perfect. Caoba has an asset class. We divided the assets of the attention level 1 to, the ones who reach the customer, those are 100% Celsia and made high tension -- regional, national transmission, those assets are the ones who Caoba owns. The assets like the auction, we will have soon for the planted for storage. Those assets are for Caoba or subject to Caoba. So there is a difference between Celsia and Caoba. There is a well-defined difference and Caoba on top of that cannot work without Celsia. We deliver everything regarding the design, planning, the financial look. Absolutely all the scheme to a board be approved and will do all the asset maintenance operation. So everything is well structured, the platform, so that we create value, and it doesn't become an interest conflict in the future. Very good question. We took that into account in the design in the beginning.

Juan Gallegos from Porvenir.

Tesorito plant, we're going to start operation this year. What is the delay? Why is it?

Yes. We started in December, I still have the hope to start in December, but the delay is for 2 months. And it is for 3 meters. We have the approval of the layout due to an interpretation of ANLA. For 3 meters, we had to move the plant because we were like at the corner of a river bank. And we didn't want to have any risk that the permit was wrong. So we went back to ANLA, that complied with the timings, the analysis, the permits. So we had to go again, and that delay to start the works overhauling of work. We are going to have the machinery of the central. So that was unfortunately the problem. But in February, by late will start in February.

Jorge Vargas from BTG Pactual. I have a question. Taking into account the juncture of the country and the risks in terms of logistics, could we expecting a delay in the start of Tesorito and the construction of 650 megawatts of solar energy for 2021.

Jorge Vargas, I'll ask Esteban to tell us about the problems we have in the supply chain. If this goes longer, it is not only yesterday, the Port Society Association is full. They cannot move the containers. So they don't know how to receive the containers. So if that happened, with any other cargo, imagine what could happen. So I believe it is a risk, if this goes longer. But solar panel is not a big problem. It is not -- the food is not entering. Food export will be lost to the customers. Export that cannot hold Colombia to solve the problem. Yesterday, I saw a painful memorandum, saying that there were customers out abroad years with the customers, they are looking for other vendors, and that is painful. The damage for these blockades that are problem and they harm the supply chain. So we don't have major problem, but we could have problems really. Isn't it Esteban?

A problem is they take longer. We could have more problem for now. Next weeks. We -- in the first days of strike, the only machinery we needed, we were able to get the machinery new transformer in Barrancabermeja. We were able to receive it 28th and 29th, transporting a big transformer. Next week, we are going to be -- there is no problem. But the scenario, where it extends, it generates a problem. The most important thing is that, we are not living an easy situation in the foreign trade. There is clogging in the freighters, problems with vessels and ships to find containers. This was before -- this is a global problem. Yes, exactly. In the maritime supply chain. And if you add to that, that the ships will not be able to touch the port, the problem will increase, and we continue harming the economy and small companies, the SMEs.

Diego asks, you have interest rate of 3, 4 years. What is the alternative that you will keep for the -- avoid the increase of one.

Esteban?

Two important parts. First, ROCE, is all the organization that is focused in our ROCE to be ascendant to carry out investments, each investment to bring new -- a profit rate that is attractive to avoid friction with the amount to increase friction. We started a strategy. Now the stock, it has 8 years. We permanently are handling and managing to avoid the juncture. So obviously, we try to go ahead. But we have a competitive structural cost, we have fluctuation in the indicators as IBR, IPC. But the structural level, the depth of the organization has an average cost that is competitive. Either in dollars and pesos, and we have a long duration that allows us to see a volatility of short term without worries about taking advantage of the opportunities of the market. Beautiful thing is that we have achieved with the transformation, the story of these last years, we have good access to -- from the access, and that allows us be competitive in the financial costs. We worked in the [ WACC ]. And to monitor and to see if there is opportunity to lower the rate.

Esteban and Ricardo, at the moment, we don't have any other question. I don't know if you would like to close.

Thank you, Gonzalo, and all the participants in the conference. Thank you very much. We wish the best for you to continue sound in the pandemic. And this condition of the country, so we overcome quickly to generate employment that is what we need. I heard there is no better social policy than good employment. So my hosts, everyone, thank you very much for joining the conference. Esteban?

Thank you, Gonzalo. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]