Grupo Energía Bogotá S.A. E.S.P. (GEB) Earnings Call Transcript & Summary

Please register with your name and company to be able to identify you in the Q&A session. This call today is in Spanish, but for the first time, we're having simultaneous translation into English for investors who only speak English. All your questions may be asked in the chat. I'm going to be the moderator, and this is going to be recorded. We have some technical issues due to the Internet. And we have shared the link to the presentation in the chat for both English and Spanish languages, you can download the presentation there. And as we solve the connection issues, you can follow the presentation there. Our President is going to give you a short welcome and introduce the team for today. So go ahead, Juan Ricardo.

Thank you, Valeria. Thank you to all the investors, everyone who is here. I'm so sorry about the interruption. So first of all, good morning to you all. I am honored to be here with you to share the results for third quarter 2020. In a complex economic scenario, GEB has demonstrated its capacity to generate better results in EBITDA and operational profit. This is a challenge for the business to become more innovative, to be more efficient and boost partnerships with collaborators. The pandemic of COVID-19 has been very hard, the impact on millions of people. But I am very, very glad to say that GEB has warranty 100% of its operations. It is committed to continue growing the business in the countries where we operate, protecting life, understanding life and safety is first. And we also managed to recover the investment levels in all the countries we operate in from 75% to 85%. So we can continue guaranteeing that we generate employment and we render our services. We are ready with the program, going back to the headquarters, and we are incorporating flexible schemes for the GEB to work as one of the best places to work. We have been following each portfolio, each sector, and we're always monitoring with the authorities and unions any modifications to regulations. We're managing as much as possible the impact on liquidity and commercial conditions of the company and the group. Everywhere, fortunately, the economy is going back to normal and behavior of the portfolio is important with the progress and the culture of [ payments ] in the region. In the third quarter, Fitch scoring agencies ratify the Grupo Energia scoring. And its affiliate, Moody's ratified the TGI bonds Baa3, for Cálidda in Baa2 with a stable perspective. Electrodunas' affiliate [ preparing ] in Peru the first issue of local bonds has been scored AA for class asociados. And we are in the fourth position in COLCAP index in Guatemala. Trecsa has advanced in the agreements with the government, certifying the agreements for execution of transmission lines. The term was extended and the documents to this extension will be ready by the end of the year. Last but not least, we are committed to continue to advance in the diversity program. We were recognized by the Registry of Work (sic) [ Labor Ministry ] with the silver award. We are proud of it, and we are encouraged to continue to boost initiatives so that GEB will be a benchmark for social inclusion in the region. Mónica Contreras, TGI President, will lead the search -- recruitment of women to be included in the initiatives of 30% to enrich the Board of Directors and strengthen the group, including at least 30% of women in all the boards. Diversity and trading opportunities for everyone is one of our priorities. We are convinced that the group and the sector, the challenge of COVID is our way to strengthen the way we operate. We are more agile, better as companies and as individuals committed to society and the development of this great company. Thank you so much. You're going to have Jorge Tabares, our Financial President here. He is -- he has just entered the group. He's going to present the financials -- financial results. And we are so happy to have him here in GEB. You were yesterday with Mónica Contreras, CEO of TGI, and these are the signals that strengthen corporate governance. And we are recruiting very, very suitable people, competent people. Transparent management, we are committed with. We wish you a very, very happy day. Thank you for joining us.

Thank you, Juan Ricardo. We are going to project the presentation while -- well, first, I want to say hello to all of you. This is my first time in this event. I am proud and honored to be here. This is a great responsibility to contribute to the investors of GEB Bogotá. I'm going to go in detail about financial topics in the third quarter 2020. Many of the members of the executive team, we are ready to answer your questions, and you are welcome to participate in a chat with your questions. In the end of the presentation, we'll have some Q&A session to solve your questions. Next slide. In terms of relevant facts, the operation or the business footprint we have is still the same during the quarter. We continue to add kilometers of distribution lines for natural gas in Peru. Our main focus of growth in organic terms are also transmission lines in Colombia. In the middle section, the results of the quarter, income are COP 1.3 billion, a little decrease of 1.6% compared to quarter 2019. EBITDA had some positive results with growth of 4.6%, reaching COP 607,000 million. The EBITDA margin also shows growth, 2.9 percentage points, reaching 47.9%. Operational profit is COP 446,000 million, 60% increase compared to 2019 and a little decrease of 3.2% of net profit. CapEx, organic CapEx plus acquisitions. We executed $61 million with a decrease of 35%. This is -- well, I mean, COVID had an impact on our current capacity in the territories to develop the projects the same way we -- with the same speed we will develop them. In terms of the 9 months of the year, we see positive results basically in all lines. There are COP 3.7 billion, income growth of 6.4%, EBITDA COP 3 billion, increasing 7%. We are so proud of having this growth. This is the result of executing the business strategy, the operation of the base and the acquisitions we have performed in the last 2 years. Our market capitalization is 5.2 -- $5.8 billion. With the dividends, we are providing 7.5% dividend yield. The next page, please. In terms of management and continuity of the business, we are safe. We continue to do our operations. We never had any stops. We resume the projects within the third quarter. We operate under very strict biosafety protocols. We continue to progress taking care of our collaborators, our contractors, the members of the community near our projects. I believe that at least in 2 or 3 quarters, the new normal is going to allow us to operate. And we need to adhere strictly to the biosafety protocols. We had many pieces of news in terms of scores, as Juan Ricardo mentioned, basically ratifying the scores we had before. And at the end of the quarter, we have a cash flow position of COP 2.3 billion. We were ready for worse scenarios. The scenarios are not that bad. And we have a very good cash flow position by the end of the third quarter. We continue to execute on optimization strategy of the credit portfolio extending the terms, lowering costs and either diversifying sources we signed in Peru. Our credit would be invest for $80 million through Cálidda. This also helps us in terms of having a relationship with a company where it's very serious with high standards for corporate governance, the performance -- corporate performance in general. Next slide. Juan Ricardo was referring to this. We are always interacting with the regulators in a constructive manner. In Colombia, there is a topic of gas transfer of TGI that affects regulatory profitability from our businesses and compensation of the gas business. We are actively communicating with the regulators in Peru as well. We keep constant monitoring and dialogue. COVID generated important challenges for the communities. We know about that. We are aware about that. We try to participate and contribute to reduce the suffering of the most vulnerable people losing their jobs, losing their income. And the challenge for students to keep connecting to their schools and keep studying. We have been working in both fronts. Markets -- I mean groceries and computers for students to have a positive impact on the community. And we are going to strengthen the relationships of high reliance, high trust to benefit the community and continue with our operation in a constructive manner. Several prices, as mentioned by Dr. Juan Ricardo and 2 members -- new members of the executive team, and I am one of them. I am honored to be there -- here. And now talking about the financial numbers. We have operational profit growing at 15.8%. We have been able to more than compensate our decrease in income. Looking at the results of the quarter, 21% decrease in income, but we managed to reduce costs in COP 73,000 million. We reduced expenses, administrative expenses in COP 26,000 million. That is COP 446,000 million for operational profit in this quarter. EBITDA is very positive. We can see that businesses are contributing, too. I mean I'm going to explain that in detail, but all of them contribute positively. This reflects the business footprint you have, the diversification of our business, our geographical diversification as well. Energy transmission, a reduction of COP 48,000 million on the basis of 2019 with nonrecurrent items. We had a [indiscernible], about COP 16,000 million. Other financial issues, because they were in the affiliate -- well, they are included in the EBITDA. But this doesn't reflect the reduction as a recurrent or negative situation in the energy transmission business, 4.6% of growth in EBITDA from quarter-to-quarter. When we look at the operational income and the operational costs, we have managed to more than compensate. You can see this in detail. In terms of income, positive distribution of energy with 81%. We didn't have this on the last quarter -- on the quarter last year. And this year, we have it in the growth, inorganic growth. TGI and Cálidda business, we can see a reduction, important reduction in the local currency income. Our operational income is dollar. When we show our numbers in our functional currency, which is peso, it compensates TGI and reduces the reduction in terms of volume in Cálidda Peru, providing 15% of decrease. COP 107,000 million, 1.6%, lowering the income to COP 1.2 billion in the last 3 months, but compensated by the reduction in costs and expenses. The business of distribution of electricity, I mean, the natural gas distribution business cannot compensate its fall in income, COP 107,000 million versus a reduction of COP 74,000 million in costs. But the other businesses had a very positive impact for the result I'm going to show you, which is very positive. In terms of EBITDA, this is the composition of EBITDA per business. Growth of 4.6%. I want to highlight the participation of the electricity business, 6%. The strategy of growth is giving results. And distribution of natural gas is showing an increase in the participation of 18% to 21%. In terms of the consolidated for the last 12 months, we have the Q3 2019 and we present EBITDA consolidated of COP 3.6 billion. Basically, this is a composition among the operated businesses and the dividends captured from our investments. Our portfolio of investments, 23% of growth in the last 12 months. And when we show this in dollars in the bottom section, the growth is 15% from or $855 million to $982 million. In terms of compositions for controlled companies, looking at the entire portfolio in the last 12 months, there are no significant changes in the EBITDA other than the participation of Electrodunas with 5% in the total by -- of COP 3.6 billion for EBITDA consolidated in the last 12 months. The next slide, the operational profits. There was a slow or a very short decrease in 3.2% during the quarter. Financial expenses improved, COP 161,000 million is lower than the number from the prior quarter. We have lowered costs of financing and the indexes that have had a positive behavior, and this is minus COP 161,000 million. Exchange difference has a higher effect with minus COP 61,000 million due to the devaluation we faced. These numbers are calculated with the [ 3,800 pesos -- dollar ] at the end of the quarter. And now this became [ COP 3,650 ] approximately closing yesterday. The participation method, we capture COP 376,000 million. This is a little lower impact than the capture for the prior quarter, basically because of the impact I was talking about nonrecurrent in Emgesa which had -- that was solving a topic with the tax authority after 12 years. There isn't anything else to highlight here. Next page. Now we see -- well, I was talking about Emgesa when we capture using the participation method, there is a significant reduction. If you remember in the last 2 quarters, Emgesa was having a very good year operatively. But there was something associated to the treatment of taxes situation that lasted 12 years -- over 12 years. The options generated, the [ BAES ] law generate a one-off of COP 120,000 million negative. In Emgesa, that is not net in cash. Net in cash is about COP 90,000 million. The other operation is doing good. Argo is having a participation. Look at the investment, it is the third item in importance in a positive contribution to the group's profit. And Argo still has growth opportunities in the market in Brazil. There are some auctions the company is expected to participate and very feasible options for growth, both ease operations with positive results. REP as well; Gebbras, we see a reduction. There is a topic related to exchange rates that had a negative impact, 5.8% of reduction from COP 299,000 million to COP 376,000 million. The combination of impacts, positive impacts in the consolidated debt, there is no significant change. There is a low leverage. The EBITDA at the end of the quarter was 3.4, a solid position as shown in the group score. The combined cost of EBITDA 4.45%, 3.86% in dollars and an average life of 7.86 years with very low needs for 2021 relate -- in relation to debt maturity. This gives us flexibility to participate in the investments we identify, mainly developing the organic portfolio and eventually inorganic transactions that may appear. Next slide. When we put together CapEx and acquisitions, as we see here, $61 million. On the right hand, the run rate is similar, but that was due to 2 acquisitions performing each year. Each of the 2 years, the number of $500 million as a run rate. I mean, in 2020, we managed to invest organically less than we thought. The difficulties brought by COVID in the second quarter and part of the third quarter leads us to sub investments of budget. That's about 40% less. That's significant. It does not affect the service and we have managed, for example, in terms of transmission, some extensions for the commissioning dates, which doesn't create any risk in the medium term for sub investments. The goal is not to eliminate those investments, but to catch up and resume the operations for investing the organic CapEx. Next, then this is a general scenario. It is full of challenges, good results, and we continue to work to take care of our people and progress in our investments and achieve excellence in our operation. So Valeria, the floor is yours now for the Q&A session you may have in the chat.

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[Foreign Language] [Interpreted] the commission and the energy transmission that is going to be a very low difference. There is not going to be a huge impact from that. And as you know, in the energy transmission business, we have a coverage, that is structural coverage. 70% of the income comes from corporate proposals that the group has been awarded. This is a 25-year income, but the regulated income is a lower percentage there.

Thank you, Jaime. We have another question, Andrés Duarte. Fredy Zuleta, help us out.

Evolution of prior consultations in La Guajira.

Thank you, Fredy. Of course, a process of consultation was reactivated in October with all the safety protocols authorized the prior agreements with communities that we had, that they had to join the process voluntarily, and we are consulting over 300 communities in the project, Colectora project to Cuestecitas. This process has been evolving in different phases in opening workshops, pre-impact workshops and impact workshops. We are there right now, today. Right now, at this moment, to the weather -- rainy season, the access to places, something related to, well, the climate. The meetings had to be suspended, but the process continues. And we -- as soon as we can reach them, we will continue to work with them within the time line that we have agreed with the Ministry of Interior and Ministry of Energy.

Adriana, they are asking again about WACC -- transportation WACC for natural gas. The production, is it in line with the company expectations?

Yes. I wanted to clarify there, there are 2 projects of resolution issued by the CREG, one is 155. That one includes all the methodology to calculate the WACC based on this -- on the one I mentioned before. We expect an approximate 10% WACC. This is within the company expectations. This is what we have included in our forecasts that we have shared with the scoring agencies. However, the CREG issued another bill to establish general criteria to regulate the compensation of natural gas transport. It suggests substantial changes in the compensation. For example, change in the WACC of fixed charges in -- from dollars into pesos. This will have a significant impact in our profitability, which is right now analyzed -- we are right now analyzing in detail, seeing carefully every impact. We are ready to make the comments before November 26. We want to have a discussion with the regulators, as I mentioned.

Adriana, now that you're here, I'm going to make 2 additional questions. A follow-up on WACC. [ Juan Hoyos ] from Porvenir. When do you expect to -- a decrease in TGI income?

Well, with a 10% average, we would say an annual impact of $20 million for TGI and a negative annual impact. This is incorporated in forecast, as I mentioned, that we have sent to the scoring agencies.

Thank you, Adriana. This would be one of the last questions.

Hello? Valeria, we have no audio. We cannot hear you. Can you please check?

Yes. We were muted. Sorry, guys. One last question about TGI, I would say, is the recontracting the capacity. For contracts ended 2020, how are you managing the negotiation of recontracting or renewal of contracts for new capacities?

Well, as mentioned by our Vice President, [indiscernible], now in the TGI call. This year, Ballena-Barranca contracts are reaching the end. They generate an important profit for the company. We are working actively with all customers, looking for every opportunity to renew those contracts. We don't see any possibility to renew all of them in the next 2 years. But there will be the new sources, and we will improve in about 3-year term.

Adri, there is another question related. Diego Buitrago from Bancolombia. What is the percentage of EBITDA TGI that can be impacted by Ballena-Barranca trucks?

Well, the reduction in income for TGI is 20% approximately compared to the 2020 year -- year 2020. When we can share the plan for 2021, we'd compensate this reduction. We are restructuring the efficiency cost expenses. And to be able to protect the margin of the company, well, I think that we can change a little bit the transmission area to Fredy Zuleta.

Nicolás Erazo, CrediCorp Capital. Can you please remind us about the energy transmission project that would be commissioned before the year ends?

Well, Nicolás, this year, we have no project to start -- well, it depends on the possibility of commissioning in the end of the year. It's this complex, but in the worst-case scenario, this would be the first days of the next year. But this project is the reconstruction of this [indiscernible]. So there is now new income associated to it. The next new projects in construction will occur next year for 2021 with the new projects.

Well, to complement your answer, the detailed document of results that we published has a table with each project with the original mandate. It has 2 projects with expected income of $40 million. The original date was the fourth quarter, but that changed. And it is earlier due to the progress in each project. That table, the table shows the original date. And those dates have been changing. So Fredy just explained that.

Please help us with it. We haven't identified the person but if you can talk about the reduction of the contribution by Emgesa?

Yes. I will try. There is an accounting trade associated to the benefits of the [ BAES ] law back in 2003. It was all the legal issues. There was a controversy between the tax authority and the group and Emgesa actually. The Council of State ruled against the company and they demanded payments, some of it was tax payments, and some of them is our penalties and interest due to the time that has been elapsed. The negative Emgesa impact on -- the impact on Emgesa and [indiscernible] group was COP 122 billion. That's a nonrecurrent issue related to a very particular situation. And we had the vision that Emgesa would weigh down this controversy. The tax advisers said there was a huge probability for Emgesa to keep its position. But it wasn't successful and this impact we had to face it this quarter.

Adriana, they're asking again details about the regasification plant. Diego Buitrago from Bancolombia. How hard is the licensing risk, prior consultation risk in the Pacifico regasification plant? And another question from [ Andrés Pérez ]. Due to this WACC review or physical WACC review for natural gas transport, are you considering reinvestment in the regasification plants?

Well, first of all, I would like to respond question from Diego. Related to the risk of licensing and consultation, Diego, this is the highest risk that we see now in the project. Right now, we are analyzing in detail the risk together with our partner in the project, then our financial adviser BBVA bank. So we want to mitigate the risk. In the next weeks, we probably reach an assessment to discuss with our investor, whether there is an interest to keep going with the project. The second one about WACC, resolution 160 is very recent. We are doing all the analysis. We haven't completed that. And right now, it is difficult to answer. However, the decision is going to be incorporating all variables.

Thank you so much, Adriana. Fredy Zuleta, I believe that we have another question about Colectora. This is about the execution of the project. How is the schedule of the Colectora project going? Can you help us out here?

We can go to the next question while Fredy comes back.

Well, this one is about financials, maybe for Jorge. Talking about the expectations -- for 2020 expectations. Is the dividend going to be capped for next year? Diego Buitrago, Bancolombia.

Well, there is uncertainty we have been progressing a lot in the year. There's a high volatility of the dollar, but I think the path is very constructive and towards the final results. Outlining the dividend distribution rate, we may be able to keep it -- that's just a forecast. There's -- the year is not over yet. So we have to be careful there.

Thank you. And we have another strategic question. Relationships with Enel, Andrés Duarte. The assets of Enel Green Power are going to merge with Enel America, but it hasn't been finished. It is an ongoing concern. So can you tell us more about this process?

This is a topic of high importance for us. The intention of high executives from Group GEB is to normalize the relationship with this important partner. They operate 2 [indiscernible] assets we have in our portfolio. And additionally, enable our participation in renewable nonconventional energies and other important issues related to the distribution of energy and new businesses that is -- this will allow. And then we are making a very constructive dialogue with investors, Codensa, Emgesa, seeking to normalize the situation. The dialogues and -- the dialogues will be over when they are over. We cannot say yet whether we are near or far from an agreement. But there is a willingness. There is willingness to continue to do business with this partnership that has been working for so many years. I don't know if Fredy Zuleta is back with us to respond about the Colectora schedule.

Yes. Hello? Can you hear me? Yes, sorry, I was having connection issues. What was the question again?

It was about Colectora. The question is, how is the schedule of the project going? More details about the projects, Fredy.

Okay. The program is obviously having displacements associated to the dates on certification when the COVID occur at the prior consultation, which is a critical path. But with the Ministry of Energy and the Ministry of Interior, we're working to recover those times and compensate with different structures for licensing with all the resources from the ministry so that the consultation can take place within the schedule. And with our own strategy for coding constructive processes. So there is some time for delay. There is a risk for delay. We're still working in all the possible variables so that we have the least delay possible. The date is the same, October '22, and we'll continue to work to do that when we have situations like the one I just said. Well, again, the topic is difficult if there is a second wave of COVID and second lockdown. It will be complicated. But we're working to be within the schedule and constantly coordinating with the ministries. They are very interested in this project, which is a project of national strategic interest.

Jorge, we have one question left in the chat from Camilo Roldan, Corredores Davivienda. This -- are there any -- is there any progress in the district participation, the 10% that has been authorized?

The district's objective is to progress in the approval on the mechanics of how to incorporate this to the budget from GEB. There's some willingness to collaborate with the district at new leverage on a successful sale of the initial 10% of the company and the democratization that was made with this transaction. There is a huge interest in reinforcing further the corporate governance. And associated to this transaction, we have another goal, which is achieving this. For example, the Board of Directors cannot have a turnover of 100%. The appointment has to be staggered and there will be continuity on higher formalization than we have today. And there are other topics for, let's say, that are relevant about corporate governance. In order to reinforce corporate governance, their support from the major office to do this. So I believe after we finish the approvals and the due diligence, this can be something we support and that will be done in the relatively short term.

And well, we thank you all for your participation. We are open to any further questions. You have our contact number on our -- what we want is to keep you informed, keep all the information available for shareholders, bond holders and service providers that help them make decisions. Feel free to make any questions. Don't hesitate to contact us. We will cover this later on. Be assured that the protocols are working, and we continue to grow in the process of adaptation and reactivation that this lung virus has put us into. Thank you so much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]