LARRAIN VIAL NINTH ANNUAL ANDEAN CONFERENCE March 2015
FINANCIAL HIGHLIGHTS (millions of pesos) AGUAS ANDINAS Largest Water Utility REVENUE 402.624 327.225 317.522 291.190 5,3% annual Largest water utility in Chile and one of the largest in Latin America average 1 2009 2013 sep-13 sep-14 EBITDA 4,7% 247.277 205.609 192.877 174.980 annual More than 2 million clients average 1 2009 2013 sep-13 sep-14 Natural monopoly (regulated) MARKET SHARE (1) Proven, stable regulatory 43% of industry revenue framework Minimum, guaranteed return of 7% 51% of billed water in the industry 43 % of clients in the industry Stable demand Exclusive, high-quality water resources that do not expire (1) Annual average 2009-2013 (2) Marketshare estimated according to SIIS ´ Informe de Gestión 2013
CORPORATE STRUCTURE World Class Controlling Shareholders OWNERSHIP AS OF FEBRUARY 28TH 2015 100,0% Chilean Pension Funds • SUEZ ENVIRONNEMENT is one of the leading water and 2,2% Brokers 7,1% CORFO sewage treatment players worldwide. Others 5,0% 12,0% • AGBAR is an international benchmark in the sanitation 56,6% business with more than 150 years of experience in the International sanitation industry, with a presence in 14 countries. Shareholders 23,6% 50,1% IAM 50,1% 100% 100% 53,5% 100% 100% 100% 100% REGULATED COMPANIES NON-REGULATED COMPANIES
INDUSTRY COVERAGE RATIOS** CONSOLIDATED INDUSTRY 99,9% (DW) 100% 99,8% (WT) Operated by private players 80% 96,5% (S.) 60% 40% MARKET SHARE* 20% 0% 43% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 AGBAR SUEZ Drinking Water Sewage Wastewater Treatment 31% ONTARIO TEACHERS PP 9% MARUBENI 5% INV. AGUAS RIO CLARO 4% SMAPA INDUSTRY REVENUES & CAPEX (USD TH. MILLONS)** GRUPO LUKSIC 3% HIDROSAN-ICAFAL-VECTA 3% OTHERS 2% $ 321 $ 351 $ 399 $ 442 $ 483 $ 528 $ 596 $ 667 $ 688 $ 734 $ 738 $ 802 $ 878 $ 924 $ 110 $ 192 $ 262 $ 178 $ 111 $ 148 $ 174 $ 100 $ 135 $ 154 $ 115 $ 219 $ 181 $ 232 Currently, 95.7% of the population is served by a privately-held operator. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenue (MMM$) CAPEX (MMM$) *Market share based on number of clients. Source: Informe de Gestión 2013 de SISS. **Source: SISS. Exchange rate: 523.76 CLP/USD as of 31 December 2013.
CHALLENGES Aguas Andinas • • Service continuity Increased service standards • • Service reliability New channels to provide customer service • • Automation and technology OPERATIONS CLIENTS Customer service, infrastructure and better processes • Security ORGANIZATION COMMUNICATIONS • Intelligent organization • Open dialogue with the community • Efficiency and changes in • Education/community outreach corporate culture • Corporate Responsibility • Human Resources
COMMITTED INVESTMENT PLAN WITH THE SISS FOR 2013-2023(USD MILLONS) SERVICE CONTINUITY Increase Reserves of Drinking Water A two-phase plan that will strengthen our network has been developed. 84 39 27 Safety Infrastructure Projects – Phase I (completed): • 7 new wells (500 liters per second) Drinking Water Sewage Sewage • 6 storage tanks for drinking water with a capacity of 225,000 m3 Collection Treatment • Duct (4 m3/s) connecting the El Yeso Reservoir with the Las Vizcachas water production plant • Tariff increase of 1.2% applied beginning 1 March 2014 Safety Infrastructure Projects - Phase II: • Construction of a raw water storage tank with a capacity of 1,500,000 m 3 • Network autonomy will be raised to 32 hours • Investment of approximately US$100 million • Anticipated tariff increase of 1.1% to be applied when the project is completed (2018) Source: Aguas Andinas * USD/CLP=570 UF/CLP=23.500
EMBALSE EL YESO WATER VOLUME SERVICE CONTINUITY 250.000.000 225.000.000 200.000.000 Drought Mitigation Plan Volume (m3) 175.000.000 150.000.000 125.000.000 100.000.000 75.000.000 50.000.000 New investments to increase capacity and agreements with 25.000.000 0 primary users for the joint management of the Maipo river Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Vol. 2002-2013 Vol. 2012 Vol. 2013 Vol. 2014 WATERFALL AT EMBALSE EL YESO (mm) (1) Measures taken by the company to mitigate the impacts of the drought during the last four years have ensured 1400 water supply for 2014-2015, even in the event that 2014 1200 is a dry year. 1000 800 600 MAIN INITIATIVES: 400 • New capacity in wells 200 • Purchase of raw water 0 • Renting of water rights 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 • * Average calculated from 1983 to date. Agreements with other users of the river (1) Source: Dirección General de Aguas (DGA) • Monitoring and control of illegal water usage/extraction El Yeso Reservoir December 2014- Approximately 66% of Capacity
SERVICE CONTINUITY 4 th Stage of Mapocho Treatment Plant Project to be completed in 2017 Will increase the treatment capacity of the Trebal-Mapocho complex from 6.6 m 3 to 8.8 m 3 Main benefits: • Respond to increasing demand • Strengthens the security of operations in the basins of Gran Santiago • Prevents the need to send untreated water back to the river 40
SERVICE CONTINUITY Operating Highlights 2012-2014 2. PRODUCTION • New wells in the Cerro Negro area • Drought Contingency Plan 4. COLLECTION • Maintenance of sewage network to provide optimal service. 5. TREATMENT 1. EXTRACTION • Completion of the Mapocho • Connection between El Yeso Sewage Treatment Plant, reservoir and Laguna Negra aqueduct which allowed the Company 3. STORAGE AND DISTRIBUTION to reach 100% coverage in • Additional reserve volume of 225,000 m 3 in 6 new tanks sewage treatment. • Investment in “Ice Pigging,” cleaning technique that utilizes pressurized ice • Hydraulic efficiency plan Aguas Andinas’ high coverage levels for all water and sewage services ranks the Company as a world -class operator.
STRATEGIC CUSTOMER SERVICE PLAN New World Class System Implementation of AquaCIS, new billing tool that will allow us to further strengthen our commitment to serving clients Integrates commercial operations processes, such as customer service, contracting services, readings, billing and collection, etc. Work-flow management and business processes are integrated into a single technology platform
The regulatory framework of the REGULATORY FRAMEWORK Chilean water industry has been fundamental to the development of Proven, Stable and Transparent the sector. Regulatory framework in place more than 20 years MODEL COMPANY vs. REAL COMPANY Superintendence of Sanitation Services (SISS) acts as the regulator counterpart in tariff setting process, which lasts 1 year MODEL COMPANY AGUAS ANDINAS Greenfield operation Existing infrastructure Tariffs are reset every five years, based on an objective and technical model: • Tariffs are calculated based on long term total costs of a model company Combination of new and Latest technology • Company and regulator have equal roles in the tariff calculation process legacy technology • Discrepancies are solved by an independent experts committee Cost efficiency Real costs • Minimum real return on assets of 7% after taxes • Automatic interim adjustments linked to polynomials based on CPI and WPI indexes 100% coverage in all Real coverage services Very low delinquency levels due to the legal Self-financing of Self-financing of empowerment to disconnect clients investments through investments through tariffs tariffs Ability to use debt to Minimum return on finance Capex and Government subsidies for low-income clients capital enhance return on equity
Mechanism for Tariff Negotiation Process SIXTH TARIFF NEGOTIATION PROCESS SISS study of Company study model of model CALENDAR company company At least 12 months 2 months Discrepancies 1 5 months 1a Negotiation 1b 2 2 4 months Agreement? 45 days 3 1 month 4 No Yes 1. Publication of preliminary bases (October 2013) 1 a. Observations/comments of preliminary bases (December 2013) 1 b. Publication of definitive bases (March 2014) 2. Exchange of model company studies (October 2014) Expert 2-3. Negotiation Tariff Decree Committee 3. Tariff decree 4. New tariffs applied
RESOLUTION OF SIXTH TARIFF NEGOTIATION PROCESS On November 14th, Aguas Andinas and its subsidiaries Aguas Cordillera and Aguas Manquehue, came to an agreement with the Superintendence of Sanitary Services (the "SISS") within the framework of the sixth tariff-setting process for the period 2015-2020. Aguas Andinas and Aguas Cordillera’s tariffs, which compose 97% of the income being negotiated during the process (344 billion CLP, ~573 million USD), will be maintained at current levels for the new period. These tariffs will apply from March and July 2015 respectively. Aguas Manquehue, which represents 3% of the income negotiated (9 billion CLP, ~15 million USD), will reduce its tariffs by 5% from May 2015. This reduction was linked to the high volume increases recorded during the previous 5 years (above 30% increase). The polynomials that have been used for the previous 5 year process will remain the same.
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