Colbún S.A. (COLBUN) Q2 FY2025 Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'd like to welcome you to Colbun's Second Quarter 2025 Results Conference Call on the first of August 2025. [Operator Instructions]. So without further ado, I would now like to pass the line to Miguel Alarcon, the CFO. Please go ahead.

Good afternoon to everyone, and thank you for joining once again in reviewing our quarterly results. My name is Miguel Alarcon, I'm Colbun's CFO. And joining me today are Soledad Errazuriz, Isidora Zaldivar and Carolina Plasser from our Investor Relations team. I hope you have received our earnings report and an earnings review presentation that we have prepared to complement the analysis of our figures. Otherwise, you can download them from the Investors section on our website. On this occasion, we will review the highlights of the quarter, our liquidity and debt position, and to conclude the company's consolidated results for the second quarter of 2025. Now please go to Slide #4 to review the highlights of this quarter. First, regarding our commercial strategy. During the second quarter of 2025, power purchase agreements were signed in Chile for 357 gigawatts hour per year. In Peru, supply contracts were awarded for 30.6 megawatts per year. Second, regarding the latest developments on our pipeline of projects, we can comment that during second quarter of 2025, the company's main advances in renewable energy and storage projects were; in Chile, first regarding the Horizonte wind farm expansion, the project received environmental approval. It contemplates the installation of up to 24 new wind turbines, adding up to 180 megawatts to the park's generation capacity. Second, in the Horizonte wind farm, the National Electricity Coordinator approved the commercial operation date of the Horizonte Norte effective as of June 2, it is worth noting that Horizonte has been [indiscernible] energy to the system since the beginning of the commissioning phase in May of 2024. About BESS Celda Solar, the project reached 30% of progress. Finally, regarding BESS Diego de Almagro Sur, progress was made in securing the necessary authorizations and permits required to begin construction. Third, regarding power purchase agreements. On April 8, Colbun signed a power purchase agreement with Atlas Renewable Energy for a battery storage project with an installed capacity of 230 megawatts and a daily storage capacity of 920 megawatts hour. The project will be located in the [ commune ] of Maria Elena Marina and the agreement will be in effect for 15 years starting in 2027. Now please go to Slide #5. Fourth, regarding our power plant operations. Since March 23, Santa Maria has been out of service due to a loss of lubrication in the steam turbine, which caused the turbine shaft to seize. This occurred after both circuits of the Santa Maria-Charrua transmission line were disconnected due to wildfires. Repair work is ongoing, and the plant is expected to resume operations during the third quarter of this year. It is worth commenting that the company has insurance coverage for this type of events. Fifth, regarding our dividend distribution. On May 9, the company distributed a final dividend of $27 million, combined with $100 million paid on December 2024. This, in total represents 50% of the distributable net income for the year 2024 in accordance with the company's dividend policy. Finally, regarding the sale of documents under PEC III Law. We can comment that on April 2, the second and final sale of sell payment documents under PEC III Law was completed for a total amount of $41 million. Now please go to Slide #6 to review subsequent events of the quarter. First, regarding operation of our plants. On July 9, an incident occurred in Unit 1 of the Rucue Hydroelectric plant of 178 megawatts of installed capacity due to a gas leak that caused a fire during metalization work on the turbine's wear plates and upper cover, as part of the major maintenance activities. The incident caused first and second degree burns to a contractor that was performing the related work, [indiscernible] needed for repair are still under analysis. Second, related to Mergers and Acquisitions. On July 14, the National Institute for the Defense of Competition and Protection of Intellectual Property of Peru, approved the transaction through which Colbun will acquire 41.379% of the ownership of Fenix Power S.A. With this acquisition, Colbun will reach 100% ownership of the company. The transaction is expected to be completed during August of this year. The acquisition will be financed through a combination of available cash held by Colbun Peur S.A. and $50 million bank term loan. Now continuing with the conference call, please go to Slide #8 to analyze the liquidity position and consolidated financial debt held by the company. Total financial debt on a consolidated basis this quarter reached $2.3 billion with an average life of 4.4 years and an average interest rate of 4.5% in cost related terms. Net debt to EBITDA for this quarter reached 2.3x. Now I will turn to Isidora, who will speak about the main drivers of the results for the second quarter of 2025.

Thank you, Miguel, and hello to everyone. Before starting with our quarterly results review, I would like to highlight some relevant data about the system operation on Slide #10. In Chile, the average marginal cost measured at Alto Jahuel increased 22% compared to the same quarter of last year, averaging $82 per megawatt hour. Electricity demand decreased by 1% compared to the same quarter of last year. On the other hand, hydrological year started in April has presented a probability of exceedance of 92%. In Peru, Santa Maria, average marginal cost reached $24 per megawatt hour. Electricity demand grew 3% compared to the same quarter of last year. In terms of hydrological conditions, the hydrological year started in September 2024, has presented an exeedance probability of zero. Now please go to Slide #11 to review the quarter's physical sales and operating income figures. In Chile, Physical sales during the quarter reached 2.9 terawatt hour, decreasing 9% compared to the second quarter of 2024, mainly explained by lower spot market sales into the lower generation recorded during the quarter. This effect was partially offset by higher sales to unregulated clients primarily driven by higher consumption from the mining clients and higher sales to regulated clients, mainly due to the incorporation of contracts from [indiscernible]. In Peru, physical sales during this quarter reached 0.9 terawatt hours, increasing 3% compared to the same quarter of last year, mainly due to the higher sales to regulated clients, driven by the entry into force of a contract with [indiscernible] and higher sales to unregulated clients due to the entry into force of a contract with [indiscernible] and increased consumption by [indiscernible]. These effects were partially offset by lower spot market sales, resulting from the lower generation recorded during the quarter and higher under contract sales. For the second quarter of the year, consolidated operating income amounted to $403 million, decreasing 5% compared to the operating income recorded in the second quarter of 2024, mainly due to the lower energy and capacity sales in the Chilean spot market as a result of the lower generation recorded during the quarter. This effect was partially offset by higher sales to unregulated clients both in Chile and Peru, primarily due to a higher consumption from the [ SEC ]. Additionally, there was an increase in sales to regulated clients, mainly driven by the incorporation of ILAP process in Chile and the entry into force of a contract with [indiscernible] in Peru. Now please go to Slide #12 to review the generation and raw materials and consumable used cost figures. In Chile, total generation of the quarter reached 2.8 terawatt hour, decreasing 15% compared to the second quarter of last year. This was mainly explained by lower coal-based thermal generation as Santa Maria Power Plant was unavailable during the quarter following the incident that occurred in March 2024. [ Lower gas-based ] thermal generation due to the limited Argentinian gas supply and lower hydro generation, resulting from less favorable hydrological conditions. These effects were partially offset by higher wind generation, mainly due to the commissioning of Horizonte and the acquisition of San Juan and Totoral wind farms. In Peru, total generation reached 0.7 terawatt hours. decreasing 23% compared to the same quarter of last year. This was mainly due to the lower availability resulted from the maintenance carry out in April. In 2024, the annual maintenance took place in February. Consolidated raw materials and consumable used cost in this quarter amounted to $250 million, decreasing 8% compared to the same quarter of last year, mainly due to the lower coal and gas consumption associated with the lower generation from this field compared to the second quarter of 2024. This effect was partially offset by higher transmission [ power costs ] resulting from type adjustments implemented during the period and increased energy and capacity purchases made during the quarter. Now please go to Slide #13 to review the main differences in the consolidated EBITDA for this quarter. Consolidated EBITDA reached $141 million during this quarter, decreasing 8% compared to the same quarter of last year. [ EBITDA in ] Chile amounted $120 million, decreasing 9% compared to the second quarter of 2024 mainly due to the lower gross margin during the period associated with net purchases in the spot market compared to the net sales in the same market during the second quarter of 2024. EBITDA in Peru amounted to $21 million this quarter, in line with the amount recorded during the second quarter of 2024. Now please go to Slide #14 to review the consolidated net income of the quarter. Non operated income for this quarter posted a loss of [ $23 million ] compared to a loss of $12 million during the second quarter of 2024, this increase is mainly explained by higher other profit and losses and lower financial income, [indiscernible] due to the reduced cash surplus levels and a lower investment grade compared to the second quarter of 2024. The company reported a net profit of $48 million this quarter, compared to the $62 million profit obtained during the second quarter of 2024, mainly reflecting the lower operating and nonoperating results during this quarter, partially offset by lower tax expenses. Now please go to Slide #15 to review the consolidated cash flow. The company began period with a cash balance of $768 million and ended with $788 million. Regarding operating activities during the second quarter of 2025, an inflow of $165 million was generated compared to the income of $5 million during the second quarter of 2024, mainly explained by lower tax payments, billing timing differences and the sales accounts receivable associated with [ PEC ] mechanism. In terms of financing activities, they generated a cash outflow of $47 million, which compares to the outflow of $45 million in the second quarter of 2024, mainly to higher disbursements for the payment of loans and [ interest rate ] primarily related to this $200 million bank loans subscribed in the fourth quarter of 2024. Lastly, investment activities generated a cash outflow of $101 million during this quarter compared to the outflow of $43 million in the second quarter 2024, primarily due to the higher CapEx disbursements, mostly related to Celda Solar and Diego de Almagro Sur [indiscernible] products. This concludes Colbun's Second Quarter of 2025 results review. Thank you for listening. And now we are open to answering your questions.

[Operator Instructions] So our first question is from Rodrigo Palomino from [indiscernible].

I would like to know if you are looking for some firm gas contracts in this few months or just be looking for interim [ pool ] contracts from Argentina?

Thank you for your question. Yes, actually, for the month of August, we will have firm gas already reported to a coordinator for the full month for the operation of 1 combined cycle 1 unit. And on top of that, depending on hydrology, we might purchase additional gas interruptible, but firm gas 1 combined cycle throughout August, that's already confirmed and informed to a coordinator.

Our next question is from [indiscernible] from CrediCorp. One question. Gas costs in Chile increased compared to the first quarter of 2025 despite lower generation from that technology. Could you provide some color on what drove that and whether you expect this trend to continue?

Thank you for your question. In effect, during the past quarter, the variable cost of gas on a unitary basis were higher than the first quarter, and that has to do with the breakdown of Argentinian gas and LNG. LNG represented a higher percentage in this quarter, close to 30% and because of that, you would expect -- because of depreciated costs of using that type of fuel to have higher cost than before because in the previous quarter, about 90% of total cash generation was based on Argentinian gas.

[Operator Instructions] So our next question is from [ Eduardo Palma ] from Itau.

My question is related to the first question. Considering the hydrology that it's been really bad considering the previous year, especially for 2024. The only search to generate energy, in this case, would be gas. And if it's gas, I can see -- are you considering Argentinian gas? My question is because [indiscernible] the Delta transportation is very good right now.

Miguel again here. I couldn't completely hear your question, but I think you were referring to the possibility of generating with gas because of hydrology conditions not being what they were last year. I would say that, yes, so far, hydrology has been lower than 2024, but we're still under the hydrological year, we see more rainfall coming. And because of that, we need to operate and make decisions on the short term. Based on that, as I already mentioned, we contracted firm gas for the next month, and we will see the evolution of hydrology going forward in the next month to make more decisions about contracting more gas or resorting interruptible gas, if that was the case. We've had more rainfall in the southern part of the country, actually closer to the Maule and [indiscernible] basins. And because of that, we need to be cautious in terms of our gas and field decisions. Finally, I would like to remind you that when thinking about PPA contracting, we put ourselves under very conservative scenarios for the amount of levels energy we contract from our own generation. Thank you.

And do you have -- sorry, can you give us a range for the prices that you're making those contracts?

We cannot, unfortunately, because the interruptible prices are negotiated on a bilateral basis on a case-by-case scenario, and the decision around that is with, again, the short-term view, we have on hydrogen marginal costs that evolve constantly -- and I think furthermore, we cannot disclose our internal forecasts about those.

Our next question is from Isabella Pacheco from Bank of America. You mentioned that you sold the less sell payment of PEC III law for $41 million. Could you give more color on the accumulated figure? Could you please give more details on CapEx and expected COD of your pipeline of projects, specifically the best projects. And finally, should we expect liability management in the coming months? What are your plans for [indiscernible] 2027 notes?

So regarding your first question, yes, we sold EUR $41 million in the second and final sale under the PEC III law, the total amount of accounts sold under that law is $120 million. Regarding your second question, so in terms of the CapEx for the second half of 2025, we are estimating a level of around $350 million, this includes some final CapEx for Horizonte wind farm project and also the CapEx associated with our storage facilities under construction that is Celda Solar and [indiscernible] and others. So regarding the [ third ] facilities, the CapEx estimated is $260 million for BESS Celda Solar around $205 million for BESS Diego de Almagro Sur and the COD for those projects is the fourth quarter of 2026 for Celda Solar. The first quarter of 2027 for the Diego de Almagro Sur. So I mentioned our total CapEx for the second half of the year of around $350 million. We currently hold a cash $650 million approximately in Chile. And so with that contained the cash flow of the period we should close up if we do not do any new issuances in around $400 million. And considering those levels and the proximity of the 2027 maturity both at Fenix and Colbun. Yes, we are looking closely the market levels and we see that they are competitive, we might go into the market in the coming months. So we are analyzing that it could be a benchmark size transaction and use a portion of that to refinance at 2027 and the other portion to finance new CapEx for the next 18 months. In terms of the Fenix maturity and -- the amount of spending of that bond is a little bit lower than $200 million. So the refinancing strategy might be a little different. We are analyzing both the bond market, but also some bilateral agreements in the private market since that size might be too small to go into the market, but we are looking closely at both maturities Colbun 2027 and Fenix one.

Our next question is from Martin Arancet from Balanz Capital.

I have 2. First, if I'm not mistaken, the [indiscernible] hydro plant should face limited operations due to a negative ruling regarding an environmental issue. I was wondering if you could give us a little bit of color on that? And what are your expectations for this situation moving forward, how do you think this could get solved? And my second question is, well, there has been a couple of expected issues probably this year with Santa Maria, Rucue [indiscernible] lower gas availability. I was wondering if this change in any sense, your CapEx plan for this year?

Martin, Miguel here. So regarding your first question, actually, there's not a lot I can comment about [indiscernible] situation. There is a legal dispute that was raised by a local landowner, regarding the level of the reservoir and potential impact on -- potential erosion around the reservoir. There's a legal process going on. We are analyzing the merit and the assumptions behind that demand and we're, of course, will prepare an answer in a legal way before thinking about communicating to the market any potential impacts linked to the operation. Basically the level of the reservoir, it's what's being discussed and the potential impact of that going forward is again yet to be seen. That's all I can comment. I think you also asked about Rucue and Santa Maria, if I got it right?

Yes, I was wondering if that impacts your plans in any sense for this year regarding CapEx?

I would say that -- you know this, hopefully, from previous experience that we are really careful about our liquidity position and the CapEx we commit. We are finalizing the Horizonte wind farm in terms of the CapEx disbursements and that's almost completely disbursed. On top of that, we are in the middle of the disbursements linked to a CapEx of 2 best projects. And within those amounts in scope and maintenance CapEx linked to that, having close to $700 million in available cash, we believe that for the time being, there's no need to perform adjustments in those disbursements plan. So short answer would be no.

Our next question is from Constanza Gonzalez from Quest Capital. Could you confirm the CapEx for 2025? I appreciate whether you can separate by investments and maintenance? My second question, could you give us more color about the -- apologies if I mispronounced Rucue operation. Finally, could you be more specific about the return in operations for Santa Maria? Do you expect the recovery by the end of the third quarter of 2025?

So related to the CapEx for this year, we are expecting a figure close to $500 million. And related to how many is maintenance and how many is investment CapEx? I would say that the figure of maintenance is close to $70 million and the rest is investment CapEx. And as [indiscernible] was mentioning before, of those $500 million, $350 million is expected for the second half of this quarter and is related mostly to Celda Solar, Diego de Almagro and Horizonte wind farm project. Related to Rucue operations, Today, we are expecting Unit 2 to start operations. And for the Unit 1, that is the one who had the incident, we are expecting to start operation during the first week of October with the information that we have as of today. Of course, depending on the maintenance and the works, we could change that date. And related to Santa Maria, as we informed to the coordinator, we expect to start operations during the first week of September.

Our next question is from Fernan Gonzalez from BTG.

I basically have 3 questions. The first one is I'm trying to understand why you decided to use Canadian Solar as the supplier for your Diego de Almagro Sur best project as opposed to Tesla, which you were using in the Celda Solar project. Are there any technical specifications for this supplier? Or is it because the pricing is more competitive. So any color you could share on this would be very helpful. My second question is Horizonte expansion that already got the environmental approval, can we assume that it would go ahead or is this not in the short-term planning of you? And my final question is, again, regarding with gas sourcing. You already declared the availability for this month. But what about for the rest of the year? Are you still comfortable with the strategy that you adopted this year with regard to gas or can we expect more firm contracts or maybe from the spot market in the second half of the year?

So first question would be that -- for all the best projects, we analyzed different counterparties, made several trips to different locations, including the U.S. and China and put together, I would say, a really comprehensive list of top-tier suppliers, being Canadian Solar and Tesla, I would say, equally on both. The decision of going in one case with Tesla and the other with Canadian Solar has to do with the combination. And of course, pricing, both in terms of CapEx and OpEx, and of course, the technical support that the provider provides for that purpose to supplier provides. I can say with confidence that after a lot of study and research, we feel extremely confident in working with both suppliers, I would say, equally. Canadian Solar that you might have some questions to us against a top-tier counterparty with several projects already installed and operating with good results throughout the world. And after the technical there is some inspection, we believe that it's in a really high level and position to be the supplier for this particular project. There's also a consideration in terms of diversification of suppliers that is also relevant. But answering your question, we believe that both are equally qualified in technical terms. Regarding your second question about the Horizonte expansion, as you -- I'm sure you know, we have the strategy of having different projects, different technologies with environmental approval in place throughout the country just to be ready for a potential opportunity of PPA that might materialize. In this case, we have not made a final investment decision about the project, and that's something that should be discussed in the short to medium term. But again, no decisions or no CapEx committed as of today at least. And finally, regarding gas, it's always hard to analyze a decision that you made some months ago with current information. Yes, we had an expectation at the beginning that the hydrological year might unfold differently when we made that decision. And I would say that the same logic applies for the availability of our thermal operations, in this case, being Santa Maria on top of that, the incident on Rucue. We believe that as for today, having 1 firm gas supply contract for 1 combined cycle should be enough. But as I said previously, it's something that we monitor closely. So we got -- we could make a different decision or hire more gas if that's needed, again, depending on hydrology and [indiscernible] going forward.

We have a follow-up from [indiscernible]. There have been local media reports about Colbun's potential interest in acquiring a wind asset from Acciona in Spain. Can you comment on these reports and if you have an estimated time line regarding this possible operation?

This is Soledad. So regarding that specific transaction, it was already awarded to other participants. And I cannot give you more comments on that. However, what I can say is that a few years ago, we made an analysis of potential geographies we could expand on seeking to diversify our sources of income and Spain [indiscernible] as target in which -- we think it's an attractive market to grow because of its size, its growth prospects and also the overall power system conditions. So yes, we're analyzing opportunities in that market. However, something important to say is that this growth would be without committing our investment grade rating, so we are compromising it. It would be probably in a first basis in a smaller amount and probably with partners, we are looking for a gradual growth. So to make a first acquisition and then grow that platform with greenfield projects over the years.

[Operator Instructions] Our next question is from Gutenberg Martinez from Quest Capital. Why are transmission tools costs increasing?

Isidora here. So transmission forecast has increased over the last quarter because of some indexation adjustment on the tariff of the [indiscernible]. Nothing more.

[Operator Instructions] Okay. It looks like we have no further questions. I'll now hand it back to the Colbun team for the closing remarks.

So thank you to everyone for joining this conference call. With this, we conclude this year -- this quarter's results review. Thank you for listening. Thank you for your questions, which were many, and have a great weekend to you all. Bye-bye.

That concludes the call. Thank you, and have a nice day.