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

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to Colbun's Second Quarter 2026 Results Conference Call on August 3, 2026. [Operator Instructions] The format of the call today will be a presentation by the management team followed by a question-and-answer session. So without further ado, I would now like to pass the line to Soledad Errázuriz, Financial Manager. Please go ahead.

Thank you for joining us once again in reviewing our quarterly results. My name is Soledad Errázuriz, I'm Colbun's Financial Manager, and joining me today are [ Miguel Alcon ], the company's CFO; and [ Tarinina Glasek ] 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 in 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 2026. Now please go to Slide #4 to review the highlights of this year. First, regarding our commercial strategy. During this year, power purchase agreements have been signed in Chile with 68 clients for an annual volume of 481 gigawatt hour per year. In Peru supply contracts have been awarded to clients for a total contract capacity of 15.5 megawatts. Second, regarding financial activities. On April 6, Colbun prepaid a bank loan with Sumitomo Mitsui Banking Corporation for a total amount of EUR 152 million. Additionally, on Main, the company distributed a final dividend for a total amount of EUR 16 million. This, together with the interim being of EUR 78 million paid in December 2025, total million amounted to EUR 93 million, equivalent to 50% of the distributable net income for 2025 in accordance with the company's dividend point. So regarding our pipeline of projects. During this quarter, the company's main advances were -- regarding Best Celda Solar, the project reached 94% progress and is currently progressing with the energization and operational testing activities. Regarding Besivarasud, overall progress reached 58 patients -- the project now advanced to our Internet connection activities. Regarding Done Vardo station overall progress reached 70% as of the date -- in the quarter, approximately 90% of the foundations were completed, and all major equipment supplies were procured. Now please go to Slide #5 to review subsequent rest of the quarter. First, weather conditions and secure supply. During July, severe storms affected a large part of Chile, highlighting that despite the significant progress made in the integration of renewal resources, the security of the energy supply continues to largely depend on weather conditions. Per to arrange full events, the hydrological ramped within the driving 2% of the historical observations. -- reduced hydresource availability together with high wind variability and seasonally lower solar generation during the winter months, significantly increased the system reliance on thermal generation. which drove marginal costs at Alto Rael to levels above 300-megawatt per megawatt hour. Following the rainfall, hydroelectric generation recovered thermal generation declined significantly and marginal cost fell to below $10 per megawatt hour. This sharp shift highlights both the resilience and the vulnerabilities of the Chilean electricity system, reinforcing the importance of maintaining an electricity supply that balances security, competitiveness and sustainability. And the current market conditions, efficient thermal generation particularly natural gas fired generation continues to play a key role in supporting the integration of variable renewable energy sources. More broadly, a successful energy transition requires a long-term approach that incorporates time investments in backup capacity, energy storage, transmission infrastructure and appropriate regulatory incentives. Second, regarding the national Reconstruction and Economic Estacion Development Act. On July 21, the [ amperes ] approved the bill in its entirety with the exception of a small number of provisions that we continue to -- the company is currently analyzing the finantial and tax implications arising from the lead in order to apply them once the law is enacted. First, regarding the electricity timing protection bill on July 22, the National Congress approved electricity tariff production build, which seeks to mitigate the impact of tariff recalculation on regulated customers' electricity deals, regularized spending distribution and transmission processes and strengthening the security and reliability of the electricity system. The deal introduces a voluntary mechanism to renegotiate regulated PPAs by mutual agreement and extend the residential through 2027. From the company's perspective, the tariff measures included in the legislation do not impose new direct financial obligations and generation companies, nor do they unilaterally modify existing power supply contracts. Notwithstanding the foregoing, the legislation, burdens, circumstances under which preventive measures may be adopted in situation subsequently shortages. -- the effects of which will depend on the future implementation and subsequent regulation. Now continuing with this conference call, please go to Slide #7 to analyze the liquidity position and consolidated financial debt held by the company. Total financial debt on a consolidated basis this quarter reached EUR 2.4 billion with an average life of 5.2 years and an average interest rate of 4.1% in consolidated terms. Net with the EBITDA level as of June '26 reached 2.8x. Now I will turn to Carolina, who will speak about the main drivers of the results for the second quarter of 2026.

Thank you, Soledad, and hello to everyone. Before starting with our quarterly results review, I would like to highlight some relevant data about the systems operation on inner night. In Chile, the average marginal cost measured at Alto Rael decreased compared to the second quarter of 2025, averting $66 per megawatt hour. Electricity demand grew by 1.4% during the second quarter of 2016 compared to the second quarter of 2025. The quarter was marked by particularly challenging hydrological conditions in Chile national electric system. As of the end of June, after its 3 months, the main in wider dating are recorded in precipitation deficit relative to a normal yield. In addition, community inflows reflect 100% probability of excedents, indicating that this quarter ones as the drive in the available historical record. In Peru, sandals average marginal cost increased compared to the second quarter October 2. If I averaging $29 per megawatt hour this quarter. Electricity demand also continued to expand, growing 6% compared to the second quarter of 2025. Additionally, as of June of 2026, the same has recorded hydrological conditions with a probability of experience of 20% compared to the 0% recorded as of June of the previous year. Now please go to Slide #10 to review the quarter's physical sales and operating income files. In Chile, Physical sales during the second quarter reach 3.2 terawatt hour increasing 10% compared to the second quarter of 2025. This variation was mainly explained by higher gross market sales compared to a period with no spot market sales during the second quarter of 2025, Mainly due to higher generation during the quarter. This effect was partially offset by a decrease in sales related clients, primarily compensated with the expiration in December 2025 of contract with [indiscernible]. In Peru, Physical sales during the quarter reached 1 terawatt hour, increasing 18% compared to the second quarter of 2025. This increase was mainly explained by higher sales to regulated clients associated with the commitment of the contract with Cuenca and the increasing contracted capacity with electron. This effect was partially offset by lower energy sales in the spot market and increase in sales to unregulated claims due to the termination of contracts, mainly with the mining clients. For the second quarter of the year, consolidated operating revenue amounted for $449 million, increasing 12% compared to the operating revenue per coded in the second quarter of 2025. This variation was mainly explained by prior year then capacity sales in Chile associated with higher volumes sold in the spot market, together with higher spot prices and higher revenues from regulated clients in Peru. These effects were partially offset by lower revenues from regulated and other related clients in Chile as well as lower revenues from allocated transit in Peru. Now please go to Slide #11 to review the generation and raw materials on consumable use cost figures. In Chile, total generation of the quarter reached 3.3 megawatt hour increasing 19% compared to the second quarter of last year. This variation was mainly explained by higher coal-based generation, driven by the return to operations of Santa Maria Thermal Power plant, which recorded no generation during the second quarter of 2025 due to the unavailability resulting from the incident that accrued in March of that year. Higher wind generation, mainly explained by greater contributions from the Alexander wind farm, which was still in the commissioning stage during the comparable period and higher gas fire generation associated with increased economic estates of the arena complex units in the context of greater fuel availability and higher marginal costs toward the end of the quarter. These effects were partially offset mainly by lower hydroelectric generation due to less favorable hydrological conditions. In Peru, total generation reached 1 terawatt hour during the quarter, increasing 57% compared to the second quarter of 2025. This increase was mainly explained by plant's higher availability considering that the 2026 major maintenance was carried out during February. Were in 2025 is extended from April 4 to April 28, significantly reducing generation during that month. Additionally, during the second quarter of 2026, the plan recorded higher generation due to the economic dispatch of this year. Consolidated raw materials and consumable usage cost in the second quarter of 2026 amounted to $248 million, increasing 21% year-on-year driven by higher coal consumption associated with the returns to operation of Santa Maria Permata. Now please go to Slide #12 to review the main differences in the consolidated EBITDA for this quarter. Consolidated EBITDA reached $157 million during this quarter, increasing 12% compared to the second quarter of 2025. Chile amounted to $11 million, increasing 9% compared to the second quarter of 2025. This increase was mainly driven by higher energy and capacity sales associated with the increased generation together with higher prices recorded during the quarter and lower glass consumption cut despite higher dispatch of the combined cycle units due to a decrease in the other supply costs. This spec were partially offset by higher coal consumption cost associated with the return to operation of Santa Maria Thermal Power plant and lower revenues from regulated clients due to a decrease in the supply volumes following the expiration of the ML distribution contract. EBITDA grew reached $26 million in second quarter of 2026 increasing 26% compared to the second quarter of 2025, Mainly associated with the greater plant availability and increased sales to regulated prices. Now please go to Slide #13 to review the consolidated net income of the quarter. Nonoperating income for the second quarter of 2026 post a loss of $42 million compared to a loss of $23 million in the second quarter of 2025. This variation was mainly explained by higher loans recorded under other gains losses associated with the recognition of an extraordinary nonrecurring effects, particularly cost related to the early termination of coal supply contracts seen during the 2022 and higher financial expenses mainly explained by lower capitalized interest following the commercial operation of the Alicante wind farm. And finally, to a lease extent by higher average level of financial debt. These effects were partially offset by a foreign exchange gain recorded during the period. The company reported a profit of $7 million during the second quarter of 2026 compared to a profit of $4.8 million recorded in the second quarter of 2025. This decrease was mainly explained by the deterioration in nonoperating income and effect partially offset by a higher operating income and lower income tax expense. Now please go to Slide #14 to review the consolidated cash flow. The company began the period with a cash balance of $1,925 million and ended with $832 million. Regarding operating activities during the second quarter of 2026. The company generated a positive operating cash flow of $164 million, in line with the operating cash flow recorded in the second quarter of 2025. This reflects offsetting effects during the period, lower operating cash collections, primarily associated with timing differences in the billing and collection cycles as well as higher operating cash first next. These effects were partially offset by higher tax response received during the period. In terms of financing activities, they recorded a negative cash flow of $227 million during the second quarter of 2026 compared to a negative cash flow of $47 million recorded during the second quarter of 2025. This variation was mainly explained by the prepayment of the let loan with SMBC carried out during the quarter. Lastly, investment activities generated a negative cash flow of $85 million during the second quarter of 26, decreasing 16% compared to the negative cash flow of $101 million recorded during the second quarter of 2025. This variation was mainly explained by lower disbursements associated with the company's investment plan, reflecting the different progress of road projects compared to the same period of the previous year. This concludes Colbun's second quarter of 2026 results for you. Thanks for listening. And now we are open to answering your questions.

Thank you. So we'll now move to the question-and-answer section. [Operator Instructions] Our first question comes from Andrew McCarthy from LarrainVial. How is your natural gas and co availability for the rest of 2026? Is there a risk that you could incur more costs for early termination of fuel supply agreements?

Hello, this is Miguel. Andrew, thank you for your questions. Since there are many will try to tackle 1 by one. So first, regarding natural gas and coal availability Natural gas, as you may know, we purchased from several different sources up until June, we've used a combination of G&A, Gasum Argentina, and [ utopia ] natural gas, higher percentage of the use has been linked to the gas coming from Argentina. We still have that, I would say, via short-term contracts available, but for now, we have secured gas up until August with a counterparty G&L with a contract with ML that we previously disclosed. For the moment, we don't foresee the need to acquire more gas that, of course, is subject to hydro conditions, which have improved significantly over the past 3 weeks. If we need loan, we'll probably activate again the Argentinian supply side for getting more gas. But as for today, we have available gas up until August with Nel's contract. Regarding coal, we have coal stored for the operation of about 1.5 months on a full load on the Santa Maria plant. And on top of that, we have secured a shipment that should arrive by mid August, that is useful for another full 1 month of total dispatch of Santa Maria. So basically enough coal to operate at least 2.5 months on a full-time basis. And again, linked to hydro conditions and aronal costs, we believe that's an adequate cushion to operate the facility. Regarding CapEx, so regarding CapEx, I would say that for the second half of the year, total expected CapEx is around EUR 200 million. EUR 100 million of those splits, I would say, evenly between the 2 best projects we are in Barton, Feldser and an Magal EUR 60 million should go into maintenance. And the final EUR 50 million should be in smaller investments. So all in all, EUR 200 million, half of that amount, EUR 100 million should go to the best projects and the rest for smaller CapEx needs and maintenance. Regarding reservoirs, as you may know, because of concave conditions, situation has improved significantly over the last 3 weeks. The current level of the Colbun reservar, it's getting almost completely full. As you know, the maximum level it can take -- can go in terms of meters above sea level, is the 437 meters and nowadays is at 430 meters, 29.7% actually as of today and still going up because of the rainfall expected to occur during this week in the Maule Basin. And [ Gotilserver ] as it has a limited capacity to accommodate higher inflow is almost -- it's completely full operating as a run-of-the-river facility and the tablet has also improved significantly, I would say, pretty much in line with the situation on the Colbun reservoir I think that should cover all of your questions.

Thank you very much. Our next question comes from Cristóbal Larrondo from BTG. Could you please explain why the ocular plant will be out of operation until January?