Empresas Copec S.A. (COPEC) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Empresas Copec's Third Quarter 2025 Results Conference Call. Today's presentation and the third quarter 2025 earnings release are available on the company's Investor Relations website, investor.empresascopec.cl. Before we begin, I would like to remind you that this presentation may include market outlooks and forward-looking statements, which are based on the beliefs and assumptions of Empresas Copec's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and, therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Empresas Copec and could cause results to differ materially from those expressed in such forward-looking statements. This presentation contains certain performance measures that have been adjusted with respect to IFRS definitions, such as EBITDA. [Operator Instructions] I will now turn the call over to Mr. Rodrigo Huidobro, Chief Financial Officer of Empresas Copec. Please go ahead, sir.

Hello, everyone. Thank you for joining us today on this webcast where we will be reviewing the results corresponding to the third quarter 2025 for Empresas Copec. I'm going to start by flipping through the presentation that we have prepared for you with the main figures and highlights of the quarter. And then I will be joined by Mr. Cristian Palacios, Mr. Marcelo Bennett; and Mr. Gianfranco Truffello for the Q&A session. They will all be helping us out in addressing any questions you might have after the presentation in the Q&A session. So having said all that, let me begin by showing you the most important highlights of the quarter. This is a quarter, as you can see on the screen there, this is a quarter where we recorded an EBITDA of $642 million, which is 15.9% drop year-on-year. And that is driven essentially by a lower performance in Forestry, offset to some extent by very good results that continue to happen in our Energy division. As pertaining to Energy, you can see that both Copec and Abastible continue to show a sustained good performance. In the case of Copec, we have higher volumes, very good industrial margin and also continued good contribution from the lubricant segment. In the case of Abastible, the company continues to perform very well, essentially with higher volumes across all geographical regions, particularly in Colombia, Peru and Ecuador in the case of the year-on-year comparison. Regarding Forestry, we -- as you well know, we're going through a scenario of low oil prices. And therefore, the drop in EBITDA is driven essentially by lower pulp prices offset by higher volumes in the pulp business. In terms of the main developments of the quarter, we continue to make progress in the Sucuriú project already at 27% -- 25.7%. We have begun works at the Mina Justa Subterránea project. Those were starting in October. And also Arauco has made significant progress in terms of its financing for the Sucuriú project as you will see further on. Regarding ESG, also very significant development here. We were validated by Sustainable Fitch in terms of the allocation and impact of the green bond that Empresas Copec issued last year. Together with that, we continue to make progress in solar panels with one of the largest parking lot in the country with solar panels and also with the fact that a northern city in Chile became the first city in South America to be fully electric transport fully -- to have electric transport -- fully electric public transport sourced by Copec. So very good news also regarding our progress in electromobility. Main figures for the quarter are shown on screen there. EBITDA is down 15% year-on-year and 9.8% Q-on-Q. Sales are going up. Our debt-to-EBITDA ratio has gone up, in line, of course, with the CapEx devoted to Sucuriú. As you can see there, the CapEx for the quarter was $1 billion approx. Most of that concentrated in the Forestry division, precisely because of the progress in the Sucuriú project. Pulp EBITDA is down, as we will see further on, driven by lower pulp prices. Wood products EBITDA is down a bit with respect to year-on-year and also Q-on-Q, but still in line with the historical averages. In the case of Copec and Abastible, a very good performance for both companies with an increase year-on-year of almost 19% in the case of Copec and 14% in the case of Abastible. And finally, Mina Justa performing very well with an EBITDA of $236 million, which is up 35% year-on-year, very good performance by Mina Justa. You can see the historical evolution there, an EBITDA of $642 million, a little bit below what we have usually indicated as our mid-cycle historical EBITDA. Mid-cycle is around $3 billion per year. This is a little bit below that when measured on a quarterly basis, precisely because we are going through a scenario of lower than historical pulp prices. In the case of net income, $198 million, which is a little bit below the comparable quarters, but also pretty much in line with the last few quarters when adjusted by onetime effects. You can see a very brief outline there of our debt and our debt metrics and also portability metrics. Our maturities are well distributed. Going forward, we have a good level of cash with $2.7 billion. Our net debt-to-EBITDA continues to trend up, of course, as expected because of the evolution of Sucuriú project and the amount that has been devoted to the CapEx through the Sucuriú project. So $3.2 billion or $3.3 billion at the end of the quarter, which is still pretty much in line we have permitted in our financial policy. Arauco continues to concentrate the largest part of the debt, also because of the progress in the Sucuriú project, very well distributed by type of debt, which means that all of our debt channels are open, which is a good thing to have. Financial ratios are down a bit, both in terms of EBITDA margin and return on capital employed because of the lower pulp price scenario that we are facing and going through. Diving deeper into the different business divisions. Let us start by showing a little bit more detail on Forestry. As you can see there, our core has decreased EBITDA with respect to the third quarter 2024. So $296 million EBITDA compared to $463 million. Net income is also down, basically now for this quarter compared to $231 million for the third quarter of 2024. All of that is driven by lower oil prices and also lower wood products volumes. There was also a large forestry asset sale in the third quarter 2024, which brought about a significant net income effect. All of that is partly offset by increased pulp volumes, higher panels and sawn timber prices. And also lower unit selling costs basically across the board for the different pulp types. Diving deeper into the Pulp division, we recorded an EBITDA of $193 million as measured and declared by Arauco, which compares and favorably, of course, with both the immediately preceding quarter and the comparable quarter last year. Costs are down across the board, as I said before, for the comparable quarter last year for the different fibers, also down for softwood Q-on-Q, offset by increases for dissolving bleached and unbleached softwood. In the case of volumes, we have seen volumes going up by 8.5% year-on-year and 9.8% Q-on-Q, so interesting volume growth. In terms of prices, of course, we are down with respect to the third quarter 2024, but we are already up with respect to the immediately preceding quarter. So as we'll see later on, we're beginning to see a gradual increase in prices. We began to see that at the end of the quarter actually. So a review of the pulp market during the third quarter 2025. As I said before, we are going through a low pulp price scenario. But towards the end of the quarter, we saw prices rebounding gradually, especially in hardwood. Softwood prices have continued to decrease throughout the quarter. China, which is our most important market, we continue to see a stable demand. However, we are seeing an oversupply situation, particularly with printing and writing for the printing and writing industry, and that has put pressure on the price recovery. The tissue industry meanwhile has remained stable. In Europe, we are seeing some slight recovery in demand, particularly in hardwood, and we saw also a price recovery in hardwood towards the end of the quarter. which moved and pushed some clients to ensure -- to secure the volumes by the end of the quarter. The printing and writing industry, however, remained challenged throughout the quarter. In terms of dissolving pulp, we are seeing oversupply in the viscose market, but stability in general in the textile pulp markets. As I said before, in China, we are seeing stable demand, but oversupply in the different markets, driven essentially by a local producer that has added additional capacity and therefore additional pressure to the market. We are seeing a gradually upward trajectory for hardwood prices, but no clear signals of recovery for softwood prices yet. Inventories have remained stable. The European situation is still a weak situation with no signals of a clear recovery so far. The tissue industry and the printing and writing are probably going to continue at their current levels for a while. We continue to see uncertainty triggered by trade wars and the tariff situation also all across the different geographies. But as you can see there in the -- particularly in the bottom left-hand graph, you can see a slight recovery in pulp prices, especially in hardwood during the quarter and also stability in the dissolving pulp price. In what relates to wood products, we saw an EBITDA that is down Q-on-Q and year-on-year, $118 million. However, pretty much in line with the historical levels that correspond to an EBITDA of anywhere between $500 million and $550 million or $600 million, still in line with that. Different situation for the different products there. We can see some recovery in volumes for panels, particularly Q-on-Q and also prices rebounding a little bit Q-on-Q for solid wood. For the different geographies, we are showing some insights there on the screen. North American market is the most important market for our wood products. And we see a different situation for the different products that we sell there. MDF, PB and also remanufactured products in general face a challenging situation with some oversupply in the case of MDF, some low demand in the case of particle board and also a low demand in case of remanufactured products. However, in the case of plywood, we see a better situation with stability, limited supply and therefore, a good support for prices. The situation is somewhat different for our Latin American markets as you can sell the screen there. Those markets represent 42% of our sales. And as you can see there, in the case of Brazil, we have seen a robust situation, a strong market, a solid market, a strong particle board demand and also a good situation well balanced for MDF. In the case of Chile, mixed scenarios with some products doing well and some others facing a weaker situation. In the case of PB and melamine, a strong demand. However, relative weakness in the case of MDF. Argentina is also a very important market for ourselves, and we continue to see a good outlook with stability and strong local demand. Let me move on to the Energy division now. A good quarter for the Energy division. We could continue to see a good performance for -- from Copec. Copec consolidated statement is shown on screen there in Chilean pesos, which is the functional currency for this division. The EBITDA recorded for this quarter is CLP 254 billion, very good performance when compared on a year-on-year basis, very stable on a quarter-on-quarter basis, but the company performing at a very good level. On the back of higher volumes in Chile, in general, a favorable inventory revaluation effect. This is an effect that led some volatility to this company and to this segment. And in this case, we had a favorable effect, also helped by higher industrial margin. The Industrial division has performed very well during the last few quarters. And also a sustained good performance in lubricants for the different geographies, not only in Chile, but also for the other countries in which we operate. Volumes for Chile are shown on screen there, stable volumes for gas station, slightly increasing, very slightly, year-on-year. However, a very good performance for the industrial channel with a very strong growth of almost 14% year-on-year. Terpel had also a very good quarter. You can see that the income statement there, the summarized income statement shown in Colombian pesos. EBITDA is up to almost CLP 480 billion, which compares very well both with the second quarter '25 and also with the third quarter 2024. Also a very good performance in terms of net income. Volumes grew in the different geographies, very strongly in some cases. In the case of Colombia and Peru, very strongly, offset to some extent with a drop in the Dominican Republic because of the ceasing of operations of some airlines that used to be our clients. As I said before, also in this case, there is a big support from the performance of the Lubricants division. Let me remind you that some years ago, we acquired the lubricants operations from ExxonMobil for Peru, Colombia and Ecuador and that operation is yielding very good results already and is very significant element for explaining this very good lubricants performance. Abastible has also been performing very well during this year. You can see that the EBITDA there amounts to CLP 69 billion compared to CLP 60 billion for the comparable quarter last year. In this case, we have the consolidation for the first year in 2025 of the recently acquired operation in Spain and Portugal. But together with that, we have seen a very good commercial performance in the different geographies where Abastible operates, particularly strong volume growth in Colombia, Peru and Ecuador. All of that is offset by higher taxes when you get to the net income line. We saw higher taxes that are basically explained by the appreciation of the local currency rates. Some words on the performance of the different markets. You can see that volumes basically grow across the different geographies, particularly in the bulk segment, where we have been very active in substituting our sources -- other sources of fuels and other sources of energies and also driven in the particular case of Peru to a large extent by the poultry industry, which is a very large industry in that country. In the case of the bottled segment, in general, we have seen growth with the exception of Chile, where we had higher temperatures. The market shares are standing at very healthy levels, in general, increasing a bit or remaining stable with respect to last year and ranging between 25% for Peru and 40% for Ecuador, a very healthy market shares in general. Also, the good situation persists in Gasib, our newly acquired company in Spain and Portugal with stable volumes and also a particularly good performance of the bulk segment once again with a very good activity of substitute in all the sources of energy. Moving to the other divisions of the company. The most important of them, of course, is our Mina Justa mine, which is recorded through a company called Cumbres Andinas. EBITDA recorded for this quarter is $236 million, very good figures for the year and comparing very well also with the second -- third quarter 2024 when the figure was $175 million. In line with that, net income for the quarter is $137 million, so very strong net income for the quarter as well. This has been driven by an increase in volumes, strong physical sales, also a very favorable cost level, driven by good grades and the presence of byproducts, a very strong process of byproducts and of course, helped a lot by the very good copper price scenario. In the case of our -- the other smaller divisions, we have good results at Sonacol. Sonacol has been increasing its results in line with better activity in the fuel segment. The fishing division in Igemar with a loss of $11 million for the quarter, in line with lower prices and higher costs. And a very good performance for Metrogas and AGESA, our natural gas divisions in line, in the case of Metrogas with last year and in the case of AGESA with a decrease because of a very high comparison base in 2024. But anyhow, a very good performance in those natural gas divisions. And then moving on to the main developments of the quarter. The update on the Sucuriú project is shown on screen there. We continue to make good progress in line and a little bit above what we had expected and we had planned. Physical progress is up to 25.7% as of September. We began the works in terms of mechanical erection, also in terms of pipe racks and boiler steel structures. We have started construction in the turbo generators buildings, the cooling tower and administrative facilities. And the CapEx we deployed so far on an accumulated basis is a little bit above $1 billion disbursed as of this date. So in line with the physical progress that we mentioned above. Also a very important piece of news regarding the Sucuriú project is the fact that Arauco has basically secured the financing of the Sucuriú project. This was done with 2 different debt instruments. One is an A/B loan, where IDB Invest and IFC led the process and also the participation of 8 different commercial banks. Together with that, Arauco closed an ECA facility for almost $1 billion as well, which is guaranteed by the Finnish agency, Finnvera. All of the above in very good tenors and very good rate conditions. This is not only very good financing conditions, but also the fact that the participation of CAs and multilateral agencies secure a very good support for ensuring a good level of best practices in terms of climate, social and value chain effects. Also in line with the former views, Arauco also issued a large bond in the Chilean market, in the local Chilean market. This is actually the largest bond issuance in the history of the Chilean financial market. It amounted to UF 20 million. The UF is the currency, the inflation-adjusted local currency, and that is equivalent to approximately $850 million. This is a sustainable hybrid bond. The conditions were 1.7x times -- the total demand was 1.7x the amount offered. The rate as a result of that was a very attractive rate, UF plus 3.97%, which is a spread of 168 basis points and is equivalent to approximately 6% -- dollars plus 6% at the current swap conditions. This is a hybrid bond, which means that it is subordinated to the senior debt and also allows the deferral of interest payments at the company's discretion. And as a result of that, rating agencies rated as 50% debt and 50% equity, which, of course, contributes to improving the credit metrics of the company. The total maturity is 32 years, which is a good show of long-term confidence in our subsidiary company. So very good, very attractive placement here by Arauco. On another front, Mina Justa has begun work on the Mina Justa Subterránea project. In October, the company has begun the works related to the access ramps. With this, the underground Mina Justa Subterránea project is finally launched. And just to remind you, this is a corporate project, is a complement to the existing open-pit operation. It will be complemented by this underground operation, the underground phase. The total investment for this new phase should amount to approximately $500 million and should add approximately 500,000 tons of taking production along the life of mine. Life of mine also should be expanded by 4 to 5 years. And of course, this means making production more stable around the life of the mine, and this allows for a better use of the existing infrastructure. So a very attractive project here for metal that is going through a very good pricing scenario in the world markets. Moving on to the ESG developments for the quarter. Sustainable Fitch validated the allocation and impact of the resources obtained by the first green bond that Empresas Copec, the parent company, placed in the local market last year. This is a report that confirms the fact that we have already used all of the resources obtained by this bond placement in eligible green projects, including categories pertaining to renewable energy, energy efficiency and clean transportation. With that, of course, we are complying with the green bond condition for this instrument, and we are contributing to the United Nations Sustainable Development Goals. Also some interesting moments in electromobility and electric panels. We continue to make progress in our positioning in the electrical panel generation business, this time by starting construction of the largest photovoltaic parking lot in the country together with a large client that is going to make use of the energy generated here. So an interesting development here with a very efficient use of the infrastructure and also in what is a very good piece of news for the company, also for the city and for the country. Copiapó, which is a city located in the north of Chile, very linked to the mining industry, becomes the first city in LatAm to have 100% electric public transport sourced by Copec. And so our division Copec, Baltics, which is our electromobility division, continues to make a lot of progress in electromobility and particularly in electromobility related to public transportation. Finally, just to remind you the invitation for our Investor Day. The Investor Day this year is taking place next Wednesday, November 19. It's going to be in place at the [Club Siete Goyenechea], which is located right next to our corporate headquarters. So all of you are more than cordially invited to join us in our Investor Day, where we will be giving away some interesting piece of news and analysis and views regarding our different decisions. That is what we had prepared for you with the presentation, and let me ask Cristian to please -- Cristian Palacios from our Investor Relations department and Marcelo Bennett from Arauco to please join me here in the room, and also Gianfranco Truffello will be connecting from abroad through the Zoom platform in order to address the questions you might have. Thank you all very much.

[Operator Instructions]

Okay. Hello, everyone. We're going to start with the Q&A session. I have a couple of questions for Rodrigo. Alfonso Salazar and Juraj Domic are asking about electromobility. What are your expectations for fuel sales growth over the rest of the decade? And to what extent the electromobility wave has been delayed compared to your expectations at the end of last year, for example? And related to that, could you comment on the next steps for Terpel in this regard?

Yes. Thank you very much for the question. Well, electromobility is a trend that is a long-term trend, but anyhow, it's transformational for the business and totally structural. And therefore, we have decided to prepare ourselves well in advance for facing that trend. We still believe that market in LatAm should continue to grow pretty much in line with GDP for roughly 10 years or so. We are updating our estimations quite frequently. But even though we have still 10 years ahead of us, we have decided to take steps immediately in order to prepare ourselves for facing that scenario. Along those lines, one of the things we've done is to actually make -- position ourselves as leaders in electromobility. And you have seen us, as a matter of fact, a couple of news that I gave throughout the presentation had to do with our positioning now to mobility. And together with that, we have been pushing other areas of development, having to do basically with strategic complements to our existing assets. So those areas in energy, mobility and convenience, where we think we can add value in the sense that they have synergies to our existing assets, we have been developing them gradually. The aim is basically to open up options in order to prepare ourselves for the upcoming scenario of electromobility and energy transition in general. The good thing about the strategy is precisely that we can regulate our speed of transition according to how we see the market evolving, at what speed we see the market evolve. So it's a flexible strategy where the philosophy, the final philosophy is basically to open up options. And Terpel is doing exactly the same thing. We are working coordinately with them, and they are following basically the same line.

Thank you, Rodrigo. Again, Juraj Domic of LarrainVial asking about Mina Justa Subterránea project. What are your expectations in terms of project finance?

Yes, we are making interesting steps in Mina Justa Subterránea project. As I told you during the presentation, we have begun construction work related to the access ramps. This is a very interesting product, especially in the very attractive copper pricing scenario that we are facing. It should add around 500,000 tons during the total life of mine, and it's in a very profitable way because we use up the existing infrastructure. We are still working and looking at options for the financing. Most probably, it's going to be a combination of internally generated cash flows and debt in relation that we are still working on. But we should have no trouble at all financing the projects with debt plus internally generated cash flow. So no -- we anticipate no need of cash contributions from the shareholders.

Next one comes from Henrique Marques at Goldman Sachs. The first part goes to Rodrigo, please. Can you give some update on the Sonacol asset, on the process sale for that asset or any other assets you can dispose in the future?