Empresas Copec S.A. ($COPEC)

Good morning, everyone, and welcome to Empresas Copec's First Quarter 2026 Results Conference Call. Today's presentation and the first quarter 2026 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 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.

All right. So welcome, everyone, and thank you for joining this webcast where we will be taking a look at the results of the first quarter of 2026 for Empresas Copec and its related companies. I will start by showing you a presentation with the main numbers and the main developments for the quarter. And then we're going to run a video we will show you the -- another bit of the status of our Sucuriu project. And finally, we're going to open it up for the traditional Q&A session, where I will be joined by Mr. Cristian Palacios and also by Gianfranco Truffello in order to address any questions you might have. So once again, thank you for joining this webcast. And let me start by showing you the most important figures of the quarter, which are shown there on screen. The adjusted EBITDA for the quarter is $880 million, which is up 11% year-on-year and 23% Q-on-Q. We are -- we have introduced already, and we are emphasizing this figure of adjusted EBITDA because we believe that it reflects in a better way our cash generation capacity. This is the traditional operating EBITDA, which is EBIT plus depreciation plus amortization plus stumpage in our case. And we are also adding up the net income coming from our equity investments. In our case, that is mainly [indiscernible] is contributing significantly to our cash generation and also natural gas, which also contributes in a very important way to our cash generation. In both cases, both of those subsidiaries have a policy of distributing 100% of our net income as dividends. And therefore, this metric of adjusted EBITDA represents very well our total cash generation as a holding company. So that is up, as I said before, 11% year-on-year, 23% Q-on-Q. In general, this has to do with a very strong performance of the energy division, both year-on-year and Q-on-Q. We have continue to see what we had seen in the last few quarters in our Energy division. Remember that our Energy division ended up last year with a total EBITDA of $1.5 billion, which is quite significant compared to the historical averages. And some of those trends have become even more notable during this particular quarter. In the case of Copec, we have seen a positive and very strong inventory revaluation effect, of course, linked to the increase in oil prices. That's an accounting effect that affects our figures quite significantly, together with higher contribution from lubricants and a favorable industrial margin. And that's the case in Chile, in Colombia and in all the countries which we operate. In the case of our Civil, we have also seen a very significant trend of EBITDA coming up over time. In this particular case, it's significantly up and having to do with a strong volume growth basically across all geographies where Abastible operates. In the case of Q-on-Q, we also see a very significant decrease in SG&A at Copec EXO good efficiencies there at Copec explaining the increase in EBITDA. What we see in forestry has to do mainly with -- in the case of year-on-year, we see lower pulp prices and increased costs. We see a weak quarter for wood products in general as well, mainly volume-wise. And basically, the same thing for Q-on-Q also a weak quarter for wood. In this case, we see higher prices for pulp, but lower volumes. So all in all, an EBITDA that reaches [ $180 million ] for the adjusted format and a very significant increase. In terms of our main developments of the quarter, remember that we are for the time being focused almost exclusively in carrying forward the Sucuriu project, which is a very major project, a very large effort that we are doing there in Brazil. And it shows a very interesting progress up 62%, which implies the same construction progress of 73% and a railway progress of 16%. We'll show some more detail of that in a while. Some other relevant figures shown on screen there, as I said before, $880 million for adjusted EBITDA. The Energy division going up to $571 million. Forestry, down with respect to the comparable quarters [ 261 ] in this particular case. Mina Justa, and I would like to highlight the performance once again of Mina Justa course, a very good copper pricing scenario. But once again, generating an EBITDA of a figure above $200 million for the quarter. CapEx is up to $790 million for the quarter, almost exclusively focused in forestry as I said before, and most of that going to, of course, the Sucuriu project. And something else to highlight here is the net financial debt on our adjusted EBITDA, which goes down to 3.1. So adjusted EBITDA goes up on a year 12-month trailing basis, and that implies this metric going down, which is very good news for our credit metrics while we are constructing the Sucuriu projects. You can see the figures there in a historical context, $880 million for the adjusted EBITDA, [ $860 million ] for traditional EBITDA at $272 million for net income. All of them quite relevant figures in historical context, as you can see, when compared to the last quarters that we are showing the relevant figures, good performance in general in this quarter. In terms of our balance sheet and credit metrics, you can see there that we have a good and well-balanced schedule of maturities going forward. Net debt to EBITDA, as I said before, is going down in the last part of the quarter in this quarter compared to the last quarter. Of course, it has been trending up during the last year because of net debt coming from the Sucuriu project. But given the increase in EBITDA last quarter, were going down, standing now at 3.1 when measured on an adjusted EBITDA basis. Debt is well diversified by companies, by type of debt and also by currency, every subsidiary company and every business division has its own debt matched to its functional currency as it should be. And financial ratios affected somewhat by the performance of the Forestry division in this last few orders. Now digging deeper into forestry, what we can see there is basically at our core going down from [ 365 ] EBITDA. This is as reported by Arauco and going down to [ 261 ] this quarter, and this has to do with lower pulp prices in spite of the fact that we have seen pulp prices trending up well during the last few months and weeks. The average for the first quarter is still lower approximately 4% lower than the average for the first quarter of 2025. So lower pulp prices, a decrease in the sun timber volumes at the sun timber division, was quite effective in this first quarter. Higher cost costs in general, all of that offset by higher pulp volumes and also good prices in some particular panels, products. Going deeper into pulp, you can see some more figures there. The pulp EBITDA as reported by Arauco Arauco is $194 million in this quarter compared to $252 million in the comparable quarter 2025 and $223 million in the fourth quarter 2025. This has to do essentially, as I said before, with a price that goes down on average, still goes down 4.2%, with respect to the first Q '25, although it goes up with respect to the fourth quarter 2025. Costs have been trending up having to do with some elements of costs going up and also some interruptions in production. And all of that yields finally an EBITDA that is down with respect to last quarter and with the first quarter. In terms of the review of the quarter there, you can see that in general, we have seen inventories, some of them trends up, other fibers trending down. But in general, in line with historical average levels. China, in general, experienced a lower demand coming from printing and writing, also some pressure on production costs. Tissue with some oversupply in spite of all that we saw during the quarter, hardwood prices increasing and softwood prices decreasing in line with additional supply coming from Europe. In Europe, we have seen some more strength or at least some more resilience in demand, especially given some more availability from other producers and having to do in term with higher logistics costs. Hardwood prices in Europe have increased through the quarter. In terms of dissolving pulp, textile pulp in general, we have seen solid demand and good prices, a good upward price trend. And regarding prices, you can see on the bottom left-hand corner there that, as I said before, the dissolving pulp has been behaving very well with a significant increase in prices over the last few weeks, standing now at $880 per tonne. Hardwood is hovering around $600 to $610 and has been quite stable during the last few months, standing there or at least the last few weeks. And in the case of softwood, you can see it ranging around $680 per tonne. That's -- those are the prices that we're facing now in China. And regarding the outlook, we continue to see, of course, a challenging market the market is very volatile in relation to disruptions, having to do with the war, with the war situation in general. And that, of course, affects costs and logistics and those, of course, conditions, nobody really knows when they will be over. So it will be a challenging market for the time being at least. In China, we expect the market to continue under pressure, some additional local production and reduced paper exports are potentially bringing more pressure to the market. Some potential additional softwood availability because European pulp producers are keeping the Chinese market. In the case of Europe, however, we see a healthier market than before. We had been speaking about the weakness of the European market for some time already. And now we are beginning to see signals of an improving market condition as demand shows -- some customers show healthy demand and are also passing through price increases to our final customers. In the case of Wood Products, we have seen a significant drop in EBITDA. EBITDA for this quarter standing at $84 million compared to $118 million, $122 million and roughly $125 million, which is the average for a normalized year and we saw this $84 million figure. And that has to do essentially with sales volumes going significantly down for solid wood. Some panels in general with a good situation, with stability in volumes and even some increase in prices, but solid wood is down significantly. The outlook, however, for wood products in general is quite positive. North America is shown on screen there. That's our most important market. We can see that demand has improved for MDF. We see a more balanced market and prices, therefore, gradually trending upward. In the case of Particle Board, solid demand aligned with the market capacity and also upward trending prices. In terms of remanufactured products, an improvement in downstream demand. Steel prices are volatile and uncertain. And in the case of plywood, we continue to see a recovering market. So we had a weak a weak quarter here in wood products in general, but the outlook is quite positive. Likewise, for Latin America in the case of Brazil, which is stability we see higher MDF and Particle Board prices. In the case of Chile, we also see some signals of potential positive trends in volumes and prices and same thing in Argentina, also some positive trends for panels in the domestic market and also improved conditions for exporting some products. So overall, a weak quarter, but the outlook is quite reasonable for Wood Products. The Energy division is especially notable during this quarter. As you see there, we recorded an EBITDA of COP 423 billion compared with COP 310 billion in the first quarter '25. Several things here, there is seasonality from the first quarter always. The first quarter, as you can see there, is always a stronger quarter for Copec, especially for Copec in Chile given the vacation of the holiday season. Together with that, there's an upward trend that you can see in the long-term graph that we are showing there. So there's a clear upward trend in terms of the performance of our Energy division. But on top of all that, of course, we had some effects that affected our figures during this particular quarter. In particular, we had an increased inventory revaluation effect in both fuels and lubricants, across all geographies, having to do, of course, with the increase in oil and oil-related product prices. We continue to see, and this is something that has been going on for some time already, a sustained strong performance in lubricants also across all geographies. This is a division that has been trending upward over time ever since we acquired perhaps 6 years ago or 7 years ago, the assets from ExxonMobil in all of Latin America and all of the Indian corridor, and that is an acquisition that has gradually been maturing, and we are progressively seeing the results yielded by that acquisition. Together with that, we see a favorable industrial margin. And when compared with the fourth quarter 2025, we also see some more efficiency in Copec with a significant drop in SG&A. So all of that those factors have contributed to yield is a very strong figure in Copec consolidated for the first quarter. The volumes were stable with respect to the first quarter '25 and dropping some what for the comparison with the fourth quarter '25, having to do with a drop in some industrial clients basically. But in general, stability in embodies. Very similar behavior for Terpel. As we can see on the screen there. We ended the quarter with an EBITDA figure of COP 529 billion compared with COP 434 billion and a net income of COP 211 million compared with COP 166 million. So a very interesting increase there. Very significant increases in some particular markets there, Dominican Republic, for example, has increased because of a very good performance of the Aviation segment, that's what we have there, essentially, the Aviation segment. And all in all, finally, we see -- with all the ups and downs we see across the different countries, there's stability in volumes. But some factors, of course, affecting our figures and boosting our EBITDA for this quarter, which are basically once again, favorable inventory revaluation effect. Same thing that happened in Chile on fuels and lubricants because of the increase in oil products -- in oil-related products, and also, once again, the sustained strong performance in lubricants, which is a division that is yielding a very interesting EBITDA, which also should be quite stable over time. Also boosting our figures for the Energy division we have Abastible. Abastible the quarter with COP 76 billion EBITDA compared to COP 63 million in the first quarter '25 and this has to do essentially with a very attractive volume growth across all countries, especially in Colombia, as you can see there, 42.8% up in terms of volumes. So once again, a very interesting EBITDA generation by Abastible. And just some more color on the commercial factors affecting this performance. In Colombia, specifically, we have some scarcity in natural gas stemming from some long-term factors having to do with not very well-balanced market in a strong deficit in terms of natural gas supply in Colombia. And therefore, the possibility of an attractive market for natural gas substitute. And in this case, liquid liquid LPG gas is one of the closest substitutes for natural gas in Colombia. Therefore, we see this very strong growth in Colombia. In Ecuador, also substitution of our fuels in this particular case, especially diesel for industrial clients, also an attractive growth figure of 6.1%. In Peru, the industrial sector is growing strongly, particularly poultry and fishing segments, which are 2 very strong industries in the Peru. Together with that, we saw scenario of supply disruptions for most of the LPG market, but not for gas. So gas in that context was able to position itself as a very reliable supplier and therefore, gain some additional market share and was able to boost its sales further. Chile, very stable with some single-digit volume growth, very stable over time and some slight increase in margins, also very healthy. And Spain and Portugal with also single-digit growth but anyhow above what we had initially expected, we expected this to be a flattish market, and it's growing slowly, but growing still. So once again, a very good surprise coming from gas in Spain and Portugal. Moving on to our Mina Justa copper mine. This continues to yield very interesting results, as you can see there, through the company, of which we own 40% Cumbres Andias. Cumbres Andias has recorded EBITDA of $224 million for the quarter. So once again above $200 million for the quarter, very strong performance. That yields a net income of $100 million or 100% of a company. We hold 40% of the shares, so $40 million, which have -- which we have recognized as a net income coming from equity investments in our income statement. This, of course, very strong performance relates to, of course, a good pricing scenario. You can see there the evolution of copper prices, very strong. Physical sales that are slightly down with respect to the first quarter '25 as expected in the mining plan. And this, of course, is related to production dropping because of diminishing grades in general, ore grades. In terms of cash cost, we see an increase with respect to the first quarter of 2025, also as expected. And as a matter of fact, we are expecting levels of 1.7 to 1.8 for the year '26 as a whole. So we should continue to see if this -- if everything goes smoothly, if these pricing scenarios hold, we should continue to see a very strong EBITDA generation and net income generation and also dividend distribution coming from Cumbres Andias into Empresas Copec. In terms of other smaller companies that make -- that are part of our portfolio, Sonacol, which is a company which operates pipelines in Chile. We see stable results, always re-correlated with the activity in terms of volumes of oil and oil products transported. In the case of Igemar, which is for our fishing division, very small, but we have seeing an increased net income, so $10 million of net income, stemming basically from an improvement in the prices of fishing PC products. In the case of Metrogas and Agesa, which are our natural gas companies, natural gas distribution companies. We usually see a lot of stability as is the case now for Agesa. However, in the case of Metrogas, we saw a onetime effect, which had a very strong influence in the figures for 1Q '25 and which have to do with the closing of a judicial contingency of Metrogas, which was closed during the first quarter '25. Regarding the main developments of the quarter, we are -- as we have said we are going to be focusing essentially in Sucuriu, very strong focus and focus in the excellence in execution for Sucuriu, which is progressing very well. As you can see there, the physical progress of 62.1% as of the end of March, which is above what we had initially expected more than 6% above the initial plan that is very good and that has to do with the civil construction activity, which reached 73% progress and which in turn has to do with a very significant progress in the boiler steel structure, the transmission line assembly and the dryer fiber line mechanical assembly as well. A very important development was the early delivery of the recovery boiler stream drum during the quarter, critical part of the mill. In relation to the railway construction, this is the railway that is going to connect the mill to the main railway line going all the way to send And in terms of the well construction, the product has reached 15.8%, and we have already some locomotives in -- at the mill. The ramp-up, as we have said before, is expected for the Q4 Q 2027. And in terms of the financing of these projects, as we have said before, we have committed a capital injection of $1.2 billion from Empresas Copec to Arauco. And we have already injected $150 million and the $450 million to go are going to be injected contributed in June, $200 million in June and $250 million at the end of the year. We always show some developments in terms of ESG. We continue to have a lot of activity related to ESG. As we have said over time, ESG is totally linked to the business in which we take part. In the case of Arauco, as you know, Arauco is basically self-sufficient in energy and most of that energy is renewable. As a matter of fact, most of the energy comes from the biomass generation, which is also a very strong example of circular economy. So sustainable energy generation for Arauco. Copec which is the panel -- the solar panel power generation division at Copec, which has been doing very well. There's a new milestone here with the signing of an agreement with with Parker Arauco, which is a mall, a commercial center operator to develop a very visible and important portable type project in the sites that Parcarauco operates. And Empresas Copec and Arauco have been acknowledged by the Santiago Stock Exchange for their leadership in sustainable financing, both in Empresas Copec and specially Arauco have been recurring issuers of sustainable financial instruments, especially bonds in the local markets, and this has given way to this recognition this acknowledgement by which is the Santiago Stock Exchange. So that is what we had prepared for you in terms of information for the quarter. As I said before, I will ask Gianfranco, Cristian and Marcelo to please join the room and join the conference. And in the meantime, while we do that, we are going to run a video, which lasts approximately 3 minutes, which gives a very good view of the current status of Sucuriu. So we'll do that, and then we'll come back for the Q&A. Thank you. [Presentation]

[Operator Instructions]

Okay. Thank you, everyone, for joining us today for this webcast call. Thank you, Jan Franco, which is a broad online Thank you, Marcelo also for joining us here at the room. So the first question is from Marcio Farid, Goldman Sachs. This is in fuels. How much of the fuels earnings is attributed to inventory revaluation? And how much do you think can lead to higher margins

Yes. Thank you, Marcio, for that question. Well, as I mentioned during the presentation, you can see that EBITDA for energy has been trending up gradually over time, and this has to do with several reasons. One of them is of course being a very good commercial positioning of our subsidiaries there together with very good performance in lubricants, which has been performing very well. On top of that, we have the nonfuel businesses, which have gradually been increasing their EBITDA generation. We also have seasonality in this particular quarter. The first quarter is usually stronger than the other quarters because of the holiday season in Chile essentially. But of course, we have some nonrecurring effects during this particular quarter, and they had to do with accounting effect of the increase in oil prices on our oil products and lubricant products inventories. And together with that, we have also a very strong industrial margins for the quarter. And in both cases, a least a portion of that has to do with the increase in oil prices. So I would say that in order to have a recurrent figure in mind, we should look at the first quarter '25 That is much closer to our recurring figure for the first quarter for energy. So I think it was $400 million, of course a little above $400 million. that's more close -- that's closer to our recurring figure for the energy generation, the energy EBITDA generation for a normal quarter. We have said there for the year as a whole, we should expect the Energy division as a whole, including our and Sucuriu and everything, we should expect it to generate, I would say, between $1.2 billion and $1.4 billion of EBITDA. That's a recurring figure to have in mind and what is for this particular quarter has to do with the exceptional conditions that we faced during the quarter.

Thank you, Rodrigo. Also from Marcio Farid, would Copec be willing to support Arauco beyond the $450 million that is committed? What is the limit here and what's needed to support the investment-grade at Arauco?

Well, as you know, we have a very strict and disciplined approach to capital allocation within the company. And this has an emphasis on reasonable leverage levels. And of course, it's especially relevant given the very large project that the company and Arauco particular is undergoing. We have a financial policy that expresses an interest in having -- sticking to metrics, which are in line with investment grade and also an interest in our subsidiary companies also sticking to levels that are comparable with an investment grade. We, of course, will be monitoring that interest in our subsidiaries holding metrics that are in line that grade implied that the third company will be monitoring very closely, especially the strategic relevant that Arauco has for Empresas Copec. But that means governance as well. At this point in time, we have already set the date for contributing the remaining equity contribution to Arauco. We're going to go with $200 million in June this year and $250 million by the end of the year. Arauco on the other hand is, at this time, analyzing different lines of action that would help it to improve its metrics substantially. So we'll go ahead with all of that and any further decisions on top of those actions will be assessed as the scenarios and the circumstances evolve.

Next question from [indiscernible]. Considering the recent fuel price hike late in March, how has the fuel demand continued so far in the second quarter this year?

That's a good question, and we probably will see some effects of the pricing scenario on the demand for fuels. It's probably too early to say essentially because the figures for March and April are somehow distorted because we had a rush to when the increasing prices was announced, and we had also logistical difficulties associated to coping with that additional demand. So it's probably too soon to tell. Probably within the next few weeks, we will see if this new pricing context will yield any longer term effect in customer behavior and therefore, in fuel volumes. It's probably reasonable to expect a drop if this situation goes on.

Thank you, Rodrigo. I have a question for Gianfranco here, Cristal Mary. Could you please comment on pricing trends for dissolving pulp. Prices moved to $880 per tonne. And if that has to do with the Middle East conflict please, if you can provide some color on that, Gianfranco.

Yes. Well, yes, that's the main reason. I mean the increase in oil price has affected competitors in the textile industry that produce textile using polyester that has some component of oil in there. So their cost has gone up. So that gave some room for increasing in pricing in textile dissolving pulp, which is a very good alternative to those kind of product competitors. So that's one of the main reasons that we have observed increasing pricing dissolving pulp. Of course, I mean, you have to remember that we had prices of about $1,000 about some years ago. So the prices that we are now are more close to average, about $900 and $950, so but that's true that 1 of the main reasons for the increase is related to oil price increases for our competitors.

Thank you, Gianfranco. I have Alfonso Salaza at Scotiabank. First, impressive progress at congratulations. Given the changes in the outlook for global pulp markets since you started the project, what are the main concerns that you are following closely? In particular, do you anticipate risks of CapEx overruns and higher production costs given the energy -- the high energy prices that could extend for longer and the strength of the Brazilian real?

Well, yes, we have a very good advance in the project. We have some savings accounts there in about almost 7% in advance of the project that will be very useful, if anything happens. We haven't seen any other runs up to -- meaningful overruns up to now. So we are below the budget and especially because we have derivative position over the real portion of the CapEx, which is about 80%. So we took a position forward in Brazilian real at a very good average above the exchange rate that we use to evaluate the project. So that is giving us a lot of comfort that we are saving money for the project. The average exchange rate that we got for the whole project was about 6.5 per dollar, and the project was evaluated at 5.5. And currently, the exchange rate is 4.9. So we have a very good position in mark-to-market in our derivatives that we have and we are collecting every like 1.5 months, we are compensating with a group of banks. We're getting good cash flow. So we have received about $350 million already in compensation and the market -- the mark-to-market of the position as of the end of March was about $450 million, and that was at an exchange rate of 5.2. Now that the exchange rate is 4.9, that mark-to-market has grown a lot more. So we are covered in the exchange rate. We are good in the cost of the project, and we are advanced in the physical progress of the project. So up till now, we are -- we're doing very well. Of course, it's more challenging every time we advance more in the project and the management of the human resources involved in the project. We currently are more than [ 1,200 people -- 1,200,000 people -- 12,000 ] people. It's very challenging. And of course, we need to be very focused on managing all the risk and to the completion of the project.

Thank you, Gianfranco. So at this point, we don't have more questions. So order, you want to say some final remarks.

Okay. Thank you all for joining today. And we expect to be back probably around early August with the results of the first half 2026. And in the meantime, please feel free to contact our team with any questions you might have. Thank you all. Bye.

Thank you. This does conclude today's presentation. You may disconnect now, and have a nice day.