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

Good morning, everyone, and welcome to Empresas Copec's Second Quarter 2026 Results Conference Call. Today's presentation and the second 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's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to the 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. And this opportunity, questions will be received in written form. If you have a question, please write it down in the Q&A section. Please be aware that your company's name should be visible for your questions to be taken. I will now turn the call over to Mr. Rodrigo Alvarado, Chief Financial Officer of Empresas Copec. Please go ahead, sir.

Hello, everyone, and welcome to these results webcast who will be taking a look at the main figures and the main developments for the second quarter 2026. I will start flipping through the presentation. It's a brief presentation, showing the main figures and the highlights of the main projects. And after that, we're going to invite you to see a very brief video showing the status of the Subterránea project. And then towards the end of the session, we are going to open it up for the Q&A, at which point, I will be joined by Mr. Cristian Palacios and Mr. Gianfranco Truffello from Empresas Copec and Arauco respectively. So having said all that, let me begin by showing some of the main figures for the quarter and some of the main developments for the quarter. In this highlight slide that we're showing on freight here, we came in this quarter to an adjusted EBITDA and the EBITDA was above $1 billion, so a very good feel, both measures. In the case of the adjusted EBITDA, it is up by more than 30% year-on-year and close to 18% Q-on-Q. In the case of our traditional EBITDA, it is up by 44% and almost 20% year-on-year and Q-on-Q, respectively. All of this has to do with an improved performance in forestry and particularly in energy. In the case of forestry, this EBITDA includes the effects of a sale of assets. It's actually a sale of wood carried forward by Arauco during the quarter only wood and not land as we will see going forward and the stomach effect related to that sale is also included in this adjusted EBITDA figure. Let me just comment that the stumpage portion is equivalent to the operational margin for the plantation business, so it makes sense to consider it part of the EBITDA. Together with that, we have higher volumes in pulp for year-on-year comparison offset to a certain extent by lower prices and increased costs. And in the case of Wood Products, we have an increase in prices and an increase in volumes in panels. In the Q-on-Q analysis, we have higher prices in pulp, partially offset by lower volumes and also better performance in our wood products division. Of course, the main highlight of the problem is energy. In the case of energy, we have showing a positive inventory valuation effect year-on-year, together with a higher sustained by even higher contribution from the local division and also a very favorable industrial margin -- also showing a very strong performance, essentially across it's Lat Am geographies. In the case of the Q-on-Q comparison, we are showing a high industrial margin for fuels in Copec together with a decrease in distribution costs some more detail on that as we go through the presentation. And in terms of developments and other milestones, we had the Sucuri project reaching a progress of 74.5%. A ahead of the schedule with civil construction reaching 90% and railway construction reaching 45%. So all going well at the sites. Some more figures are presented there on screen, as I said before, an adjusted EBITDA and EBITDA of more than $1 billion composed essentially of an energy EBITDA of more than $600 million. This is significantly up year-on-year and also slightly up Q-on-Q. Forestry EBITDA showing a recovery with respect to the preceding quarter, 58.9% Q-o-Q, including, of course, the sale of assets -- use continues to perform very well with an EBITDA this quarter of $287 million, very good EBITDA generation on the back of a good pricing scenario together with smooth affluent operations at the mine. The CapEx in line with what we had announced $920 million, most of it devoted to the Forestry division. And in terms of credit metrics, net financial debt on adjusted EBITDA of 3.30x, including, of course, the effect of the hybrid bonds issued by Arauco last year, which had an equity credit of 50%. On a historical context, as I said before, these are high, very high figures in terms of his total comparison, more than $1 billion for adjusted EBITDA and EBITDA. And on net income at a very healthy level of for the quarter, 92% up year-on-year in that case. Our credit metrics and some financials are shown on their own screen. You can see there our total debt reaching $13 billion with a total cash of almost $3 billion, which yields a net debt of $10.4 billion. We have gradually been smoothing out our maturities. You can see there opportunities are quite well balanced and gradually smoothed out following some refinancing operations that -- some of which we will comment going forward. Debt well allocated by company, also by currency, our companies where we were hedged in terms of their currency exposure and also that very well diversified by type, all financial channels open for the company. And you can see there, net debt-to-EBITDA standing at 3 points in -- so it has been quite stable over and around 3x for the last few quarters. In terms of financial ratios, 9% for return on capital employed and 9.7 for EBITDA margin pretty much in line with the comparable quarters. Let us dig deeper into the different business division. Forestry, we are showing some numbers for acute on screen out ended the quarter with a net income of $121 million and an EBITDA of -- which is considerably up with respect to the preceding quarter. As I said before, this EBITDA includes the stumpage portion of the sale of forestry asset, which amounts to 124 stoppage portion amounts to $124 million, and that goes into -- the operating income goes down on the back of higher costs, lower pulp and some timber prices, also offset by some increase in volumes in terms of pulp and wood products and also higher panel presses. You can see, as we will see further on, we had an interesting recovery of the wood division in general for the quarter. Going further to pulp, you can see that the pulp EBITDA division for the quarter is $206 million, comparing well with the preceding quarter of $194 million. In general, we had an increase in net sales driven on a year-on-year comparison by sales volume and on the Q-on-Q comparison by price essentially. Costs have trended somewhat upward during the last few quarters. That's an industry phenomenon in general, cost trending upwards to some extent because of disruptive logistics. And to some extent, also having to do with the maintenances that have taken place during the year. You can see the schedule for the year on the bottom left-hand side. Some comments on the pulp markets. During the second quarter, we saw a challenging environment in China essentially because of a weakened demand for printing writing and also for tissue so weak demand for faced by the paper makers. Together with that, some inventory levels, which are rather high in some particular rates and products. With all that, the hardwood and softwood prices remain in general stable for the quarter with the exception of the last few weeks when we saw some decline. In Europe, we saw, in general, a solid demand situation with high strong end demand for Premion writing. And tissue in general, with less competition coming from the Middle East. So in general, a more solid demand for our particular production. And as a result of that, we saw some increases in hardwood prices. In relation to the solving pulp, in general, we have seen a strong situation over the last few quarters with an upward price trend. So seasonal consumption had a positive effect together with higher viscose prices and stable line cell demand. So that was the market scenario for the quarter. And going forward, what we see for the outlook is still a somewhat challenging demand in China with tissue and printing and writing, continuing to face a demand that is not very strong and somewhat innovated inventories as well. So we might see the need from paper makers to use operating rates and therefore, reband supply and reduced demand to some extent. In Europe, in general, a stable situation with, however, some softer demand for some particular products and driven in part by a -- so this make it difficult to follow on price increases. Together with that, we see a gap between Europe and China. So that could bring forward eventually some adjustments in prices. As you can see in the graph there to the bottom left-hand side, we are now facing -- by the end of July, we are facing levels of around 570 for hardwood 690 very strong for dissolving pulp. The Wood Products division had a good quarter. As you can see there, there's a recovery in EBITDA. So going from 84% in the first quarter to $113 million, which is a figure that is much more in line with the traditional historical figures that we have reported for this division. We should think of this division is yielding a yearly EBITDA of somewhere around $500 million. So this EBITDA for the quarter is very much in line with that. That was driven by -- essentially by quite a significant increase in panels volumes, both on a year-on-year and quarter-on-quarter basis, we see a significant increase, very healthy in panels volumes. And together with that, volumes also growing for solid wood. Now going deeper into our main markets. You can see North America in general, which is almost 50% of our total sales. We have seen a stable demand overall, in particular for MDF stable demand, but still high supply levels. So prices, in general, are pressured by increasing costs. We believe they could keep rising gradually. -- volumes, however, under pressure because of the available supply molding in general with prices increasing in line with costs. In terms of Portugal boards, we see solid demand a better supply balance when compared with MDF. So prices have been increasing quite strongly and volumes could remain stable during Q3. We manufacture products also stability, supply side affected by the larger tariff on Brazilian producers and prices will increase as a result of this and also as a result of of stable demand and volumes could stay flat in that regard. Plywood showing a steady demand with a well-balanced supply. So we could see stable sales and some gradual price increases. Latin America, South and Central America, which is around 40% of our sales have this has been faring quite well. Brazil with a positive outlook for MDF on prices and volumes. Chile, with some particular products doing well and another products seeing some more weakness in demand. We could see an increase in sales in the third quarter, although some oversupply is present. Plywood still weak and still waiting for recovery in construction sector, which could boost the products all across the board. Demand for products on restart. Argentina, in general, with a stable situation as well with an MDF demand and prices increases, increasing with stable supply. However, seeing some softer demand in our particular commercial channels. The rest of the world, where we sell, which is Asia, Australia, Europe and the Middle East, in general, showing a healthy activity and with an improvement in prices and sales in Asia and the Middle East. Let us move to energy, which was probably the main highlight of the quarter. Once again, we saw an EBITDA improvement in Quebec and Terpel. You can see there the consolidated figures for Quebec with $452 billion for total EBITDA for the quarter, which compares very well with the figure for the second quarter of 2025. This basically stems from a higher operating income, trying to do with a favorable industrial margin with an increased inventory revaluation effect, basically following the upward trajectory in the price of oil and refined products, as you well know. And as we have been highlighting over the first -- over the last few quarters, a very good and sustained performance in terms of the Norian sector. All in all, a very good quarter for Quebec consolidated with a good performance in both Chile and Colombia, the main markets, Colombia are doing very well. Volumes to some extent hit by prices going up. So we see a 6.6% decrease. That's a relevant comparison here. The Q-on-Q is not very significant because of the seasonality. But year-on-year, it's 6.6% down as a result of higher prices essentially. Terpel also showing very good figures here with a total EBITDA of $509 billion which compares well with the second quarter 2025 and very much in line with the first quarter of 2026. This stems from a very good performance in lubricants, together with the effects related to the upward trajectory in prices and offset a little bit by a decrease in physical sales. The main decrease here is Ecuador, which has been hit to a certain extent by the gradual sales of gas stations that we are pushing in that country or still also within the Energy division doing very well, and thus, this has been a trend also for the last few quarters. As you can see there in the EBITDA generation graph, EBITDA amounted to CLP 74 billion, which is a very good figure, stemming from an increase in operating income because of higher volumes basically, in all geographies with some exceptions to see what we will see going forward. And in general, very good operations across Latin America. If we go to the country-by-country analysis, you can see the volumes in Colombia there increasing by 36.5%, really good performance, and this has to do with a very good performance of the home segment. And in general, high consumption driven by natural gas substitution. This is something that has been taking place in Colombia during the last few quarters. So a very important increase in volumes stemming from natural gas substitution in general. Ecuador with higher volumes and margins, substituting also other sources of energy and with market share increasing quite interestingly. Peru doing very well in the bottle segment, with a very strong positioning, high volumes and interesting margins and also a weaker performance of the natural gas segment in general. So opportunity we're substituting natural gas in general in Peru as we have seen also in Colombia. The industrial segment somehow hit by the weather conditions from the El Nino phenomenon and particularly by the effect on that on the poultry industry, which is very strong in Peru. Markets are increasing investing to 29.4% for the -- in Chile, lower volumes because of the weather conditions, the bulk segment also lower volumes essentially because of lower catches and lower activity in the fishing division, in the fishing industry in general, which is an important industry for Band Gil. All of that brings it out a slight decrease in market share because of Chile. In the case of Spain and Portugal, this is our latest acquisition, the company in Spain and Portugal. We have been seeing a very good performance in -- this time, we are seeing a reduction essentially because of the effect of costs on the increasing costs on margins basically. There's a lag in the passing through of this cost to final clients because of the regulated market in bank. So we should see a reversion at least to some extent of this compressed margins in the quarters to follow. In the case of the bulk segment, also lower volumes because of an increased competitive landscape, so that's it for energy, which had a very good quarter overall. In the case of the copper segment through Combes and Minas, I remind you, we have of this company. It is not consolidated, but you can see it showing in net income through equity income and also in the adjusted EBDA when we do this adjustment on equity income. Once again, a very good EBITDA generation, this time amounting to $287 million for the quarter. This is a result of a very good pricing scenario. As you can see in the graph there, prices have even continued to increase on those registered during the quarter. Together with that, a very good cash cost performance in line with what we had announced. So 1.59 cash cost for the quarter and our production, which is a bit lower than last year, but in line with the mining plan. A brief word on our other companies, not a lot of surprises here. Sonacol always very stable this time with a slight increase in results I Himour fishing division, also with a loss with a higher loss than last year, essentially stemming from lower catches in the fishing sector. Metrogas and AGESA always very stable overall. And in terms of highlights for the quarter, let me bring you briefly to date in terms of our progress in view. We have a physical progress by the end of July. -- of 74.5%, which is 6.4% ahead of schedule. So very, very good figures there with more than 14,000 workers on the site. Engineering, procurement and civil construction reaching more than 90% completion already. So also ahead of schedule in those terms. -- some other milestones to highlight for the second quarter. The recovery boiler lifting was coming forward 1 month ahead of schedule. Same thing for the completion of the power line commissioning, which was going forward 2 months ahead of schedule. And now we're shifting focus for -- to the electromechanical setup, which is already at 32% progress, which is also 12% ahead of schedule. So everything going very well in terms of the industrial portion. In terms of logistics, also making progress railway construction reaching 45% and also 10% house schedule. Rail acquisition completed and on its way from China to Brazil, some wagons and locomotives already received. All in all, we continue to be on track to start operations in the fourth quarter of 2027 as initially programmed. Some more details on our sale of forestry assets that Arauco coming forward in Chile during the quarter. This is an agreement with a traded company controlled by a local forestry investment fund. This is the sale of eucalyptus forests for 29,500 hectares approximately only for the wood, not for the land. The total price for the transaction was $217 million already received by our and as we said before, this yielded an effect on stumpage of $124 million, which forms part of our EBITDA for the quarter. Reflecting the operational margin for this plantation business. Impresacopec has agreed to enter into an equity support agreement with -- this is not a capital injection. This is an equity support agreement related to a standby facility for up to $450 million with funds that will be available from January 2027 to December 2028 and grow by around upon certain triggering events that are well defined in the contract. If the funds are drawn, they are injecting as equity, not as debt from the current company into a if they're drawn as equity indeed a second and not a debt. That's why it's cooling equity supportive. And this agreement allows Seranco, of course, to obtain additional capital injections only required. This might not be required. And the objective, of course, is to strengthen liquidity, gain financial flexibility for Arauco or accelerate convergence of credit metrics towards the level defining our outgo and the group's financial policies. So an additional facility committed here by the company for supporting always in line with the philosophy of permanently reviewing the portfolio of assets and looking for the best owner. Auto has announced the sale of a stake in Portugal. This is a 50% stake that Arauco held in Puerto Coronel and was sold to a company called Neltume ports for the total proceeds of $65 million, which were received on August 12. And as a result of this transaction, we will be recording net income or pretax gain of $26 million during the third quarter this year. We have at Empresas Copec tapped the markets once again and issued bonds for $260 million. This is intended purely for refinancing at the current company or subsidiary level. This is a U.S. denominated bond issuance for, as I said, a total of $250 million equivalent in U.S. And this is too serious with 10- and 20-year maturities, which were issued at rates of 3.34% and 3.46% for the short and longer and longer semis, respectively, with very convenient spreads. These rates that are measured on in U.S., so this is plus inflation. One of the spreads that for the AOC was the lowest of the year for coped -- and in general, we faced very good conditions and a very strong demand, which amounted to almost 2x the amount offered for both series. That's a very good issuance of bonds, which allows us, as I commented before, to continue smoothing out our maturities going forward. Continues to make progress in Peru. We Must made progress in engineering studies, infrastructure development and permits required for the project as we continue to make progress across all dimensions here. And just to remind you, this is a project intended to increase reserves by 30% and expand the total life of mine by 5 years. This will mean an additional production over the life of time of approximately 500,000 tonnes in total. And we have continued to express -- we continue to expect the start of operations for year 2028. A brief review of our ESD activity here. Copec continues to make progress in energy transition. -- adding this time a second large-scale solar generation plant for a total of 85 megawatts. With this, the total installed capacity of Copec amounts to approximately 350 megawatts. Together with that, Terpel has gone forward with a similar acquisition in Colombia doing exactly the same investment philosophy and the same strategy to face the energy transition as Copec is doing in chip. Copec Brooks also integrates the first solar plant this smaller plant of 3 or 4 megawatts, but using Tesla batteries. The first to use Tesla Barris in Chile. And Arauco continues to depend the Forestry sustainability road map this time with several initiatives related to biodiversity, water, carbon absorption and circular economy. That is a brief review of the quarter. That is the material we have prepared for you. We will now show a brief video on screen lasting for a couple of minutes, which shows the current statute of the superego structure in Brazil. And after that, we will come back for the Q&A session when I will be joined by --. Thank you all very much, and let's proceed please with the video. Thank you. [Presentation]

[Operator Instructions] Thank you. We will start now the Q&A. [Operator Instructions]

Hello, everyone. Thank you for attending this webcast. We're going to start with the first question comes on in natural channels. Jan Franco, this is in forestry. Does the for sale involve any kind of future commitment or is simply an outright sale of Tinder.

Well, thanks for the question. We sold about 29,000 vectors of temptations of in the area of Valdivia for price of $255 million, including VAT. This fiber was sold to a fund and we don't have a signed commitment of for buying that buy back. But of course, we have the intention to medicate option for buying that fiber because, I mean, we are in the same zone. I mean the lime uses that fiber and of course, the fund would like to sell to route. So we intend to negotiate some kind of driven by in terms of an option to buy another obligation to buy from the fund that we have a common understanding that we depend on metal in terms of the use of fiber. Of course, we sold fiber that is going to be harvested about 2 or 3 years from now. So the one that we are using currently was not sold. So it's more in the future.

And so would you -- if you can comment on the expected cash cost steady state delivered to China.

Well, Sogou is state-of-the-art meal. So it's going to be the biggest in the world. So I mean, the best place in the world is produced but so we are expecting a very competitive cash cost delivered to China. Of course, it's not going to happen in the first year because we're going to have a ramp up. And also, we are using more fiber that we bought from third parties at the beginning. So I will say, year 3, 4, we will -- should be reaching cash costs that would be lower than the ones that are having in Monte de Plata or to made,and that should be about between $200 and $240 per ton delivered, but it's going to depend, of course, on on the price of the wood that we -- and the mix of the wood that we are using at the time. If it's 100% from our plantation, so we're still time for price. But we should be one of the most competitive mills in the world.

Okay. Thank you. As Frans mode, I think estimate is asking about how much EBITDA improvement in Copec fuels came from inventory effects versus trading and better fuel performance. And looking into second half, what we can expect on this matter.

Yes. Thank you for that. Well, as we have mentioned during the presentation, EBITDA for Energy has been trending up through the last several years, I would say, on the basis of a very good performance commercially speaking, and growth of businesses such as lubricants, which is performing very well. But of course, what you say is very true. In this particular year, we have some exceptional effects coming from the revaluation of our inventories and also from additional industrial margins. If you look at the EBITDA that we are generating up to last year for the Energy division as a whole, it was around $400 million per quarter, $300 million to $400 million per quarter. And in this particular year, we have been recording EBITDA of around $500 million, even $600 million per quarter. So the difference, roughly 150 per quarter, it has to do with these exceptional effects that have taken place during the year. Part of which may be reverted if prices go down going forward and part of which are might be more stable over time, which is a portion related to industrial customers, which has to do with the fact that Copec is able to provide industrial customers with very large volumes of fuels in this very volatile environment in a timely fashion and meeting the highest standards. So that part may be more permanent over time. But it's hard to tell because, of course, it will depend on the future valuation evolution of oil markets in terms of trend direction and volatility.