Engie Energia Chile S.A. (ECL.SN) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to Engie Energia Chile's Third Quarter 2025 Results Conference Call. If you need a copy of the press release issued on October 29, it is available on the company's website at www.engie.cl. Before we begin, I would like to remind you that this call is being recorded, and the information discussed today may include forward-looking statements regarding the company's financial and operating performance. All projections are subject to risks and uncertainties, and actual results may differ materially. Please refer to the detailed note in the company's press release regarding forward-looking statements or contact Investor Relations Officer, Marcelo Munos. We would like to advise that this call is dedicated to investors and market analysts, not for the press. We ask all journalists to contact Engie Energia Chile's PR department for details. I will now turn the call over to Mr. Vincent Sorel. Please go ahead, sir.

Hi, everybody. Good afternoon. Today, I'm here with Juan Villavicencio, our Chief Executive Officer; Alison Saffery, Head of Corporate Finance; Marcela Munoz, Investor Relations Officer; and Bernardita Infante, Financial Adviser. So we are pleased to present Engie Chile third quarter results for 2025, and I will leave you with Juan, who will describe our performance during the 9 first months of the year.

Thank you very much, Vincent. Good afternoon, everybody. On Page 2, we have organized this presentation into 2 sections. In the first part, I will briefly go through the third quarter 2025 performance, Then in part 2, Vincent will provide an updated vision of our financial results and medium-term outlook for Engie Chile. We can start directly on Page 3, where we share the main highlights for the first 9 months of '25. First, the company continues showing consistent strong results as of the third quarter of '25 despite the challenging conditions faced during this first 9 months of the year. Secondly, -- due to the result we have obtained and giving security of supply, we can highlight the high availability of our thermal plants during this period, which has allowed us to reduce our exposure to the spot market. Third, we continue to increase our renewable generation capacity. 3 projects reached COD during 2025, adding 468 megawatt of renewable capacity to our portfolio. And fourth, our first stand-alone battery project achieved 100% energization during the third quarter at our Tocopilla site right before the planning. It's a 116-megawatt capacity project and its COD is expected for the first half of '26. On Page 4, as usual, we show the highlights of our financial performance, which Vincent will discuss later in more details. We had an EBITDA generation of $521 million, while our CapEx reached $604 million during the first 9 months of the year. Our net debt to 12 months EBITDA ratio remaining relatively stable at 3.4x as of September. Our net income reached $208 million. We are thus maintaining our guidance for the year with our EBITDA guidance at $650 million to $700 million. We -- and our CapEx guidance at the $900 million to $975 million range presented last August. As a result, we are maintaining our expected net debt-to-EBITDA ratio at the level of 3.3x for December of '25. On Page 5, we can see the current progress on the execution plan for renewable. As of today, we have already implemented 1.4 gigawatts, including the addition of wind Kallpa, BESS Tamaya, and BESS Capricornio, which together added 468 megawatt of capacity to our portfolio. All these projects were developed on time and on budget. On such, during the first 9 months of the year, we generated a total of 1,721 gigawatt hour with our renewable assets. During the third quarter, we also reached 100% of energization of 160 16-megawatt battery project, BESS Tocopillia, which as we will see, is completing its construction in the same site where we use to operate Unit 12 and Unit 13 coal assets that were disconnected and then finally, dismantled in 2023. Now let's continue on Page 6, where we show the work we are doing giving new life to our coal-based assets. Firstly, -- we convert our former Unit 15, which was closed in 2022 into a synchronous condenser that will provide ancillary services to the system. We also improved, extended the life and increased the capacity by 25 megawatts of our gas-fired combined cycle plant Unit 16 to ensure flexibility in our generation and energy supply. Finally, we are working on the conversion of our EAM coal-fired plant to general -- to natural gas by which we will stop its operation with coal in December of '25 and finish its conversion to initiate operation with natural gas by the second half of '26. Our thermal assets continue to show high availability and operational excellence, providing the generation to secure the 24/7 supply for our PPAs contract and at the same time, reducing our exposure to the spot market. This has been especially relevant during the first 9 months of the year when we have faced more challenging than expected conditions with lower hydrology, restriction in transmission and others. The situation of our different coal plants is also explained on next Page 7, showing that as well as the conversion mentioned in the previous slide, 2 of our remaining coal assets, CTM1 and CTM2 will be disconnected by December of '25. while CTA and CTH have an expected disconnection date for May 26. These 4 plants will be kept under preservation maintenance while the company decides if and how this asset could be used in the future. It's important to mention that the authority has a right to require Engie to maintain this plan in operation for up to 1 year after the respective disconnection date, considering the need for security of supply for the system. In Page 8, we showed a graph of the complete generation portfolio transformation Engie has embarked in since 2019, when coal generation represented 60% of our generation capacity, while renewable represented only 3% of our total generation capacity, which reached 2.2 gigawatt at the end of that year. As of September of '25, Engie Chile shows a generation capacity of 3.2 gigawatts, of which coal represents 34% natural gas '22 and renewable plus batteries represent 44%, a significant increase during this period. Our expectation for 2027, considering the renewable and BES project currently under construction as well as the conversion of EAM and retirement of the other coal plants that we should reach a total installed capacity of approximately 3.7 gigawatts, of which 29% will be natural gas and the remaining 71 will be renewable and batteries. On Page 9, we show a little more about the transition process undergoing by our Tocopilla site, where the BESS Tocopilla project is concluding its construction with 100% energization at the batteries of the batteries during the last quarter in the same site where Unit 12 and Unit 13 were dismantled. This shown the commitment of Engie to the region and the 24/7 supply of energy to serve our PPAs, including the transformation of a problem in a new opportunity for the portfolio of the company. Next, on Slide 10, we show the 8 renewable and battery projects we have currently under construction, which are deployed over 5 different regions of Chile, including the already mentioned BESS Tocopilla, which is the first of this project to reach 100% utilization and is expected to reach COD by the first half of '26. During '26, we expect to continue the energization of the other project under construction, some of which should reach COD by the second half of '26 and the wind project by the first half of '27. Notably, this project include the first greenfield project in the metropolitan region, BB+ [indiscernible] as well as the first wind project built in the [indiscernible] region in the south of Chile [indiscernible]. If we move directly to Page 11, we are presenting an updated development plan of renewable and BESS projects to be executed between '25 and '27. These are the projects shown on Slide 10 that are currently under construction. As you can see, we have added 160 megawatts of BESS Tocopilla in '25. since the project is already 100% energized. In total, the new project will add around 1.3 gigawatt of renewable and BESS capacity to the portfolio and will allow ENGIE to be virtually balanced from both business and risk perspective by the end of '27. The construction and implementation of this project will require in total approximately USD 1.4 billion between '25 and '27. And now I will leave with Vincent, who will present the detailed evolution of ENG Chile financial and capital structure as well as the detail of the guidance.

" Thank you, Juan. Good afternoon to everyone. On Page 12, we start with the second part of this presentation and present the financial performance and updated guidance for 2025. So in addition to the good numbers, it demonstrates our ability to deliver our ability to capture value and the progress in the execution of our strategy, as you can see. On the financial performance side, during the first 9 months of the year, it's summarized on Page 13, where we show our EBITDA figures, which reached $521 million, a $97 million increase compared to the same period last year. The main reasons behind the EBITDA increase, I will come back to it, but increase includes, sorry, the increase in the electricity margin and the generation margin of our assets. As a reminder as well, the award from the arbitration procedure related to the breach of one of our LNG supply contracts from our main energy supplier was recognized as of June 2025. Net result reached $209 million in the first 9 months, a 4% increase compared to the same period of the previous year. Finally, our net debt-to-EBITDA ratio reached 3.4x as of September 2025. On the next page, I will now comment on the chart on this page. In the first 9 months of the year, EBITDA increased by $97 million and reached $521 million, as I said on the page before. One of the reasons for the EBITDA improvement was the increase in electricity margin, which rose by $64 million. The main positive effect on this electricity margin were: first, a $74 million positive effect from an increase in our own generation and the associated lower energy purchases. In gigawatt hours, this increase in our generation can be explained by 1/3rd from the 3 projects that reached COD in 2025, Wind Kallpa, BESS Tamaya and BESS Capriconio, while the other 2/3 came from the increased generation of our thermal assets, which were readily available and were [dispatched]. This allowed us to reduce energy purchase from the spot market from 3 terawatt hours in the first 9 months of 2024 to 1.5 terawatt hours in the same period this year. Second, higher PPA revenue for USD 55 million. This is mainly thanks to an increase in the physical sales to the distribution companies because of natural demand growth, but also an increase in our [pro rata] share of the regulated supply as other companies did suspend their contract or terminated them early due to execution problem. This offset the 10% drop in physical sales to [indiscernible] explained by maintenance work at some mining and industrial operations. These 2 positive effects allowed us to cope with a significant increase in energy purchase price driven by lower availability of other thermal plants in the system, lower availability of [indiscernible] gas and lower [hydro] generation in the system. This increase represents a $65 million negative effect that, as you can see, we were able to compensate. In summary, our effort to reduce our exposure to the spot market, especially during nonsolar hours have proved successful in the first 9 months of 2025. Now outside of the electricity margin, we can observe a $10 million increase in revenue from gas sales to third parties due notably to the major maintenance and upgrade of our U16 combined cycle plants in the first quarter. Our EBITDA growth benefits also from $28 million from [indiscernible]. These were largely attributed to the recognition in 2025 of approximately $100 million related to the outcome of the arbitration with our main LNG supplier. In 2023 and '24, it did not fulfill its obligation. During this quarter, an agreement was reached with the LNG supplier for the payment of the above-mentioned arbitration amount and will be settled over '25 and '26. Increase in some provision mid-2025 in the context of our transformation also offset the one-off of this arbitration outcome. Finally, we see a negative impact of $6 million coming mainly from operation and maintenance expense as well as higher transmission toll leading to our EBITDA at $521 million. All this explains our 23% increase in EBITDA. Moving forward, this slide explains in detail the evolution of Engie Energia Chile energy margin. It shows the available energy for the first 9 months of 2025, which reached 9.7 terawatt hours and how this energy was supplied. Notably, the spot purchase during this period were lower in a higher spot price environment, mainly due to the high performance and dispatch of our generation assets as well as the addition of new renewable and battery projects previously mentioned. The energy margin was higher going from $54 in the first 9 months in 2024 to $60 in 2025. Slide 16 shows how the increase in EBITDA held by foreign exchange gains offset the increase in net financial costs and deferred tax, driving to the increase in net income, which climbed to $209 million in the first 9 months of the year. Although we had a strong operating result, it was indeed offset by the effect of one-off below EBITDA, such as the recognition of EUR 50 million interest income on [indiscernible] accounts receivable in 2024. However, excluding this, financial expense are lower this year than last year, reflecting the decrease of the average coupon of our debt and an increase in capitalized interest. Note that these figures exclude the impact of the subsequent event related to the preliminary technical tariff report issued mid-October by the National Energy Commission regarding note price applicable to our regulated PPA. Our financial statements and press release explained that the figure mentioned in this report will have a negative effect on interest income for about USD 26 million. On the tax expense, tax expense increased by $51 million versus last year. It's mainly related to deferred taxes considering the tax losses of Engie Energia Chile. And it's explained by, one, the increase in profit before tax; and second, by $37 million coming from the impact of a merger between CTA and ECL. It's important to note that in total, when considering also this one-off below EBITDA, 2025 September net income is not materially impacted by one-off and is mainly driven by our operating results. In fact, 2024 net income was much more favorably impacted by one-off than 2025, impacting the year-on-year variance. In Slide 17, we see that our net debt decreased by [indiscernible] increased to $2.1 billion. We reported strong cash generation and $112 million in proceeds from the last sale of [indiscernible] document. This allowed us to finance capital expenditure of $582 million plus a $54 million dividend payment, the first one since 2021 as well as interest taxes and insurance premium. It's important to note that our cash flow from operating activities after interest and tax is significantly higher than the one generated in last year for about $200 million. Now let's move to Slide 18. Our BBB Stable Outlook rating has been confirmed by Fitch [indiscernible]. Net financial debt reached $2.1 billion end of September with a net debt to the last 12-month EBITDA reaching 3.4x. We continue to improve our debt profile. Our net debt-to-EBITDA ratio remains contained in the context of a significant CapEx program, notably thanks to strong EBITDA. In addition, the maturity profile of our debt is also strong with a reduced refinancing risk and lease headroom for future financing. We have secured 2 important new financing that have contributing to extend the average life of our debt and maintain the cost of our funding. Namely the issuance of the equivalent $122 million 20-year bullet green bond in the local market as well as the recently announced closing of a USD 400 million green AB loan with CAF, 7-year amortizing facility, 1-year disbursement period. And with these 2 financing, we expect to have raised most of the debt required to finance our current CapEx plan described previously by Juan. On the bottom part of the slide, we can see the 5.4% average coupon rate of [indiscernible] debt as well as the 5.5 average remaining life of the debt. During this period, we repaid $136 million balance of the U.S. bond maturing in January, and we made other principal debt payment for $93 million, reducing the high level of cash we were holding end of 2024. Slide 19 shows the evolution of our consolidated CapEx program from 2019 to the estimated CapEx amount for 2025. As you can see, our investment have been accelerating notably during the second half of this year compared to the first semester. Capital expenditures have been increasingly concentrated in renewables as well as in BESS over the last 3 years. Between 2025 and '27, we will invest USD 1.4 billion in renewable and BESS project currently under construction. These projects are expected to reduce our exposure to the spot market and thanks to the batteries, reduce as well the risk associated to renewables. We will also continue investing in conversion progress of our coal-fired plant as well as transmission projects that are needed for our portfolio. Please let's continue on Page 20. As a result of the investment plan we just explained, our EBITDA is increasing, notably positively impacted by the reduction in our average supply cost. Leverage remains under control during this intensive CapEx phase. That's why the net debt-to-EBITDA ratio has been showing a downward trend, reaching a level of 3.4x at the end of the first 9 months of this year. It's expected to stay around this level by the end of the year. Moving to Slide 21. We confirm our guidance both for EBITDA and CapEx for 2025. We don't see ourselves exceeding this target or landing in the high end of the range, but these targets are confirmed. On the EBITDA, we should be within $650 million to $700 million range. As you may remember, we increased the guidance on our June results, mainly due to the recognition of the arbitration award related to the breach of the contract we previously discussed as well on the back of strong operating performance. I should note that during this third quarter, we reached an agreement regarding the award that will materialize the recovery of the amount in 2025 and 2026. On the CapEx, we are confirming the guidance between $900 million and $970 -- the resulting net debt-to-EBITDA ratio should reach 3.3x by the end of 2025. As usual, this guidance is considering the driver and assumption presented on the left side of the slide. Finally, we summarize -- we continue to be on track by first, working on the rebalancing of the portfolio, adding new renewable generation and storage, extending the life and increasing capacity of our gas assets and adding backup PPA. Second, we continue moving forward with our intensive CapEx program in renewables, transmission and conversion of plants for the energy transition during the '25 to 2027 period. Third, we leverage our assets. We paid strong attention to maintain high availability of our plants and excellence in their operation. And last but not least, all this while maintaining strong results and strong balance sheet. Thank you for your attention, and we are now open to any questions you may have.

[Operator Instructions] Our first question comes from Andrew McCarthy with Larrainvial. Is Engie Energia Chile currently aiming to sign new PPAs in both the regulated and unregulated customer segments? What type of PPAs would it prefer to enter into and why? Can the company participate in auctions currently underway given its current short position in the spot market?

Thank you very much for the question. Of course, that's like a key provider for Chile, we are always evaluating the PPAs. -- and the opportunities in the market. And we are evaluating the current process for sure. It's not decided if we will participate or not. And the key element to share with you is any decision that we will take regarding the participation will be related to not exposed our business to participate in a serious manner, protecting our P&L and our position. About the preference, we -- like always, we are key players in both markets. And in the case of the regulated PPAs, something relevant to mention is Chile during the history has been serious in the contract respect and our expectation is this will continue. And if this happen, of course, that is something that we can evaluate...

[Operator Instructions].Our next question comes from Andrew McCarthy with Larrainvial. Excluding the impact of the onetime gain in 2025 from the arbitration outcome with your LNG supplier, what should be the remain drivers for the evolution of the company's EBITDA into 2026?

Thank you. So at this stage, we do not provide guidance for 2026. However, what I explained was that 2025 was not materially impacted by one-off when we look at in all net. Besides, we continue to put new assets online, and we will have the ramp-up of the new asset generating. Also, the demand, I mean, is expected to be -- to remain strong. And so you can expect 2026 to remain quite strong compared to 2025.

Next question from Fernan Gonzalez with BTG. Of the EBITDA growth over the past year or 2, how much can be explained by the higher pro rata and regulated volumes? And how much can be attributed to the incorporation of more renewables BESS capacity?

On that topic, I think the best is to stay close to this publication where we explain everything. I don't think it was explained that way in the previous years. However, you still have the graph in Page if I'm not mistaken, Page 15 that we were producing last year as well and from which you could derive your own estimate. You will understand that we do not disclose, I would say, a margin on specific PPAs as we have a portfolio approach, as well as upstream PPAs and spot market and spot [indiscernible] spot purchase on the market that create, in fact, portfolio management, which is basically the circle of how we create value in this market.