Colbún S.A. (COLBUN) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to Colbún's Third Quarter 2026 Results Conference Call on October 30, 2026. [Operator Instructions] So without further ado, I would now like to pass the line to Soledad Errázuriz. Please go ahead.

Thank you for joining us once again in reviewing our quarterly results. My name is Soledad Errázuriz, I'm Colbún's Financial Manager. And joining me today are Miguel Alarcon, the company's CFO; and Isidora Zaldívar from our Investor Relations team. I hope you have received our earnings report and an earnings review presentation that we have prepared to complement the analysis of our figures. Otherwise, you can download them from the Investors section on our website. On this occasion, we will review the highlights of the quarter, our liquidity and debt position and to conclude the company's consolidated results for the third quarter of 2026. Now please go to Slide #4 to review the highlights of this year. First, regarding our commercial strategy. During this year, power purchase agreements have been signed in Chile with 108 clients for an annual volume of 1,591 gigawatt hour per year. In Peru, supply contracts have been awarded to 11 clients for a total contracted capacity of 17.9 meg. Second, regarding financing activities. On September 2, 2026, Colbún signed a 5-year club deal [ bullet ] loan at a rate of SOFR plus 135 basis points with the banks BBVA, Bank of America, JPMorgan, Itaú and Santander for $400 million. These funds were used for the prepayment of the remaining balance of the 2027 bond for $233 million and for the refinancing of the bank loan with BBVA and Bank of America originally maturing in 2029. Third, regarding our pipeline of projects. During this quarter, the company named advances were in BESS Celda Solar, this project reached 96% progress. The performance and regulatory tests of the park were completed. Regarding the BESS Diegode Almagro Sur, overall progress reached 79% and the co-commissioning of the BESS began. Regarding Don Eduardo substation, overall project progress reached 84% as of the date. 100% of the main supplies are on site and construction of the foundations for the sectioning towers and the assembly of high [ turbines ] continue to advance. Regarding Cuatro Vientos Wind Farm, the environmental impact study for this project was submitted for processing in the first quarter of 2024 and obtained its environmental qualification resolution in the third quarter this year. Now please go to Slide #5 to review subsequent events of the quarter. First, regarding the National Reconstruction and Economic and Social Development Act. On October 17 of this year, law #21,850 on National Reconstruction and Economic and Social Development was enacted. The law introduces amendments to the Chilean grid tax regime, including gradual changes for the first category income tax rates. The estimated effect of the reduction in the corporate first category income tax rate is a net decrease in the consolidated deferred tax liability of approximately $140 million, resulting in the recognition of an income tax benefit of the same amount in profit or loss of the period in accordance with IAS 12 income taxes. Now continuing with the conference call, please go to Slide #7 to analyze the liquidity position and consolidated financial debt held by the company. Total financial debt on a consolidated basis this quarter reached $2.4 billion with an average life of 5.6 years and an average interest rate of 4.2% in consolidated terms. Net debt to EBITDA as of September 26 reached 2.4x. Now I will turn to Isidora, who will speak about the main drivers of the results for this quarter.

Thank you, Soledad, and hello to everyone. Before starting with our quarterly results review, I would like to highlight some relevant data about the systems operation on Slide #9. In Chile, the average marginal cost measured at Alto Jahuel decreased compared to the third quarter of 2025, averaged $49 per megawatt hour. Electricity demand grew by 1.1% during this quarter compared to the third quarter of '25. Hydrological conditions have improved significantly compared to the drop experienced over the past decade, although most River basins remain below average year rainfall levels. Cumulative inflow energy stands at a 56% probability of accidents. In Peru, Santa Rosa's average marginal cost increased compared to the third quarter of 2025, averaging $110 per megawatt hour this quarter. This increase was mainly explained by the lower availability of hydro and wind resources as well as the increase in the electricity demand that continued to expand, growing 7.3% compared to last year. Additionally, the hydrological year, which began in September started with a probability of exceedence of 22% compared to the 5% in the same period of the previous year. Now please go to Slide #10 to review this quarter's physical sales and operating income figures. In Chile, physical sales during this quarter reached 3.2 terawatt hour, increasing 15% compared to the third quarter of 2025. This variation was mainly explained by higher spot market sales compared to a period with no spot market sales during the third quarter of '25, mainly due to the higher generation during the quarter. This effect was partially offset by a decrease in the sales to regulated clients, primarily associated with the expiration in December '25 of a contract with Enel Distribución. In Peru, physical sales during the quarter reached 1.2 terawatt hour, increasing 2% compared to the third quarter of '25. This increase was mainly explained by higher sales to regulated clients associated with the entry into force of a contract with Pluz Energía and the increase in the contracted capacity with [ Eletrobras ]. This effect was partially offset by lower energy sales in the spot market. For the third quarter of the year, consolidated operating revenue amounted to $468 million, increasing 21% compared to the operating revenue recorded in the third quarter of 2025. This variation was mainly explained by, one, higher revenues from unregulated clients in Chile due to a higher average sales price; two, higher energy and capacity sales in Chile; and three, higher revenues from regulated clients in Peru. And these effects were partially offset by lower revenues from regulated clients in Chile. Now please go to Slide #11 to review the generation and the raw materials and consumables used figures. In Chile, total generation of the quarter reached 3.2 terawatt hour, increasing 37% compared to the third quarter of last year. This variation was mainly explained by: one, higher hydroelectric generation due to the better hydrological conditions recorded during the quarter; two, higher wind generation, mainly due to a greater contribution from Horizonte Wind Farm owing to lower curtailments; and three, higher coal-fired generation associated with the return to operation of the Santa Maria power plant, which was unavailable during last year. This effect was partially offset by lower gas-fired generation due to the lower economic dispatch. In Peru, total generation reached 1.2 terawatt hour during the quarter, increasing 2% compared to the third quarter of '25. This increase was mainly explained by higher economic dispatch during the period associated with lower hydrology and increased demand in the interconnected system. Consolidated raw material and consumable used cost in the third quarter of '26 amounted to $229 million, increasing 4% year-on-year, mainly driven by higher diesel consumption associated with the higher generation with these fuels. Now please go to Slide #12 to review the main differences in the consolidated EBITDA for this quarter. Consolidated EBITDA reached $197 million during this quarter, increasing 55% compared to the third quarter of '25. EBITDA in Chile amounted to $168 million, increasing 64% compared to the third quarter of '25. This increase was mainly explained by a higher gross margin driven by higher unregulated spot market revenues together with lower energy purchases due to the increased generation. EBITDA in Peru reached $29 million in the third quarter of '26, increasing 24% compared to the third quarter of '25. This increase was mainly explained by higher gross margin, reflecting higher regulated and spot market revenues, partially offset by higher energy purchases prices and system houses. Now please go to Slide #13 to review the consolidated net income of the quarter. Nonoperating income for the third quarter of '26 posted a loss of $30 million compared to a loss of $32 million in the third quarter of '25. This variation was mainly due to: one, lower financial expenses explained by a lower average financial debt; and two, higher profit or losses of companies amounts were using the [indiscernible] particularly from [ Electro gas ]. These effects were partially offset by: one, higher losses recorded under the other losses, mainly explained by the recognition of extraordinary nonrecurring effects recorded during the quarter. Among this, the most significant was the cost associated with the early termination of a coal supply contract signed in 2022; and two, lower foreign exchange gains recorded during the period. The company recorded a profit of $72 million during this quarter compared to a profit of $25 million recorded in the third quarter of 2025. This increase was mainly explained by the higher operating income recorded during the quarter, partially offset by the higher income tax expense. Now please go to Slide #14 to review the consolidated cash flow. The company began the period with a cash balance of $832 million, ended with $844 million. Regarding operating activities during the third quarter of '26, the company generated a positive operating cash flow of $156 million compared to the $93 million during last quarter. This reflects higher operating collections during the quarter, mainly associated with the higher sales recorded in the period. In terms of financing activities, they recorded a negative cash flow of $86 million during this quarter compared to a positive cash flow of $163 million recorded during the third quarter of '25. This variation was mainly explained by the signing of a new capital loan for $400 million in September '26. These proceeds were used to prepay the remaining balance of the 2027 bond for $233 million and to refinance the bank loan with [ BBVA ] originally maturing in 2029. Meanwhile, during the third quarter of '25, the company issued a 2035 bond for $500 million and entered into a loan for Colbún Peru for $50 million. This issuance during the third quarter of '25 was partially offset by the partial prepayment of the 2027 bond and the acquisition of the remaining 41% of f Inversiones Las Canteras. Lastly, investment activities generated a negative cash flow of $66 million during the third quarter of '26, decreasing 29% compared to the negative cash flow of $94 million recorded during last quarter. This variation was mainly explained by lower disbursement associated with the company investment plan, considering the different process of growth projects compared to the same period of the previous year. This concludes Colbún's third quarter of 2026 results review. Thank you for listening. And now we are open to answering your questions.

[Operator Instructions] Our first question comes from Thomas Francisco Perkin from Balance Capital.

I have 2 questions. So first, regarding natural gas supply, could you provide an update on your gas procurement strategy, particularly from Argentina? What volumes do you currently have contracted? Are these contracts firm or interruptible? And when do they expire?

This is Isidora. Thank you for your question. So for the gas, the strategy of the gas for next year, we consider to maintain the contracts with interruptible gas with Argentina. And also, we will have some space for spot market gas in Chile. So we are not going to have firm contracts with Argentina only interruptible.

Okay. My second question is regarding the Canutillar hydropower plant. Following the recent submission of Lago Chapo Remediation Plan, could you provide an update on the legal proceedings? Have you been able to quantify the potential financial impact of the restriction on generation as well as any additional CapEx required under the remediation plan?

Miguel speaking here. Thank you for your question. So regarding the Canutillar plant and the Lago Chapo, we recently submitted the remediation plan in October, actually a couple of weeks ago, we're still awaiting the environmental court's response. We -- because of how these processes typically work, we don't expect a resolution in the coming weeks, it will take longer. In the meantime, we are still currently conducting engineering studies required to better assess the cost of that plan and expect to have more information during probably mid of next year. We don't expect material disbursements this year or next year while we come up with a different solution. And probably those expenditures will be spread out over the next 3 years. It is important to note, though, that the court already accepted our request for greater operational flexibility regarding the minimum reservoir level that's linked to emergency temporary situations after considering the potential technical and operational implications of maintaining the restriction under all circumstances as it was before this change.

Our next question comes from Fernan Gonzalez from BTG Pactual.

I have a question basically on the future. Your CapEx planning is almost completed now. So is the next step a growing free cash flow and a fast deleveraging ahead over the next couple of years? Or will there be a new investment plan release sometime over the next couple of months? I was wondering if you could walk us through how to think about this.

Thank you for your question. This is Soledad here. So yes, actually, you're right. We are finalizing the construction of the 2 battery energy storage projects we have on the pipeline. And considering only to finalize those investments and with the maintenance CapEx, the total CapEx for next year without any additional decision of investments for future projects would be of around $140 million or so. And with that, we will need to reserve to the capital markets for additional funding. However, we are analyzing a couple of new projects in Chile that are already environmentally approved and are only waiting for the investment decision. And we are also looking at M&A opportunities, especially in Peru. We also have a pipeline of projects there that we are seeking to develop that we will continue to analyze our growth opportunities and for the use of that cash at hand we currently have.

Our next question comes from Martin Arancet from Balanz Capital.

Only one quick question. I know that regulated sales in Chile is a small portion of your total sales, but I would appreciate your view. We have seen increase in fuel prices and depreciation of the peso. The last time that we saw that, we saw also the accumulation of receivables because it's hard to transfer those additional costs to regulated clients. Do you see that happening again this time?

This is Miguel here. Thank you for your question. The regulated segment still represents an important percentage of our sales, although significantly lower than the industrial clients, as you correctly point out. Having said that, we haven't seen actually a deterioration in the recollection of those type of clients. And because of that, up to this point, because of that, we don't foresee actually a risk associated with the movement in the Chilean peso to U.S. dollar exchange rate or the payment capacity of those clients so far. So again, we're still in a good position because of that, and we don't foresee, again, any risk up to this point.

Our next question is a written question from Steffania Mosquera from CrediCorp Capital. Do you expect the $140 million movement related to the reconstruction law to translate into a higher dividend?

Thank you for your question. So we expect that this effect is going to be recognized during the next quarter. And considering the current dividend payout ratio of 50%, this would represent a $70 million of additional dividend. But of course, that this would be confirmed in our Annual Shareholder Meeting in April of next year.

Our next written question comes from Ignacio Janos from [indiscernible]. First question is, how do you expect Colbún to be meaningfully different 5 years from now compared with today?

Thank you for the question. I would say that -- we expect the company to continue progressing in our percentage of renewable generation through probably more projects to invest, as Soledad pointed out before, probably with more storage capacity as we are increasing our current capacity with the 2 projects that on the execution pipeline. And we're also aiming to hopefully incorporate different segments of business as we've studied in the past, potentially, for example, water treatment or water conduction, perhaps being able to serve data centers and study other adjacent technologies. So the company will materially continue in the generation segment. But hopefully, we will enter into different businesses and maybe into a third country of operations.

Another question from Ignacio. What material changes should we expect to see in the business?

I think I tried to tackle most of the question in the previous answer. But basically, we see -- we've seen in the last 2 years, increased competition, and that's why we believe that being able to differentiate ourselves by having a robust portfolio of assets in operation and projects, it's what we should expect to continue to develop in the future. And another probably key element of Colbún, its financing strategy and conservative financial policy in the sense of having a level of cash that should enable us to embark into new projects, potentially M&A opportunities and also tackle potential risks linked to volatility in the industry.