Colbun SA

SGO:COLBUN

Q3-2025 Earnings Call

[Operator]

Ladies and gentlemen, thank you for standing by. I'd like to welcome you to Colbún's Third Quarter 2025 Results Conference Call on the 3rd of November 2025. [Operator Instructions]

So without further ado, I'd now like to pass the line to Miguel Alarcon, the CFO. Please go ahead.

[Miguel Alarcón, executive]

Thank you for joining us once again in reviewing our quarterly results. My name is Miguel Alarcon. I'm the company's CFO. And joining me today are Soledad Errazuriz, Isidora Zaldivar, and Carolina Plasser from our Investor Relations team.

I hope that 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 2025.

Now please go to Slide #4 to review the highlights of this quarter. First, regarding our commercial strategy. During 2025, power purchase agreements have been signed in Chile for 693 gigawatts hour per year. In Peru, supply contracts have been awarded for 55.4 megawatts per year.

Second, regarding the latest developments on our pipeline of projects. During this quarter, the company's main advances for Renewable Energy and storage projects were in Chile, Horizonte Wind Farm. The Horizonte Wind Farm complex reached full commercial operation during this quarter, achieving a total installed capacity of approximately 816 megawatts, consolidating it as one of the largest wind farm projects in Latin America.

BESS Celda Solar, the project reached 46% progress, mainly related to the arrival of all battery megawatts on site. BESS Diego de Almagro Sur, construction phase of the project started with 3% of our progress reported.

Third, regarding our power plants operations. On March 23 of this year, Santa María Thermal Power Plant became unavailable due to the loss of lubrication in the steam turbine. The repair work was completed as planned and operations resumed on October 23 of 2025.

On July 9, 2025, an incident occurred at Unit #1 of the Rucúe Hydroelectric Power Plant caused by a gas leak that ignited during metallization works on the turbine's wear plates and upper cover, as part of its major maintenance activities. To date, progress have been made in the repair of electrical and mechanical systems, removal of damaged components and preparation for critical tests, reaching 33% overall progress. The unit is expected to be back in service by the end of January of next year.

Finally, on August 29 of this year, a forced disconnection occurred at Unit #2 of the Nehuenco Thermal Power Plant, due to a rupture in the expansion joint connecting the Bypass Stack with the inlet to the Heat Recovery Steam Generator. The unit resumed its operations on October 10 of this year.

Now please go to Slide #5 to continue reviewing the relevant events of the period. Regarding our financial debt. In September of 2025, Colbún issued its second green bond in the international market, for a total amount of $500 million, with a coupon rate of 5.375%, achieving the lowest spread for a Chilean corporate bond in the last 20 years. Of the proceeds obtained from this issuance, $266 million were used to partially redeem the company's outstanding $500 million bond of the same type, maturing in 2027.

Finally, regarding mergers and acquisitions. On August 21 of this year, Colbún completed the acquisition of the 41.379% stake in Inversiones Las Canteras S.A., the controlling entity of Fenix Power Peru. As a result of this acquisition, Colbún holds 100% of the company's ownership.

Now please go to Slide #6 to review subsequent events of the quarter. First, regarding the CNE error in the valuation of billing differences. On October 14, the National Energy Commission, CNE, approved the Technical Report for the Determination of the Average Node Prices of the National Electric System for October 2025. This report includes the correction of an error regarding the treatment of inflation effects, due to a simultaneous application of CPI variation and the use of the current interest rate for non-indexed operations in local currency. The correction applies only to related clients.

Colbún submitted observations during the public comment period, which lasted for 10 days. We expect no material financial impact as where the sales represent a small portion of total revenues.

The company remains available to implement any mechanism or formula that the authority may establish, provided it is consistent with applicable regulations in order to correct the error identified.

Now continuing with the conference call, please go to Slide #8 to analyze the liquidity and consolidated financial debt held by the company. Total financial debt on a consolidated basis this quarter reached $2.6 billion, with an average life of 5.9 years and an average interest rate of 4.7% in dollars. Net debt-over-EBITDA for this quarter reached 2.6x.

Now, I will turn to Carolina, who will speak about the main drivers of the results for the third quarter of 2025.

[Carolina Plasser, executive]

Thank you, Miguel, 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 #10.

In Chile, the average marginal cost measured at Alto Jahuel increased 26% compared to the third quarter '24, averaging $40 per megawatt hour. Electricity demand decreased by 0.6% compared to the same quarter of last year. On the other hand, the hydrological year that has started in April has presented a probability of exceedance of 94%.

In Peru, Santa Rosa's average marginal cost reached $29 per megawatt per hour. Electricity demand grew 1.4% compared to the same quarter of last year. In terms of hydrological conditions, the hydrological year that ended in September 2025 recorded an exceedance probability of 5%.

Now please go to Slide #11 to review the quarter's physical sales and operating income figures. In Chile, physical sales during the quarter reached 2.7 megawatt hours, decreasing 4% compared to the third quarter '24, mainly explained by lower spot market sales due to the lower generation recorded during the quarter. This effect was partially offset by higher sales to regulated clients, mainly driven by the incorporation of ILAP contracts and higher sales to unregulated clients, primarily reflecting increased consumption from mining clients.

In Peru, physical sales during this quarter reached 1.1 terawatt hours, decreasing 2% compared to the third quarter '24, mainly due to lower sales in the spot market. This effect was partially offset by higher sales to regulated clients, driven by the entry into force of a supply contract with Electro Oriente, on a higher sales to unregulated clients mainly due to the entry into force of a contract with Distriluz and increased consumption by Minera Volcan.

For the third quarter of the year, consolidated operating income amounted to USD 388 million, increasing 1% compared to the operating income recorded in the third quarter 2024, mainly driven by higher physical sales to contracted clients in Chile and Peru, primarily due to the incorporation of new contracts during 2025, both in the regulated and unregulated segments. This effect was partially offset by lower physical sales in the spot market in both countries due to lower generation levels recorded during the period.

Now please go to Slide #12 to review the generation and raw materials and consumables used cost figures. In Chile, the total generation of the quarter reached 2.3 terawatt hours, decreasing 18% compared to the third quarter of last year. This was mainly explained by lower hydro generation resulting from this favorable hydrological conditions and lower coal-based thermal generation of Santa Maria Thermal Power Plant, remained unavailable during the quarter following the incident that occurred in March of 2025.

These effects were partially offset by higher one generation mainly due to the commissioning of Horizonte Wind Farm and the acquisition of San Juan and Totoral wind farms and higher gas-based thermal generation, driven by a higher economic dispatch, as a result of our lower hydrology availability recorded during the period.

In Peru, total generation reached 1.2 terawatt hours, decreasing 2% compared to third quarter '24. This was mainly due to the lower economic dispatch of thermal units associated with more favorable hydrological conditions observed in Peruvian electric system.

Consolidated raw materials and consumables used costs in third quarter '25 amounted to $219 million, increasing 27% compared to third quarter '24, mainly due to higher energy and capacity purchases in both countries, given the lower generation recorded during the quarter and higher gas consumption costs given the higher generation with that fuel in Chile. These effects were partially offset by lower coal consumption costs as there was no generation with this fuel during the quarter due to the unavailability of Santa Maria thermal power plant.

Now, please go to Slide #13 to review the main differences in consolidated EBITDA for this quarter. Consolidated EBITDA reached $127 million during this quarter, decreasing 25% compared to third quarter '24.

EBITDA in Chile amounted to $104 million, decreasing 29% compared to third quarter '24, mainly due to our lower gross margin during the period associated with higher energy and capacity purchases due to the lower generation previously mentioned and higher natural gas consumption primarily due to greater generation with this fuel.

EBITDA in Peru amounted to $23 million in the third quarter '25, increasing 2% compared to third quarter '24. These higher sales to regulated and unregulated clients was offset by lower energy and capacity sales, while other expenses by nature decreased mainly due to lower operational insurance costs.

Now, please go to Slide #14 to review the consolidated net income of the quarter. Non-operating income for third quarter '25 post a loss of $32 million compared to a loss of $8 million in third quarter '24. This variation was mainly explained by higher financial expenses, following the end of the capitalization of financial expenses associated with Horizonte Wind Farm, and by higher other profit loss, due to the recognition of expenses related to the partial prepayment of the 2027 Bond.

The company reported a net profit of $25 million in third quarter '25 compared to the $83 million profit exchange in third quarter '24, mainly explained by the lower operated and non-operating results during the quarter, partially offset by lower tax expenses.

Now, please go to Slide #15 to review the consolidated cash flow. The company began the period with a cash loss of $788 million and ended with $949 million. Regarding operating activities during third quarter '25, an inflow of $93 million was generated compared to the inflow of $151 million in third quarter of 2024, mainly due to higher operating payments associated with the maintenance works.

In terms of financing activities, we generated cash inflow of $163 million, which compares to the outflow of $47 million in third quarter '24, mainly due to the issuance of the 2035 Bond, and a loan granted to Colbún Perú S.A. This increase was partially offset by the partial prepayment of the 2027 Bond, the acquisition of the remaining 41.379% interest in Inversiones Las Canteras SpA completed during the quarter, and interest payments made during the period.

Lastly, investment activities generated a cash outflow of $94 million during this quarter compared to the outflow of $81 million in third quarter '24, primarily due to higher CapEx disbursements, mostly related to Celda Solar and Diego de Almagro Sur battery storage projects as well as contract closure payments following the COD of the Horizonte Wind Farm.

This concludes Colbun's third quarter of 2025 results review. Thanks for listening, and now we are open to answering your questions.

[Operator]

[Operator Instructions] Our first question is from Tomas Pallotti from Balanz Capital.

[Tomas Pallotti, analyst]

Can you hear me correctly?

[Operator]

Yes, we can hear you.

[Tomas Pallotti, analyst]

I have two questions. First, could you provide more color on the metallurgical error made by the authority when accounting to inflation effect on tariffs? What impact do you expect for this year and for 2026 results?

And second, could you comment on the additional impact you expect from the new BESS regulation and the revenue contribution you anticipate from the incorporation of Celda Solar and Diego de Almagro Su? Thank you very much.

[Miguel Alarcón, executive]

This is Miguel here. Thank you for your questions. So, regarding the first one, maybe just as a context, as you know, the error comes from applying 2x the CPI variation and the current interest rate for non-indexed operations in local currency, even though that last one already includes an implicit inflation component, that's basically what's the double counting on the inflation. From the very onset, we, together with the other power generation companies through the AG, the association of generation companies, having worked with the authority, first, trying to, I would say, to reach an understanding in terms of what the error was about and then sharing the amounts.

I think to everybody at this point is pretty much agreed that the total amount is about $150 million in total for the system and the impact on each of the companies depend on the share of those contracts that each of the company holds. In our case, as you know, less than 7%, maybe 5% of our total sales are linked to regulated customers. So, although I cannot specifically comment the amount that is directly linked to us of those $150 million, I can say with confidence that it's not a material amount for Colbún financials. That's the first question.

And regarding the impact of the BESS -- both BESS projects, we cannot provide color in terms of expected revenues or EBITDA. As you know, we don't provide guidance. What I can say is that one should come in line towards the third quarter of 2026, that being Celda Solar, while the Diego de Almagro Sur BESS should come during the first quarter of 2027. Each should add another 300 gigawatts hour per year of equivalent generation injectors.

[Operator]

Our next question is from Andrew McCarthy from LarrainVial. Can you provide some further color on expected amounts and timing of insurance recoveries that you could receive for the outages of Santa Maria, Rucúe, and Nehuenco U2, please?

[Soledad Errázuriz, executive]

This is Soledad. So, regarding the final amount, we still cannot provide any color, because the amounts are under review. Actually, they have just hired a third party that is calculating the business interruption loss. So, we don't have numbers yet. We expect to have the final numbers on the loss and insurance recovery by the first half of next year.

[Operator]

Our next question is from Felipe Flores from Bank Citi. I have a question regarding Santa Maria. While the plant started operating again on the 23rd of October, according to the data uploaded by the coordinator, TER Santa Maria did not generate after that day and has remained at 0 gigawatts hour every day until yesterday. Is that correct? Has there been any other problem? Or is the plant still not completely available?

[Soledad Errázuriz, executive]

This is Soledad, again. Thank you for the question. So yes, that is correct. Santa Maria hasn't dispatched since returning to operations on October 23, and that's due to economic dispatch reasons. The plant is fully available to start dispatching once the coordinator requires it.

[Operator]

Our next question is from Fernan Gonzalez from BTG.

What impact did the accidents at the El Teniente mine have on Colbún in the quarter? Could this have an impact in the fourth quarter, too? You have insurance for Santa Maria and Rucúe to cover for the outages. What could be the timing of the payments based on the historical experience?

[Isidora Zaldívar, executive]

Hello, Fernan, thank you for your questions. So, related to the accident in El Teniente, yes, we have observed an impact on the physical sales related to that client. And on its peak, it reached 30% of decrease in physical sales related to Codelco. But we expect that figure to decrease as the operation of that mine is resuming. And it's important to highlight that the impact on the income related to that client is not as affected as physical sales given the nature of that contract.

And related to the insurance of Santa Maria and Rucúe as Soledad was mentioning, we expect to have more news during the first half of the next year.

[Operator]

[Operator Instructions] Our next question is from Isabella von Maltzan from Bank of America. Could you give more color on the recent news saying that Colbún is looking to expand in Portugal and Spain. Are you considering other regions as well? Could you please explain why your sales are focused to unregulated and not regulated customers? Is this mainly related to contract expiration by the end of 2024? If so, are you looking to increase your contracts with regulated customers?

[Miguel Alarcón, executive]

Miguel, here. Thank you for your questions. So I'm going to tackle the second half of the question, because there's missing another half which Soledad will take later on. So, regarding Portugal and Spain, yes, we've said publicly that the Iberian Peninsula, actually more than just those two markets are something of interest to us. And the reason for that are actually many. It has to do with regulation. It has to do with hard currency. It has to do with penetration of renewables and the fact that we believe that would add value in terms of our experience dealing with long-term complex PPAs with unrelated customers.

And regarding that note, you also asked about our preference for unregulated, and I think we've stated this before many times, and we believe that our generation matrix is much better equipped to serve those type of customers. Those type of customers have another features that we prefer in terms of consumption pattern, in terms of bilateral conditions, as you can set in an agreement, of course, that also reduce potential relation changes risk.

So, we also like to avoid. But that, again, is our current focus. And that does not mean in any way that we're not also interested potentially in going to a regulated segment going forward. It is touched as of today. And again, because of our matrix and pipeline, we believe we are better equipped to serve industrial customers.

[Operator]

I would just read the other part of the question from Isabella. Are you working on liability management for your upcoming 2027 nodes? Do you plan to buy Fenix Power's 2027 nodes? Net leverage rose to 2.6x in the third quarter of 2025. Do you expect it to increase further in the coming quarters? At what level do you expect net leverage to reach by the end of 2025 and 2026?

[Soledad Errázuriz, executive]

So, regarding the Colbún's 2027 nodes, we already refinanced 53% of those with the issuance of a new 2035 Bonds in September this year for $500 million. And we are analyzing options to refinance the remaining portion of that debt.

Regarding the Fenix 2027 nodes, we are analyzing alternatives and are considering options to refinance those, expecting to have alternative in place by the end of this year or the beginning of next year. We will -- for this refinancing follow the private market, it will be through a bank loan since the total outstanding debt is less than $200 million. So, it's too small to be refinanced in the capital markets.

In the future, although as the project pipeline materializes or we are successful in buying operating assets on that country, we could add up those cash flows with the loan we will issue and then go to international markets again. Thank you.

Sorry. And in terms of the net debt-to-EBITDA, you mentioned. So, for this year, it should be in line with the results we posted in the third quarter of this year. And for 2026, we expect a slight decrease, but it will depend on next year's results. So, and we cannot give guidance on those. So, we cannot comment more on that. Thank you.

[Operator]

Thank you very much. We will give it a few more moments for any further questions to come in. Okay. It looks like we have no further questions. I will now hand it back to the Colbun team for the closing remarks.

[Miguel Alarcón, executive]

Okay. So thank you, everyone, for joining this third quarter 2025 conference call. Thank you for your questions. And hope to see you all for the year-end results around end of January of 2026. Have a good week to you all. Bye-bye.

[Operator]

That concludes the call for today. Thank you, and have a nice day.