Good afternoon, welcome to Colbún's second quarter 2023 results conference call. I will now hand over to Miguel Alarcón to begin the presentation.
Hello to everyone, and welcome to Colbún's second quarter 2023 earnings review call. My name is Miguel Alarcón. I'm the company's CFO, and joining me today is Macarena Ruidíaz, Investor Relations Analyst. 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 at the investor section of our website. Agenda for today, on slide 3, is as follows: We will begin talking about the highlights of this quarter, to then analyze in detail this quarter's results. After that, we will provide an update on our growth opportunities. Following the presentation, there will be time to participate in a Q&A session. Now, please go to slide 4 to review the highlights of this quarter.
On April 24th, the company received $116 million, corresponding to the final price adjustment associated with the Colbún Transmisión sale to Alfa Desarrollo, as agreed by the parties in the purchase and sale agreement dated March 30, 2021, with closing and payment was reported on August 10th, 2021, leaving on dedication, a final adjustment price customary in this type of transactions. On May 12th, a dividend was paid of $140 million, consisting of, first, a definitive dividend of $65 million, which together with the provisional dividend paid in December 2022, totaled $83 million, equivalent to a 50% profit distribution in line with Colbún's policy. Second, an additional dividend charged to the previous fiscal profits year of $75 million. Total dividend distribution amounted to $223 million, charged to 2022 fiscal year.
During this quarter, Fenix Power Plant performed its major maintenance, which had an extension of 70 days, which is 26 days beyond the original program schedule. This extension was mainly due, at face judgment, to a deficient planning and execution by the service provider. As a result, the power plant was available for only 22 days during the second quarter. Regarding the major maintenance, it should be noted that it allows extending the units operating hours by 40 to sulfur, faster firing hours. The main activities involved included GT11 and GT12 gas turbines, major maintenance. That includes removal of rotors, replacement of capital and combustion parts, inspections, and non-destructive testing. As to ten, the improvement major maintenance, which includes basically the same scope, and Mark VI control system upgrade in the three turbines and of GT11 and GT12 system startup.
On June 30, the company reached its emphasized completion of Horizonte Wind Farm. It is worth mentioning that the transportation challenge of oversized wind turbine components from Puerto Montt in Los Ríos to the project, located 170 km south of La Negra and Punta Grande location, due to police scarcity available for these transfers. The company is making all the efforts at regional and national levels to minimize any delays that the situation may cause to the project, which to date have not occurred. If this problem is not resolved in the coming months, it could cause a delay. As of June 30, BESS Diego de Almagro Sur storage system is awaiting authorization from the Coordinador Eléctrico Nacional for real-time signal testing for commercial operation. This test's completion is essential for the certification and commissioning.
Now, let's go to slide 5 to review the main consolidated status of the company. Consolidated EBITDA in the second quarter of 2023 reached $135 million, decreasing 12% compared to the $153 million of EBITDA in the second quarter of 2022. This increase is mainly due to, first, higher energy and capacity purchases in Peru, driven by French Power Plant's major maintenance extension, which were at a higher average purchase price due to a significant increase in the marginal cost of serve during the quarter, with the dispatch of additional permanent bids. And in second, higher coal and gas consumption due to a higher average purchase price. These effects were partially offset by higher operating income.
As of June 30, the company holds $950 million of cash, and net debt to EBITDA ratio is 1.5 times. Now, I will turn to Macarena, who will speak about the main drivers of this quarter's results.
Thank you, Miguel, and hello to everyone. Now, please continue to slide 7 for physical sales and generation balance analysis in Chile. Total generation of the period decreased 3% compared to the second quarter of 2022, mainly explained by lower generation with diesel, minus 114 GWh, given a lower economic dispatch, and REBS, lower 80 GWh, due to the expiration of third party energy purchase contract. This effect was partially offset by a lower hydrologic generation, over 139 GWh. Physical sales during the quarter reached 3.4 TWh, 3% lower than the second quarter of 2022, mainly due to, first, lower sales into the spot market, driven by a lower generation recorded during the quarter, and second, lower sales to unregulated clients, given a lower consumption from this segment.
These effects were partially offset by higher sales to regulated clients, due to some contract expiration between other generation companies and distribution companies, which generates a higher load factor for those contracts that are in force. The spot market balance during the second quarter of 2023 recorded net sales of 446 GWh, while the second quarter of 2022, net sales of 535 GWh were recorded. This variation is mainly explained at lower generation during the quarter. Now, please continue to slide 8 to analyze the EBITDA for the generation business in Chile for the quarter. EBITDA in Chile reached $135 million in the second quarter of 2023, increasing 3% compared to the EBITDA of $131 million in the second quarter of 2022.
Mainly due to higher operating income, explained by higher sales to regulated and unregulated clients, given the higher average sales price. They were partially offset by a higher raw materials and consumables usage cost, mainly due to a higher coal and gas consumption cost associated with a higher average purchase price. Please continue to slide nine for physical sales and generation balance analysis in Peru. Total generation of the period decreased 64% compared to the second quarter of 2022, reaching 338 gigawatts hour, mainly explained by a lower extension of the major maintenance compared to the one carried out during the second quarter of 2022.
Physical sales during this quarter reached 889 GWh, decreasing 7% compared to the second quarter of 2022, mainly explained by lower sales in the spot market, given a lower generation of the power plant, due to the major maintenance was carried out, which has a total extension of 30 days. This effect was partially offset by higher sales to unregulated clients, given the entry into force of new contracts for 37 MW. The spot market balance during the second quarter of 2023, recorded net purchases of 524 GWh, compared to the net sales of 318 GWh during the same quarter of the previous year, due to the lower generation recorded in the period, mainly explaining by the lower Fenix Power Plant availability mentioned before.
Please continue to slide 10 to analyze the EBITDA in Peru for the 2Q 2023. EBITDA in Peru reached $0.2 million in the 2Q 2023, decreasing 99% compared to the $22 million EBITDA recorded in the 2Q 2022. This result is mainly explained by higher power and capacity purchases in the spot market, explained by the lower generation recorded previously mentioned. Please continue to slide 11 for the consolidated non-operating income and net income analysis. Non-operating income in the 2Q 2023 recorded profits of $89 million, compared to $41 million losses recorded in the 2Q 2022.
As a result of, first, the income of $116 million corresponding to the final adjustment associated with Colbún Transmisión sales to Alfa Desarrollo. Second, higher cash surpluses investment rate. Third, a lower loss due to the exchange rate appreciation compared to the second quarter of 2022. The company recorded a profit of $131 million, compared to the profit of $38 million in the second quarter of 2022, mainly due to the income of $116 million corresponding to the final price adjustment associated with Colbún Transmisión sales to Alfa Desarrollo previously mentioned. Now, continuing with this conference, please go to slide 13, where Miguel will give you an update of the status of our growth opportunities.
Regarding our growth opportunities in Chile, relevant updates for this quarter are as follows: The El Soto project. As of the second quarter of 2023, 59% of the project was completed. turbine assembly began, reaching mechanical completion of the first 13 wind turbines in June. The construction of internal roads, platforms, and foundations for the wind turbines is still in progress, with 85% progress, as well as the substations, transmission lines, and medium voltage network, with 65% progress. 255 main components have been unloaded to date at the wind turbine site, including blades, towers, hubs, and generators. For the Diego de Almagro BESS project, as of June 30, are awaiting authorization from the Coordinador Eléctrico Nacional for real-time signal testing for commercial operation. This test's completion is essential for the certification and commissioning.
For more information regarding our pipeline of projects, please review our earnings report. This concludes Colbún's second quarter, 2023 results review. Thank you for listening. Now we are open to answer your questions.
Thank you. We will now move to the question and answer section. If you would like to ask a question, please press star two on your phone and wait to be prompted. If you're dialed in by web, you can type your question in the box provided or request to ask a voice question. We'll now wait a moment or two for the questions to come in. Our first question comes from Fernán González from BTG Pactual. Your line is open. Please go ahead.
Hi, good afternoon, Miguel and Macarena. I have three questions. One is, what's happening with spot prices in Peru? Why are they so high? Because they've kept increasing month after month, for the past several months already. I'm wondering if you could share some thoughts on, on what's happening in the industry there. An additional question on Peru is whether or not Colbún will try to seek financial compensation for the extended maintenance at Fénix Power. My third question is, what's the status on the unregulated energy auctions that the mining industry is executing this year? If you could share some thoughts on that, too.
Hi, Fernán, this, this is Miguel. Hope you can hear me okay. Going question by question, first would be about spot prices in Peru. Well, what, what's happening there is a combination of things. First of all, at the beginning, we had towards the end of, sorry, last year, some lower amounts of capacity available, especially, gas capacity. That meant introducing diesel facilities to operate, setting the marginal cost, as you may recall, over 100 per milliwatt hour for, for the last quarter. Particularly, I would say a, a couple of months ago, Peru is suffering from a really poor hydrology, and because of that, hydro plants have not been able to fulfill the, the typical volumes.
Because of that, then again, the system had to resort to diesel capacity, which has been saving the marginal costs, as mentioned in the last couple of months, over $100. On top of that, this is more recent news, I understand that there's a large hydro plant also unavailable that will also, will also put additional pressure on the marginal costs going forward, at least for the next two to three months. Basically, we expect, at least in the short term, up until the hydrological year starts in Peru, which is in the last quarter of this year, again, some pressure on the marginal costs being set by diesel because unfortunately, gas capacity is not enough to fulfill all of the demand that's actually increasing a lot in that country.
Regarding your, your second question, I would say that more than from Colbún, from Fénix standpoint, yes, we are in the process of negotiating with our supplier, an agreement to get compensation from the significant impact we had in our results, as you just saw in this quarter. Hopefully, this is positive news, I think. As I previously mentioned, because of the spot situation in Peru and being Fénix an accelerator in the spot market, we are benefiting from that situation and actually making an increased margin on a daily basis as long as this marginal cost increase continues to occur. Regarding your, your final question, I cannot comment much.
We've talked in the past that, yes, we've seen significant volumes of mining companies being discussed, some of them in, in tender processes. One, of course, is public, which is the, the Codelco process, because they have a, a spare amount to recontract after a, after actually a contract, readjusted with us, with Colbún. On top of that, there are a, a couple of, of large mining companies into those processes, and hopefully soon we'll have some news to, to share with you and the rest of the investor community.
Thank you.
Thank you. Our next question comes from Florencia Morosera from MetLife, please go ahead.
Hey, thanks for taking my question. I have a couple of questions. One is, sorry if you already mentioned that, but just to be sure that the maintenance at Fénix is already completed. This is the first one. Second, I am curious about your whole inventory. What's your expectation on that? Do you think that you are able to dispatch most of them during the second quarter, or we should continue to see this in the third quarter, in the second half of this year? The last one is regarding considering better hydrology expectation, if you are expecting to maintain or are more optimistic regarding the guidance for the full year. Thank you so much.
I'll go with the first, 2 questions, Florence, then Magdalena will take the third one. Basically, regarding maintenance of Fénix, yes, it is completely finished. The plant has been operating for, for a month, more than a month, I think. It began operations again in the 2nd week of June, I think. That's why it operated for, as, as we said in our earnings report, about 22 days in this quarter. That's completely finished, and the plant after that has been operating up and running without any issues. Regarding your 2nd question, that was about, sorry, inventory, inventory, right, inventory. You should have seen an increase in our inventory levels, especially in this quarter.
Reason for that, is that we need to prepare ourselves for 2 critical maintenances that are planned to occur in the second half of this year. One is already in progress, regarding Nehuenco I power plant. The other one is yet to be determined, the exact initially, the beginning date, but that's for the Santa Maria power plant. Typically, before a large maintenance, we need to, to stock up with the spare parts, and that's the reason you're, you're seeing the inventory levels going up. Nothing, I would say. Typically, all in order, nothing uneventful to comment or nothing particular with this level.
Hi. Magdalena here.
Hi, Magdalena.
I will help you with the last question. It was regarding about hydrological projection for this year, if I understand properly?
Yes.
About the projection, we actually cannot say that much because it's too soon yet to kind of say how it will be for the next half of the year. What I can say to you is that if we look to, for example, Maule or Laja, those water levels are even higher to an average year on, even to the hydrological year of in 2022. Yes, the, how that we should expect, at least for the third quarter of 2023, should be a little bit higher than the previous year. In terms of energy, the, the bases and the operands are also higher. I mean, the rainfalls for the end of the year represent another 0.9 terawatts hour in terms of energy.
In terms of projections, we're still with the conservative scenario, and we're still saying that, the, the generation should be the, the PU inaudible hundred scenario, which is the conservative. With this another 0.9 terawatt-hour by the, by the end June rainfalls. We cannot say that much.
Perfect. Thank you. Can I add, another, another more question, regarding you always mention your, your intention to expand internationally. You already are in Peru. Are you looking now in another country, particularly, just to, to take an opportunity and to continue growing with renewables?
Florencia, Miguel again. Yes, we, we of course plan to expand our operation in Peru. We, we plan to do so in 2 ways. One would be looking at potential M&A opportunities, as we've been doing so far. The other one, which I think probably is the main one at least currently, is to try to build up our own renewable platform for that purpose. I think we have discussed this in the past. We have a pipeline of 5 to 6 projects in different stages of development. Some of them are solar, some of them are wind. The intention is to put into commercial operation an additional 500 megawatts in the next 5 years. That at least is the goal for now.
Regarding additional countries, we are in the process of defining those, in the final phase of that definition, and we plan to share that with you, hopefully later this year.
Excellent. Thank you so much.
You're welcome.
Thank you. Just a reminder, if you do have a question, please press star two on your telephone keypad. We have a text question next. There are actually two questions. This is from, Martín León del Fierro , from Fondos de Inversión Fynsa .
Yeah.
Number 1. What is the cause for the revenues? Miguel, you, you, you read it if you want.
Yes. I, I'm seeing those. Martín is asking about cost of the revenues of BHP is doubling on the quarter. Is there a new contract or was it caused by indexation? Regarding that question, I, I don't see actually the sales to this particular client doubling. I, I do see an increase, which is caused by two effects. On one side, we're seeing a 10% increase in demand, meaning 10% more volume, and we're also seeing a similar amount of variation in terms of price linked to indexer fluctuations. Yes, there is an increase in total sales, and it has to do with these two effects I just mentioned, but I don't see them doubling.
Maybe Martín, if you, if you need further information, we can, we can have a separate call to see the numbers. Second question from Martín was regarding gas costs for this quarter. The majority of the gas consumption is hedged via a contract with ENAP at 10% grant. Why was the realized cost so much higher than the level, including the expectation adjustment? Yes, there are two parts of this question. One would be that, as you, as you well recall, Martín, we, we source ourselves from, from two, from two places. One is via the ENAP contract with LNG, but it, it, it has a link to current prices, and the other one is the gas we get from Argentina.
Most of the, of the gas, this, this, second quarter came from the ENAP contract, I would say two-thirds and one-third came from Argentina. Both prices were a bit higher than the same quarter last year. On top of that, due to indexer fluctuations, there was -- the regasification price went also up, and that's the reason why you're seeing higher gas costs than the previous quarter. A guy from Santander posted a question regarding if there is any insurance or compensation associated to the Fénix problem. First of all, there's no insurance since in order to get an insurance compensation, there needs to be a failure, which is not the case here, so no, no insurance policy to, to claim.
Regarding the, the compensation with the supplier, as I already mentioned, that's something that we are discussing with this particular company, and hopefully, as soon as we have some news, we will share that with you.
Thank you, Miguel. We have another voice question, this time from Martín Arancet from Balanz Capital. Please go ahead.
Mm.
Yes. Hi, I send same, the same questions in writing, so you can ignore. 2 questions. My first one is, how much do you expect to collect from initial activity? This could come now loss. My second question is, like, in some specifics, in our opinion, I was wondering what items in more attention? Thanks.
Martín, I think that you have a problem with your microphone. I don't think Miguel could hear him properly.
Yes. Can you hear me?
Now it's better. I think we only got the, the first question about PEC monetization. The rest, I couldn't understand it. Martín.
Yes.
Could you repeat maybe?
Yes. How much do you expect, like, initial exchange decision that we understand that it should come in interest?
Okay, Martín, so I can help you with this. We have 34 meters of storage available for PEC I, so those will expect to receive by August. Sorry, can you, can you hear me?
Yes.
Martín, can you hear me better? No, I think there is some issue with, with your microphone or your connection.
Yeah. Yes, very well then.
Um-
Sorry, I will ask. I'm asking in the chat, sorry. Can you hear me?
Um,
We're still having some issues, Martín. Perhaps we can follow up separately afterwards, and maybe move on to a text question for the time being, Miguel?
Yes, but maybe just to answer the part that we got from Martín Arancet and for everyone's benefit, in terms of PEC compensation, as Natalia mentioned, we expect to sell soon, during the next month, hopefully, what the remaining portion of PEC I, called Excess PEC I, which is close to $35 million. There might be a case because this is still under documentation review, that we will be able to sell a portion of PEC II, but that I think is more likely to occur in a couple of months from that initial sale, and that should be another $85 million linked to PEC II. For $35 million for PEC I during August, maybe 2 more months from that point, $85 million more from PEC II.
Perfect. Thank you, Miguel. I'm gonna close Martín's line. Thank you. Maybe we can have another text question. Do you wanna take one of the other two text questions, Miguel?
I think all of them have been already addressed.
Perfect.
The same question that some people asked before.
Just one final quick prompt, if you have a question, please press star two. Maybe we'll give it another 10 seconds, 20 seconds, and then we can wrap up the call if there are no more questions. I think we've got a, a follow-up question from Fernán González at BTG Pactual. Fernand, your line is open.
Yeah, thank you. Miguel, just one final question is, you've mentioned in the past that you were looking or analyzing to invest in, in this other business lines, like desalination plants or waste to energy. I'm wondering, is this something that could happen in the relatively short term, or is this really a very long-term thing for Cobra?
thank you, Fernand, for your question. First, I would say an update. The, the two main businesses we are trying to, to focus on are currently water, as you, as you talked about, but green hydrogen is the second one. We are, we are putting, we are putting. The other one, the one you mentioned, let me check out the
Waste to it.
Sorry. Yeah.
Waste to energy.
No, no, no. Sorry for that. My bad. Waste to energy, we're putting on the side for now, because we believe there are fewer opportunities compared to green hydrogen or, or water, water business. Yes, those are long term. We don't expect to announce anything, at least material, in the short term, but we do are looking for opportunities in both businesses. In water, we have a pipeline of identified opportunities, and we also have a pipeline for green hydrogen, whether in domestic opportunities or international ones. I would say that all of them, especially green hydrogen, is much more new to your company. It's a newer industry, because of that, I think when you compare both of them, probably water should come first than green hydrogen in terms of relevant value to the investors.
All right. Thank you.
You're welcome.
Perfect. Thank you. I'm not seeing any more questions, so maybe Miguel, I can pass the line back to you for closing remarks.
Absolutely. Thank you everyone for your interest. I've seen a number of people connected, more than before, which I'm, I'm happy, because of that. Thank you for the interest again. Great to have you here. Hopefully you'll have a great weekend, and see you again for third quarter, results call. Bye-bye.
Bye. Thank you.