ENGIE Energia Chile SA
SGO:ECL
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Good day, and welcome to the Engie Energia Third Quarter 2024 Results Conference Call. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Eduardo Milligan. Please go ahead.
Thank you. Good afternoon. And today, I'm here with Alison Saffery, Bernardita Infante, and Marcela Munoz, and we are pleased to present our progress and achievements over the past 9 months together with what we expect for the last quarter of this year.
So we can start directly on Page 3 to begin with an overview of the company and the market. So first, as we explained in previous quarters, we continue to see a positive evolution on fuel prices. Second, there is also a positive effect on our portfolio coming from the new builds, the contribution of batteries, and the additional backup PPAs. A third element is related to tariffs, which decreased in line with lower fuel prices. But as you will see in some minutes, this was compensated by a lower average supply cost. Then on the very well-known PEC, we are glad to announce that a final solution was successfully implemented. And last October, we monetized through a securitization, an important amount of receivables. So in some minutes, Alison will explain this important milestone for us.
Then we are also highlighting that we have accelerated implementation of batteries. We have committed an important volume of investments in batteries. And finally, on the liability management side, our capital structure and funding sources are well under control. In the third quarter of this year, ECL issued its first green corporate bond in the Swiss market for the equivalent of $225 million. And this is a key transaction to increase our funding sources and debt duration.
Now let's continue on Page 4, which shows the positive evolution of ECL sales. In the first 9 months of 2024, we have seen a 6% growth in physical sales, driven by strong demand from both unregulated and regulated customers. In this line, the growth in regulated clients is basically explained by a higher pro rata in the pool of regulated contracts, also a colder weather, and the vegetative or natural growth.
Then on Page 5, we present the evolution on spot prices. Average spot prices have stabilized around $58 megawatt hour, thanks to improved hydrology and lower fuel prices. The positive rainfall since the second half of 2023 has increased hydro generation and contributed to a sharp drop in spot prices. Of course, this compared to the very high prices we faced 2 years ago.
So in this line, the historic evolution on hydro conditions is shown on next Page 6. As you know, we have seen a positive evolution on hydro conditions and the accumulated probability of exceedance is close to 60%. Compared to the same date of last year, current energy stored in reservoirs is 0.2 terawatt hour higher, and this will be positive for the rest of 2024 and also the first quarter of 2025.
On Page 7, we present the evolution in coal prices. We have observed a significant decline in coal prices compared to the very high prices we faced back in 2022 and part of 2023, which have stabilized at around $111 per ton during this year. And this decline is explained by higher stocks and milder winter in the Northern Hemisphere. And in addition, lower natural gas prices have displaced demand for coal, pressuring prices further down.
Next, Page 8 shows the evolution on the availability of coal power plants during the last 5 years. Other positive element for the system is that the average availability has remained relatively stable in the last 2 years at 3.5 gigawatts. And we can also see for the first time a slight improvement during 2024.
Now we can continue on Page 9. This page shows the availability of natural gas in the Chilean system and the trends in the LNG international market. It highlights that Argentine gas continued to play a role in the system, which has been under severe pressure in the past years. In addition, LNG prices have declined returning to their seasonal behavior. So in summary, the availability of Argentine gas and the long-term LNG supply contracts indexed to Henry Hub have contributed to a more stable and cost-effective energy supply for the Chilean system.
Then, next Page 10, shows the hedges or backup PPAs signed with other generation companies. We didn't sign additional hedges during this year. So we keep an average 3.5 terawatts hour between 2025 and 2026. And as we mentioned before, signing additional contracts will continue to be opportunistic since we are fully focused on developing additional renewables and batteries for our own portfolio.
Page 11 shows a graph with the energy sources and the average supply cost for the portfolio. The main message in this page is related to the average cost of energy to supply our portfolio of PPAs. So this cost decreased given all the elements we explained before. And in addition, we can see a clear trend on how cogeneration is being gradually replaced by other sources.
On the other hand, the average monomic price of our portfolio of PPAs also decreased, as we can see on next Page 12, where we present the supply-demand curves for the overall portfolio of PPAs. So in this Page 12, we can see the average monomic price of our portfolio of PPAs, which reached $125 megawatt hour, this is $3 below the average monomic price as of June 2024. As you have seen each quarter, PPA prices declined gradually, and this is -- and this decrease is mainly explained by the indexation and lower fuel prices. While on the other hand, the average supply cost reached $71 compared to the $100 we faced during the same period of 2023. And this means both PPA prices and the average supply cost decreased, but the reduction in the average supply cost was bigger. This is why finally, the energy margin increased from $48 to $54 megawatt hour in the first 9 months of 2024 compared to the same period of last year.
And now we can move to next Page 13, and we can move with Alison, who will present the detailed financial results of these 9 months.
Thank you, Eduardo. Good afternoon to everyone. Let's go to Slide 13 for a look at our financial highlights. EBITDA increased by 36% compared to the first 9 months of 2023 and reached $424 million. Total revenues, on the other hand, dropped 20% to -- sorry, $1.4 billion, mainly as a result of an 18% decrease in average realized prices to $125 per megawatt hour, reflecting the return of fuel prices to more normal average realized prices. On the other hand, physical energy sales increased by 3% to 9.4 terawatt hour with growth driven by both free clients and regulated clients demand, but more evidently in the regulated space as a result of natural growth and an increase in our pro rata share of the regulated supply.
As we will clearly see in the next slide, our EBITDA margins recovered to 31% due to significant cost reductions, mainly explained by the drop in fuel prices and lower spot energy prices resulting from better hydrological conditions, lower fuel prices and greater availability of natural gas. In the first 9 months of the year, we reported 22% increase in the energy purchases, although we have reduced our exposure to the spot market during non-solar hours. Energy purchases from the spot market climbed 31% to 3 terawatt hour, while purchases under backup PPAs increased 14% to 2.6 terawatt hour. These purchases were made at much lower average prices. Indeed, the average price of our energy purchases was 40% lower than the price reported in the first 9 months of 2023.
Our own generation decreased. On the one hand, coal generation increased by 70% to 1.5 terawatt hour because of a failure of our IEM plant in the first half of last year, which we recovered for this year. And on the other hand, gas generation fell 44% to 1.4 terawatt hour due to the fact that last year, we had a tolling agreement with Keller, which hasn't been in place during 2024. Our renewable generation, including the output of our new BESS Coya storage plant decreased by only 1% to 1.2 terawatt hour, accounting for approximately 30% of our own generation. Our net income reached $201 million, a significant improvement compared to the first 9 months of 2023.
Now we can go to Slide 14, where we show the main reasons behind the EBITDA recovery. Lower fuel costs, the lower average price of our energy purchases, and the increase in physical sales, these positive factors offset the decrease in average realized prices. This explains the $112 million increase in EBITDA to $424 million, which is in line with the high end of our EBITDA guidance for the full year.
We can go next to Slide 15, where we can see that net income almost tripled compared with the first 9 months of 2023, reaching $201 million. This was mainly due to the strong EBITDA recovery, a reduction in depreciation expenses explained by the impairments made in the last quarter of last year in anticipation to future discontinuation of our coal production and an increase in the net financial income. These positive factors were only partially offset by a negative exchange difference.
In Slide 16, we see the status of our net debt, which increased by $284 million to $2.1 billion after financing CapEx of $399 million and $112 million buildup of accounts receivable, resulting from the price stabilization laws. This moderate increase in net debt compared to the investing activities was possible due to a strong operating cash flow generation, which reached $328 million, plus the $59 million in proceeds from the sale of PEC-2 receivables in the first 9 months of 2024.
On Slide 17, we are showing a summary of cash flows resulting from the price stabilization laws. Over the almost 4-year period ended September 2024, the company accumulated accounts receivable for a total amount of $762 million on top of the $142 million initial balance reported at year-end 2020. All this represented sales revenues that could not be collected because of the enactment of the price stabilization of -- for regulated customers.
Thanks to PEC-1 monetization program, the company could collect cash proceeds amounting to $193 million between the first quarter of 2021 and the second quarter of 2023. And it has -- and it had to bear financing costs for $79 million because these receivables were sold at a discount. PEC-2 notes began to be sold in 2023. Under this program, we collected between 2023 and 2024, $278 million in cash plus $13 million of interest income, which alleviated liquidity pressures, especially in 2023.
In the first 9 months of 2024, the account receivable buildup amounted to $112 million. That is an average of almost $13 million per month, which we expect to decrease over the rest of the year as the gap between the PPA tariffs and the stabilized prices should narrow. In the first 9 months of 2024, we completed the fourth, fifth, and sixth sales of certificates of payment issued under PEC-2 in an aggregate amount of approximately $57 million. The last sale under PEC-2 for $9.5 million took place on August 9, 2024. In this way, the PEC-2 program ended after the $1.8 billion cap stipulated in the law was reached in March 2024.
At the end of September, the account receivable balance amounted to almost $354 million, plus $69 million corresponding to inflation and interest adjustments. After the closing of our September financial statements on October 24, we completed the first sale of certificate payment -- certificates of payment issued under PEC-3 in an aggregate amount of approximately $356 million. A second and last sale of certificates, which should amount to approximately $80 million to $90 million is expected for the first half of 2025 after the publication of the next tariff decree by the government. These funds allow us to strengthen liquidity and finance our investment in renewable projects.
Now let's move to Slide 18. Our BBB stable outlook ratings have been confirmed both by Fitch and Standard & Poor's. Net financial debt reached $2.1 billion at the end of September with a net debt-to-EBITDA down to 4.1x. We have made progress in our debt profile objectives. First, to reduce net debt-to-EBITDA through EBITDA recovery; second, to fund the construction of our Lomas de Taltal Wind Farm and the BESS storage projects whose objectives are to reduce our costs, our exposure to the spot market, and the curtailment and intermittency associated to renewables; and third, to extend the maturity profile of our debt. The first sale of PEC-3 receivables in October has allowed us to reduce the net debt-to-EBITDA ratio.
In September, we placed our first green bond in the Swiss market for an amount of CHF 190 million, sorry, which allowed us to fund our capital expenditures in renewables and BESS projects. The annual coupon rate of the Swiss franc is 2.1275%. Additionally, on top of that, we closed a cross-currency swap on the interest rate -- sorry, on the transaction, which meant that the net proceeds of the bond reached $225 million and the interest rate in dollars was fixed at the level of 5.4272%.
On the bottom left corner of the slide, you can see the maturity schedule of our debt as of the end of September, which allows -- which shows, sorry, a significant reduction of our refinancing risk. As of the end of September, the average coupon rate of our debt was 5.6% and the average remaining life of our debt was extended to 5.1 years from the 3.6 years at the end of March before the closing of the Swiss bond in September and the 144A green bond closed in April, by which we were able to refinance $215 million of the $350 million U.S. bond that was maturing in January 2025 through a liability management exercise that we did.
Now I leave you with Eduardo, who will brief us on the recent events and action plans.
Thank you, Alison. So now please continue on Page 19, where we are highlighting the actions taken to continue rebalancing our portfolio. As we explained in previous quarters, the exposure during non-solar hours is the main risk we need to manage as part of this strategy. And we have reduced this exposure during non-solar hours to around 1 terawatt hour in 2024. And this is a key action to control and reduce market risk. We expect to continue reducing this risk next year with the commissioning of Lomas de Taltal and 2 additional battery projects.
Then on Page 20, we are presenting the evolution on our investment plan and the committed CapEx. So we are fully on track to reach 1.5 gigawatts of renewables plus batteries in the coming months. And we expect to reach a ready-to-build status for other renewables and batteries very soon.
Then on Page 21, we present the detailed CapEx by type of business. We will be investing around $650 million in 2024 between renewables, batteries, and transmission projects. As we know, these investments will contribute with an additional margin, and the figures we present in this graph should be considered as pro forma because we are only considering the committed CapEx. So this means the figures for 2025 could be updated with the additional projects that we plan to develop and announce when they are ready.
Then in Page 22, we present our guidance. Considering year-to-date results, recurring year-to-date results, and our best estimate for the fourth quarter, we expect to reach the high end of the guidance we upgraded in the previous quarter. On the left side, we describe the main drivers, and we remain confident to reach these results. We need to consider that during the first 9 months of the year, there are some one-offs included in this -- in the EBITDA. So let's be careful with this, let's say, forecast.
Then in Page 23, we show the detailed evolution of ECL's EBITDA, CapEx, and leverage ratio. So liquidity and leverage should continue improving under this scenario. And of course, considering that the results that we are showing as of September do not include the monetization of the $356 million of PEC receivables Alison just mentioned.
So in summary and to end our presentation on Page 24, we can mention that we are well on track to rebalance our portfolio through renewable additions, the backup PPAs that we already signed, and also our generation with LNG and natural gas. We are moving forward with the energy transition with a strong CapEx in renewables for the 2023, 2025 period, securing liquidity and also financing needs. And we are also accelerating the development of renewable projects and storage systems. And we believe that after serving a complex period in the last 3 years, we are now well-positioned for continued growth and success in the coming years, which should be the next phase of our transformation plan.
So thank you for your attention, and we are now open to any questions or suggestions that you may have. Thank you.
[Operator Instructions] Our first question comes from Martin Arancet from Balanz Capital.
Well, first, thank you for the presentation and congratulations on the results. I just have 2 questions. First, on PEC receivables. I wanted to clarify, if I understood correctly, you will have a small amount of receivables yet to be monetized. I was wondering if those $80 million to $90 million receivables [Technical Difficulty] monetized in first quarter 2025 will be the last of the receivables that you have, or if you have something else and how much and when do you expect to collect those?
And my second question is regarding net debt-to-EBITDA. I wonder if you have a target to be below 4 probably. How do you think that -- if that's important to keep your rating? And also, how do you -- if you are planning to start paying dividends again in 2025?
Thank you, and very welcome. So first question on PEC receivables. Basically, yes, the $80 million to $90 million that were mentioned is the last portion of the accumulated PEC receivables that we should monetize during the first quarter of next year. It is expected to be implemented by the end of January, but let's keep the first quarter as the target. And of course, this is the last portion because we should not accumulate more receivables since there is a new mechanism, a new law and a new solution to avoid this accumulation in the future.
Then in relation to net debt-to-EBITDA, yes, I think being closer to the full range during the periods in which we will have an intense CapEx investment, let's say, it's something that we have in our radar as a target. And in relation to dividends for next year, at least, but to be honest, our target is to probably pay the 30% -- the minimum 30% following the, let's say, local or the minimum ratio for a listed company like ECL. And of course, this will probably be proposed during the first quarter, first half of next year following the normal process.
[Operator Instructions] Our next question comes from Juan Carlos Petersen from Inversiones Chufquen.
Can you hear me well?
Yes. Hello, Juan Carlos.
Hello. Sorry, I just lost the call. So I may repeat some questions the other parties have done. Can you please explain the guidance for 2024, please? It looks like you will be exceeding the highest part of the guidance, given the EBITDA achieved for quarter 3 '24. And to give us a sense for the guidance for 2025? And last question is related to the financial cost of the receivables that you have monetized during last October, please?
Sure. So great. I would be more than pleased to be above the guidance that we upgraded 3 months ago. I was mentioning during the presentation that we need to consider that there are around $20 million of one-offs during the first 9 months. So just to be careful there to, let's say, have a linear approach on the last quarter compared to the first 3. But of course, what we are mentioning in that slide is that we expect to be in the high end of the guidance. I didn't say that it could be above, but it could be if market conditions allow us to be above. But we will be in that range. So it's not going to be $700 million and it's not going to be below that range, but we should be very, very close. And for 2025, considering that we have more renewables because we will have the full contribution of Lomas de Taltal, the 342-megawatt wind project in the North, and considering that we will have 2 additional BESS batteries projects in the north of Chile, Capricornio and Tamaya, the 3 projects should contribute with almost 100% of their capacity during 2025.
We should expect an additional contribution for the year. But of course, that will also depend on market conditions. And if market conditions remain stable, yes, you should see an improvement. But we will come back with a new guidance for 2025 during the first quarter of next year when we will present our final results for this year.
And in relation to the financial cost of PEC, so basically, there is no financial cost in this third mechanism. So the financial cost we assumed in PEC-1 was not any more assumed by [ GEMCOS ] in PEC-2 and in PEC-3. So there's no financial cost. On the other hand, there is an interest recognition because of the delay in the monetization of those receivables, which is why we have a one-off also positive impact this year related to those interests. And that's why we have also the net results as of September 2024 to consider that there is a one-off of around $50 million, which is what we explained in the last quarter. So the recurrent, let's say, net income without considering that effect as of September is closer to $150 million, just to have in mind also your forecast or expectation for the full year.
This concludes our question-and-answer session.
I would like to turn the conference back over to Eduardo for any closing remarks.
Thank you. Well, thank you, everyone, for being with us this quarter, and see you soon to explain and go through the full year results of 2024 in our next quarterly call.
Thank you very much. Have a good day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.