Central Puerto S.A. (CEPU) Earnings Call Transcript & Summary

Good morning, and welcome to the Central Puerto conference call following the results announcement for the third quarter ended on September 30, 2022 [Operator Instructions] Please note, this event is being recorded. If you do not have a copy of the press release, please refer to the Investor Support section on the company's corporate website at www.centralpuerto.com. A replay of today's call may be accessed by accessing the webcast in the Investor Support section of the Central Puerto corporate website. Before we proceed, please be aware that all financial figures were prepared in accordance with the IFRS and are stated in Argentinian business unless otherwise noted. It's worth noting that the financial statements for the third quarter ended on September 30, 2022, include the effects of the inflation adjustment.  Accordingly, the financial figures mentioned during the call, including the data from previous periods and the growth comparisons, have been stated in terms of Argentine vessels at the end of the reporting period. Also, please note that certain statements made by the company during this conference call are forward-looking statements, and we refer you to the forward-looking statements section of our earnings release and recent filings with the SEC. Central Puerto assumes no obligation to update forward-looking statements except as required under applicable securities laws. To follow the discussion better, please download the webcast presentation available on the company's website. Please be aware that some of the numbers mentioned during the call may be rounded to simplify the discussion. On the call today from Central Puerto is Fernando Bonnet, Chief Executive Officer, and Federico Bozhori, Financial Controller. And now, I will turn the call over to Federico Bozhori. Mr. Bozhori, you may begin.

Thank you very much. Good morning, and welcome. We are joining you today with our management team from our side of Argentina to report the results for the third quarter of 2022. After the presentation, we will answer any questions you may have. I would like to begin today's call by analyzing the recent events that the industry in generated and, finally, the operating figures of the third quarter of 2022. I would like to mention the following updates regarding Central Puerto.  Central Puerto [indiscernible] auction 14 megawatts of spa priority for our Patisaran Carlos project under Made framework, Loqate San Carlos Salta products. Regarding the ropes plant, Central Puerto is negotiating with an engineering company expecting to start the works related to the completion of the combined cycle power plant from the first quarter of 2023. Fixed iterating subsidiary decided to modify the long-term issuance rating of the company from Category A with a stable outlook, high credit quality to category A mine with a stable outlook very high credit quality. On October 13 of 2022, the company's Board of Directors approved the acquisition of shares issued by the company. The maximum payable price of the shares will be USD 5.4 per American depository receipt on the New York Stock Exchange, up to a maximum of 167 per share in borate stock exchange. On September 30, 2022, the shareholders of Central Puerto decided to amend section 4 of the company's bylaws regarding its corporate purpose with the aim of not only having a primary line of business, energy generation, and to broaden the scope and consider other industries such as mining, forestry, and agriculture.  Now I would like to comment on the main metrics of the industry, as you can see on Page 3. In terms of installed capacity, the system reached 42,899 megawatts compared to 42,589 megawatts in the third quarter of 2021, resulting in 1% increase mainly based in new renewal and projects developed. As of September 30, 2022, the install capacity continued to be 59% thermal, 25% high growth, 12% renewable, and 4% nuclear. In the third quarter of 2022, energy generation decreased 10% to 33,452 gigawatts compared to 37,059 gigawatts in the third quarter of 2021, mainly due to, first, a 21% decrease in thermal; second, a 19% decrease in Neuperpartially offset by an increase of 3 hydro and 3% in renewables. Thermal decrease was mainly due to a lower dispatch related to an increase of hydro dispatch and minor to a lower availability of certain machines. Regarding the generation from new car stores, the decrease was related to the shutdown maintenance of Atucha I and embanuclear power plant and a technical problem with Abuja turbines. In contract, the increase in hydro generation is mainly related with the increase of the River Puruguakan Parana water flows that softened the growth that the region has experienced last year. As for the renewal energy, the increase in a generation was created with the increase in the in-store capacity and its subsequent energy demand. During the third quarter of 2022, the main sources of energy generation continues to be thermal and hydro, with a share of 57% and 22%, respectively, while renewals were 14% and nuclear was 7%.  Finally, net demand increased 1%, up to 34,730 gigawatts compared to 34,454 gigawatts in the third quarter of 2021, while commercial demand grew 5% and residential decreased 1%. As of the third quarter of 2022, the demand structure was 46%, represented by residential users, 27% by commercial activity, and the remaining 27% was related to agri-demand industrial/commercial. Going now to our key performance indicators for the quarter. As you can see on Page 5, energy generation during the third quarter of 2022 was 3,932 gigawatts, 14% higher than the same period of 2021. The increase was mainly caused by first, a 17% increase in energy generation from thermal units, mainly from [indiscernible] due to high dispatch related to the combined cycle full operational higher dispatch of Corpus insurance, partially offset by the exterminatory maintenance in TG27 of [indiscernible]; second, 21% increase in energy generation from the hydro plant Iredale due to higher water flows of Lima River compared with the third quarter of 2021. Third, an 8% decrease in energy generation from renewal units due to lesser resources and minor failures in Samana. Regarding the viability of our thermal units during the third quarter of 2022, it reached 81% in line with the strong availability history of Central Puerto's equipment. As a reference, the market average availability for thermal units for the third quarter of 2022 was 78%, according to data from Tamica Steam production increased 90%, totaling 568,557 tons per day during the third quarter of 2022 compared to 298,997 tons during the third quarter of 2021 due to the commissioning of the terminal sale cogeneration plant. And now I will comment on the results of the third quarter of 2022. Going now to the results for this quarter. As you can see on Page 7, our revenues were 20.3 billion as compared to PEs 24.3 billion during the third quarter of 2021. This 17% decrease was mainly due to first, a 35% decrease in spot antibac sales, which totaled 7.5 billion in the third quarter of 2022 as compared to EUR 11.5 billion in the third quarter of 2021. Due to higher inflation than the price adjustment and scale maintenance of certain in turbines from the quarter site. Second, a 2% decrease in sales under contracts, which amounted to 11.2 billion during the third quarter of 2022 as compared to PEs 11.4 billion in the third quarter of 2 million due to a higher elation adjustment over the pace of depreciation in the period. Also, it was impacted by a termination of the developed PPA contract in August of 2022, partially offset by increases in sales due to terminal sales combined cycle completion, partially offset by a 15% increase in the TIM sales, which totaled EUR 0.9 billion in the third quarter of 2022 compared to PEs 0.8 billion in the third quarter of 2021 due to a 90% production increase. Going to Page 7, we can see the changes in our EBITDA, securing impairments in funding effective and interest, which was PEs13.8 billion in the third quarter of 2022 compared to PEs 11.8 billion in the third quarter of 2021. This 16% increase was driven by the following changes: first, a 12% decrease in revenue expense partially offset by a 13% decrease in the cost of sales that totaled PEs11.1 billion compared to PEs 12.7 billion in the third quarter of 2021, mainly due to a decrease in amortization charge, decreased in maintenance expenses, and decrease in insurance costs.  A 26% decrease in administrative and selling expenses that totaled PEs 1.5 billion in the third quarter of 2022, primarily driven by a decrease in fees and remuneration for services and decreased taxes, among other expenses. Adjusted EBITDA was PEs 20.7 billion in the third quarter of 2022 compared to PEs 14.6 million in the third quarter of 2021. This increase was mainly due to the above-mentioned variation and a EUR 5.1 billion increase in foreign exchange difference on operating assets, mainly related to foreign trade receivables that generated PEs 6.8 billion compared to PEs 1.7 million gains during the third quarter of the 2022 due to a higher depreciation of the aged peso during the quarter and lower currency over balances maintained. Third, a 24% increase in interest from payments totaled PEs 2.1 billion during the third quarter of the 22 compared to PEs 1.7 billion in the third quarter of 2021 mainly related to an increase in the interest rate applied by Gamesa for payment delays. As of September 13, the delay was a fourth, an increase in our operating results, mainly due to lower non-regret recovered in the fourth quarter of 2021 and 0.7% FX differences on accounts receivables and EUR 0.5 billion increase in commercial interest from account receivables. All these variations were partially offset by a 7% decrease in the depreciation and amortization that totaled 4.4 billion during the third quarter of 2022 as compared to PEs 4.3 billion during the third quarter of 2021. As a result, adjusted EBITDA, excluding FX difference and interest related to fair receivables and impairment on property, plant, and equipment, was PEs 13.8 billion in the third quarter of 2022 compared to PEs 11.8 billion in the third quarter of 2021. Continue, we can see that the consolidated net income was PEs 4.5 billion in the third quarter of 2022 compared to a consolidated net income of PEs 4.9 billion in the same period of 2021. In addition to the above-mentioned factors, net income was negatively impacted by first, an increase in financial expenses, which amounted to 10.3 billion during the third quarter of 2022 compared to PEs 3.8 billion in the third quarter of 2021, mainly due to an increase in foreign exchange difference mainly due to a higher depreciation of the accident peso during the quarter. Second, an increase of net monetary position loss of EUR 8.2 billion, which amounted to PEs 8.5 billion during the third quarter of 2022 due to higher inflation during the third quarter of 2022 and a higher balance of monetary assets, partially offset by the share of profit of associates with of PEs 0.2 billion gain during the third quarter of 2022 compared to a gain of PEs 0.3 billion in the third quarter of 2021. Third, an increase on income tax expenses that amounted to PEs 3.0 billion in the third quarter of 2017 compared to PEs 1.9 billion in the third quarter of 2021 and positively impacted by: first, an increase in financial income that amounted to PEs 9.4 billion in the third quarter of 2022 compared to financial income PEs 0.5 million in the third quarter of 2021, mainly due to higher financial asset results in the third quarter of 2022 of PEs 8.6 million; second, higher OpEx difference and interest in for receivables PEs 4.5 billion. Concoctions related to trade receivables or wet aliadoplan totaled PEs 2.5 billion in the third quarter of 2022 as compared to EUR 5.8 billion in the third quarter of 2021. The amounts are being collected on time, and according to the time. Going to Page 13, you can see our cash flow for 9 months of 2022. Net cash provided by operating activities was PEs 35.2 billion during the 9 months of 2022. This cash flow arises from the first 21.2 billion from the other operating results net obtained during the 9 months of 2022. Second, PEs 18.2 billion in the collection of interest from clients, including the one from on; third, EUR 2.2 billion in variations in other nonfinancial assets and inventories Fourth, insurance recoveries of PEs 1 billion and fifth, adjustment to reconcile profit for the year before income tax with net cash flows.  It was 11.0%, which was partially offset by PEs 4.6 variation in trade accounts payout, other accounts palate, other nonfinancial liabilities, and employee benefit liabilities, and income tax expense of INR 3.8 billion. Net cash used in investor activities was PEs 25.5 billion in 9 months of 2022. This amount was mainly due to, first PEs 24.8 billion losses from the investment in short-term financial assets. second, PEs 0.5 billion in payments for the purchase of property, plant, and equipment, which was partially offset by PEs 0.1 billion obtained in the sale of property, plant, and equipment and PEs 0.1 billion in dividends collected. Net cash used in financial activities was PEs 9.3 billion in the 9 months of 2022. This amount was mainly the result positive of PEs 0.6 billion bank and investment accounts overdraft paid, offset by PEs 5.8 billion in loans paid mainly related to the loans received for expansion projects and PEs3.8 billion in interest and financial expenses paid mainly related to those loans. Thank you. And now, we invite you to ask any questions you may have.

[Operator Instructions] Your first question is coming from [ Martin Arens ] from Balance Capital.

Well, first of all, thank you for the materials as always. I have 4 questions. Sorry for the stand. I would like to go over them one by one, if that's okay. My first question is that if you are not mistaken, there have been some extensions on analytical power plant concessions to 2025. If you could give us any updates on the discussions regarding [indiscernible] and if you think that you will see a similar expansion?

Okay. Thank you, Martin, for your questions. Yes, we can go one by one. The first one regarding the concession of [indiscernible] hydro plant. We have been talking with the government with the new Secretary of Energy about that. They are still getting in place because they assume a few months ago, so we are analyzing the point. They have perhaps different approaches from the previous Secretary of Energy. So they want to analyze indeed, all the consequences that to extend the concession or not to extend, which is related to the claims that all the owners of the concession have related to the freezing of the prices and the restriction to contract the electricity of those power plants that was allowed in the original concession. So they're analyzing this, and they will come to us with a conclusion perhaps early the beginning of the year or early next year. But today, we don't have any insight about how they're going to proceed. We assume that -- or we can assume that whenever the time of the finalization get closed, perhaps they will use that 1-year extension that you mentioned as gaining time to finalize the analysis, but we don't have any information yet or any concrete information to conclude that.

Well, my second question is about the Radar Lopes project. If you could comment on unexpected COD, the price for energy, and capacity payments?

Okay. In terms of Radar Lopes, as Eric mentioned, we are working with an EPC provider, an engineering company to train a contract to close the cycle, and with Siemens also, which is the steam provider. We don't have yet the timing of the closing. We expect to have a close contract with them at the end of the year at the beginning, perhaps some of between 22 and 24 months from that -- when we closed the contract -- so that could be the timing. So we don't have yet the confirmation because, as Jose mentioned, we don't close the deal, but you can consider that time in '22 to 4 months after we signed the contract. And in terms of -- and the other part of your question was about the PPA, sorry?

Yes. The energy and positive payments.

The PPA regarding rate lock, as you mentioned.

Yes.

Okay. Yes, whenever we close the cycle, the combined cycle, we start receiving a PPA for the team to buy, not the gas turbine. The PPA related to the gas turbine finished on August this year. So right now, the GT is receiving the base payments, the [indiscernible] payments. But whenever we close the combined cycle, we start receiving a PPA for 10 years related to the steam turbine. EBITA is around $22,000 per megawatt of capacity.

For energy?

Sorry?

For energy?

The value payment. The value of the payment is $8 per month. We need to do some maintenance in terms of keeping them in operation. We expect to have some maintenance related to the [indiscernible]. And we expect to have a maintenance of our combined cycle, not next year, the west combined cycle, not next year, the next one in 2024. And we are discussing with the government additional remuneration to do those maintenances, especially the combined cycle, which is which imply a life extension, in fact. So we need to perform maintenance in the boiler and big maintenance in the boiler. And we are talking with the government related to having additional remuneration to cover that life extension maintenance. It's the same. It's not only the same of all the combined cycles that were installed in the '90s at the beginning of 2000. All these combined cycles are reaching the lifetime limit, so they need an extension. And because of that, all the generators are working together. So we have a remuneration or additional remuneration to cover those maintenances. But this is more or less what we are talking about in terms of maintenance. The combined cycle of Mendosa, the lifetime extension comes in 2025. So we are not expecting big maintenance on this combined cycle for these 2 years to come.

So if I understand correctly, it's like additional payments only for maintenance, it's not like you're expecting less femulation to go above inflation. Is that right?

No. Yes, that are 2 parts of the remuneration. We are, of course, talking with the government in terms of increasing or to maintain the remuneration in real terms. But we are talking about additional maintenance. This is for the normal operations. So we are talking related to an additional increase in this year for resolution 238. That implies the maintenance and the operation, the current maintenance and the current operation, not implies a life extension of the combined cycles. In that sense, we expect -- we don't have a confirmation yet, but we expect another increase in the Energia Base prices for this year, and we are talking about what's going to happen in next year, trying to set some increases in advance, not working below the inflation that has happened this year. So we are working towards that. We expect to have a confirmation for a new increase this year and then set a path of increases for the next one.

And my last question then, if you are considering paying dividends next year?

Yes, that is under analysis, and we are giving all the information and all the consideration related to that to our shareholders, and it's a possibility. Yes, not closed yet, but we need to discuss that with our shareholders for this suppose. Central Puerto has a positive cash flow generation. So it's a possibility, yes.

[Operator Instructions] There appear to be no further questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Bonnet for any closing remarks.

Thank you to everyone for your interest in Central Puerto. We encourage you to call us for any information that you may need. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.