S.N. Nuclearelectrica S.A. (SNN) Earnings Call Transcript & Summary

Hello, everyone. My name is Valentina Dinu. I'm am IR in Nuclearelectrica, and we are here today for the Investor Day presentation and for the financial results of the first half of 2021. We are going to go -- as usual, my colleague Mr. Paul Ichim, CFO is with us today. He's going to deliver the presentation and as well, he's going to answer your questions after the presentation. So Paul, if you can hear me, you have the floor, please.

Thank you very much, Valentina. I hope that you can hear me as well. I will share my screen with you. I hope you all can see the presentation that I have prepared. I will start the presentation mentioning from the very beginning that looking at the financial results of the first half of 2021, we have to take into consideration 2 very important aspects. The first one is the planned outage that in 2020, it took only 11 days of the first half compared with 2021 when we have 35 days of planned outage for Unit 2. So it's important to mention these aspects from the very beginning because a lot of data, especially from the expenditure, but -- the expenditure side, but the income as well was affected by this very important aspect. The second point that I would like to raise from the very beginning and to raise into your attention is that compared with 2020, in 2021, there is no regulated market. So the sales stream was not affected by this aspect as well. So entering into our presentation, let's have a look on the sales of Nuclearelectrica in the first half of 2021. The sales increased by 15.7% compared to 6 months of 2020. As I mentioned, we have a decrease in total quantity of electricity sold by 4.6%, I mentioned from the very beginning, the differential in outage data and at an weighted average per selling price by 21.3% higher. I told you there is no regulated market in 2021, having a look on the sales in first half of 2020, we see that 19.6% out of the total energy produced in 2020 -- in first half of 2020 was sell -- sold on regulated markets. So there is no regulated market. The sales on competitive market means 82.97% of our sales in the first half probably you know that I mentioned since last year that our strategy is to sell as much as possible on competitive and long-term. So this strategy was followed by us. And if we have a look on the 2020 data, we'll see that we have a high increase 41.7% to 82.97%. So we doubled the energy sold on competitive market. On spot, of course, it was the difference. And it means 16.76% compared with 38% in 2020. Having a look on the sales structure, okay, there is no regulated market. The selling price on competitive market -- the average selling price during this period was RON 245.1 per megawatt, a little bit lower than the competitive market in 2020, but as I told you, the quantity was by far higher. Okay. We took advantage on the prices on spot market. The price -- the selling price on spot was by far higher than last year, RON 288.36 per megawatt hour compared with RON 153.4 in 2020. So looking on -- at averages, we can see an average price of RON 252.37 per megawatt compared with RON 208.23 per megawatt in 2020. So as I told you, we took advantage on the sales prices, on regulated markets on -- sorry, on competitive market and increased with a very good percentage at the average price for every megawatt hour. Looking on OpEx side, there are some points to be specially mentioned. And I will start with personnel expenses. It decreased by 11.3% in 2021. And the explanation is the decrease in the number of personnel and as important as well, it decreased the S&M commitments to employees, representing benefits and rewards included in the budget of 6 months 2021. Another point, very important with a very high impact on operational expenditure was cost of traded electricity, which recorded a significant increase, subject of purchase of electricity and the imbalances due to largest -- larger purchases of electricity in the first half of 2021, an increase of RON 108 million to cover contractual obligation during unplanned outage of Unit 1 probably remember January 2021 with several days of unplanned outage for Unit 1. And the planned outage for Unit 2, there is a differential of 24 days. Probably remember, I mentioned from the very beginning, the outage for Unit 1 started last year on June 20. So there were only 11 days of first half with the outage in 2020. And for 2021, we have 30 days planned outage because the outage started in due time on May 9. So you can realize that the largest part of purchase of electricity is on H1 2021. You can see in my presentation that the total amount of electricity purchase in the first half of 2021 was by far higher than 2020. And the average price was higher as well, that the market conditions -- and here is the high differential between those 2 years. Another point, the cost of running fuel increased by 9.8% and this is due to the increase in weighted average cost, which comprise all cost components. So let's be very clear, this -- the fuel cost doesn't contain only uranium dioxide powder consumed by FNHA. But please have in mind that the dioxide uranium powder means only around 50% out of this cost of uranium field. As you can see, we have a lower a average cost for dioxide powder we consumed in the first half of 2021 compared with the average cost of powder consumed in first half of 2020. But the other cost component it increased. Repairs and maintenance here is a substantial difference and is mainly due to the outage during the outage, we registered, of course, some expenditures and OpEx. And here is the difference -- mainly the difference is coming from the planned outage. Looking -- okay, we analyzed the sales, operational expenditures. Looking on financial highlights, we can see a very good EBITDA increased by 9.9% compared with the first half of 2020. So an EBITDA of RON 732.8 million and of course, a very good net profit, an increase of 12.3%, RON 385.4 million. It's well above the budgeted figure, which was RON 255.9 million. And what can I tell you right now, of course, taking advantages on the electricity market and the prices that currently are, we expect to have a better second half of 2021 and better results having at the end of the day, results budgeted -- sorry, net profit higher than it was budgeted. Net result evolution was mainly influenced by -- on positive side by sales of electricity, RON 182 million. And cost of traded electricity was the main component on negative impact on net result. Looking on balance sheet, you can see that our strategy of cash building in order to prepare the refurbishment of Unit 1 and other investments that are in process is continuing, RON 1.9 million cash and cash equivalents, including deposits with total current assets, RON 2.7 billion. Noncurrent liabilities are decreasing. Of course, we are continuing paying our debt for Units 2 construction. And of course, it is a small increase in current portion of long-term borrowings, probably realize that this is exactly the portion that we are going to pay on debt during the next period. Analyzing the capital expenditures, in the first half of 2021, the performance was by far better than in the first half of 2020, RON 180 million in the first half of this year out of the total investment program of RON 433 million. Okay, with the target level of 20% has been exceeded by far. And we think that at the end of the year will be over 80% out of the total investment program. Looking a little bit on the main capital expenditure components. Unit 1 refurbishment is on track, we are continuing the investment program and preparation for refurbishment. What is important to mention is that we hope to have at the beginning of the next year, the feasibility study completed and to submit it for approval to General Shareholder Meeting. Unit 3 and 4, there are not so many developments. We are still in process of implementing the strategy, but there are not so many news. And regarding the acquisition of program oxide processing line from National Uranium Company Feldioara branch, the contract has been signed on March 18, 2021. And right now, we are in process of fulfilling the CPs of the contract. We hope to have -- to finalize this contract up to the end of this year in order to take over the assets that we bought from CNU. Regarding the technical performance of the plant, we are still on track with very, very good results for radio active emissions, both for Unit 1 and Unit 2 nuclear fuel burn up factor. It's a very good one as well, 174 cumulated versus a project estimated of minimum 156. And the performance in the capacity factor for Unit 1 and Unit 2 was again very good for [indiscernible] reactors 87.5% for both units. That was my presentation. I'm available for questions and clarification if the case is.

Christian Petri from [indiscernible] Just 1 my question regarding power prices. If -- how do you see quarter 2 in terms of -- there are a lot of, let's say, companies that are complaining that the term-market is not functioning properly. And a lot of volume is trading on their head market? And how do you -- if you feel this is the way and how would you adapt to this new type of market? And the second question is related more to the production and the plant stoppage. What's the outlook for the next 2 semesters?

Thank you. So regarding the companies and their complaints, we are following our strategy to sell as much as possible and competitive market. As I told you and as you can see from our figures, 82 -- more than 82% of our energy has been sold on competitive markets. We do not want to speculate the prices. That's our strategy. That's the profile of Nuclearelectrica. So I can't comment on the strategy so far as other producers and the availability of the energy in their head market. Regarding the prices on the energy for the next 2 semesters to -- up to the middle of the next year, probably the best indicator is the OPCOM site. You can see there exactly the prices that we are currently trading. Let's be very open. We started to sell not only 2022, but even 2023, in order to fulfill our strategy to sell as much as possible on long-term contracts. So the prices are very transparent into the market. We are trying to sell -- we are selling our energy at the prices that the market is offering to us currently. We add the prices -- we take advantage from this increase of the prices. But at the end of the day, this is a free market and every competitor is ready to follow its strategy.

Just the second question was more related -- so you are actually selling on for 2022 and 2023 volumes already?

Yes, we are selling 2022 and 2023 already. I cannot tell you right now how much was sell for 2022, but nevertheless, probably seeing the figures for 2020 and you realize exactly our strategy.

Okay. And the second question was also related to the production. So the production decreased due to planned outages for the next 2 semesters because these are planned. We should expect -- what should we expect from -- in terms of planned outages?

So we do not have any planned outage for the next semester, for semester 2 of 2021. But for the first semester of 2022, it is planned the outage of Unit 1. So we'll have another 35 up to 40 days of planned outage in the first semester of 2022.

Okay. But the production, roughly the same around the 11 terawatt, right?

Exactly. Yes.

If I may ask something. Regarding the split between forward and spot, what should we expect for the second half of the year? I know we see how we sold energy in the first half, but could you give us any guidance for the second half?

The only guidance that I can give you is that we are following the same strategy, no exact figure. I cannot give you exactly the figure by strategy is the same.

And looking at the CapEx plan, are you looking to update the strategy that was approved last year? The numbers from the investment strategy that was to do last year?

No. The CapEx figure that was positive for 2021, it will remain at this level for sure. And we hope to be as close as possible by 100%, for sure, we will not be there. But if you are looking on the degree of completion of investment in 2020, you can see that both the total value of investment program and the degree of completion is higher in 2021 compared to 2020.

But I was looking more into the long -- into the document approved last year, the investment strategy, which was for a longer period of time. So that's why I'm asking if you are going to present updated figures.

We are not in the situation of updating those figures this year, at least.

Okay. And regarding this acquisition of stocks from the Romanian state, can you give us some details on the amount involved? I can't find the amount actually.

And you will not find it at least for the moment because it's on secret and this is going to be negotiated between the company and the Ministry of Energy. There are no data available at this moment.

Okay. Is it a significant amount or not really?

I cannot tell you right now. Really, we don't know exactly, not even us. We don't know exactly the amount. What we know and it's very clear from the emergency ordinances that the transaction is going to be at the market price. So that's it.

You mentioned something about fuel costs. That the costs there do not include only uranium dioxide. What's to expect for the second half? I mean what you mean by that. I'm not sure. You're saying then that -- I understand that uranium dioxide cost increased.

No. It decreased. The uranium dioxide cost it decreased. And I told you it decreased from -- let me find the exact figure from...

It -- on the international market or in your case?

No. In our case, because there is a delay between the market prices and the acquisition price because we are consuming right now the uranium that we bought in 2020 mostly yes, because we do not buy you uranium in spot market. Okay. We'll take advantage on the decreasing of uranium in international market, but probably you'll see a significant impact during -- for the date of 2022. Because we are consuming right now mostly of the uranium boat in 2020, but at a certain price.

And uranium dioxide cost decreased on the international market?

It's correct. Yes. Yes.

I have another question, sorry, Christian Petri from [indiscernible]. In the presentation, it's written that just part of the unit 1 outage was -- has taken place in half one. How many days are left from this outage in the second half?

So there is no planned outage in the second half of 2021. The outage was finalized in the first half of the year. I have exactly -- so in 2021, the planned outage was completed on June 14. So in half -- first half of the year, no impact on second half.

And if I may, one more question regarding personnel costs. What should we expect here looking at personnel costs. I mean is the trend that we're seeing right now in the first half going to be the same in the second half?

We are committed to hire a very large -- very many people, up to 500 people this year, and our expectation is to increase the personnel cost in the second half of the year. It is -- there is a high probability to have a budget rectification during the second half of the year increasing the personnel cost exactly this due to this spec because we are in process of hiring very, very -- a large number of people. But ...

Why do you need 500 people?

There are 2 very important things to mention, we are hiring more than 100 people for Unit 1 refurbishment. So we are preparing the refurbishment, and we need a special unit in this respect. We are going to train those people ...

The refurbishment is 5 years from now.

Yes, of course, but we are in process of preparing this. It's not a simple job by far. We have to train them in Canada. We have to train them at -- for during our other outages around the world because at the end of the day, shorting as much as possible, the refurbishment period, the refurbishment of Unit 1, it will give us very large profits. So we have to be very well prepared for that important task. And we are talking about more than 100 people for Unit 1 refurbishment. But on the other hand, please take a look on the personnel evolution between 2020 and 2021, a lot of people retired. And there are many replacements to be done up to the end of 2021.

And are you on target with this 500 people? I mean have you -- are you advancing with this? Or is it something that is possible might take time and might happen in 2022?

It's very difficult in the hiring process. We hope to have -- to fulfill as much as possible our program, but of course, I cannot guarantee right now that by the end of 2021. The -- this program is going to be completed 100%.

But we are already in August, that is why I was asking you've already taken steps towards this or you're just starting?

No, we are not just starting, as I told you, you will see an impact on second half results. This is the reason that for sure, we'll have a budget ratification for personnel expenses. Even during the first half, we do have some savings, but for sure, we'll need more for second half on this OpEx items.

But what changed during this year because you're saying that you're looking into budget ratification, meaning that you didn't expect that beginning of the year, what changed?

No. We put in our budget exactly the amount that the legal framework allowed us. For personal expenses because there is a special limitation from the budget law. And it was supposed to have exactly the same amount budgeted in 2020. Right now, we do have a special approval from the Ministry of Energy because we are in process of investing and they are investing programs. Unit 1 refurbishment is the main one. And it allows us to increase the personnel expenses with a certain amount. We knew -- we almost knew from the very beginning that we are going to face a budget rectification for personnel expenses. Again, even if -- as you can see, during the first half, we do have some savings.

Okay. And could you give us any -- I mean, if you're looking into a budget rectification, that means that you're going to need to declare something on the dividend as well. Can you remind us what the budget was -- or 70% budget between first budget?

Yes, 70%.

Well, do you keep the 70%?

The management expectation is to keep this percentage. But of course, every time I can remind you that the final decision is the Ministry of Energy level.

Regarding CapEx, would you revise it as well? Or -- no. You mentioned it before that you're not. You want to be divided...