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

Okay. Hi, everyone. My name is Valentina Dinu. I am with the IR Department at Nuclearelectrica. So I would like to welcome you all to the delivering of the presentation for the financial results for the third quarter of 2021. My colleague, Mr. Paul Ichim, CFO of the company, is going to deliver the presentation and then we are going to take questions from you. I have to kindly ask you to mute your microphone while he's presenting, so we can all hear the presentation. Thank you very much. Paul, the floor is yours.

Thank you very much, Vally. And welcome, everybody. I see some new partners here, probably you are for the first time, at Nuclearelectrica financial presentations. Welcome again, and I think that I will be able to convince you that we are presenting the financial results for a sound company with very good results of -- for the first 3 quarters of 2021. A very difficult year for some companies. And I'm -- I can tell you that even for the energy producers, it was not a simple year, and there are a lot of challenges that we have to face with. So starting my presentation, I will deliver some financial highlights of the company. And I will start with the income statement for sure because probably this is the most interesting and the first item that everybody is looking at. And I can tell you that for the first 3 quarters, sales of electricity provided by Nuclearelectrica increased by 22.1 percentage. And on the other hand, the total operating expenses increased by 22.1 percentage. So we have an EBITDA -- can you be on mute please? Excuse me. I kindly ask you to have every mic on mute because it's very difficult for me to continue the presentation because there are a lot of sounds and noise here. Excellent. Thank you so much, everyone. So coming back to my presentation and regarding the income statements, I told you that sales electricity increased by 22.1 percentage while total operating expenses increased by 22.1 percentage. At the end of the first 3 quarters, we have an increase of EBITDA compared with the results of 3 quarters of 2020 by 23.8 percentage, namely RON 1.17 million. Financial results is not so important in the total table of Nuclearelectrica financial highlights. It's minus RON 17 million compared with last year, and this is mainly due to the exchange rates, especially on Canadian dollar. We have a net profit of RON 640.6 million, the best result ever for 3 quarters of Nuclearelectrica. It could be better, but there are costs in operating expenditures influencing this net result. And probably you will remark, first of all, the cost of traded electricity. It increased more than 2.5x compared with the similar period of last year. And for sure, you know already that we have some unplanned outages in January, June, 2 in July and September that leads to the needs to cover our contracts concluded with our partners and to buy on the head market some electricity, again to serve the contracts that we signed on competitive market. So at the end of the day, the cost increased with -- more than 2.5x, a very important amount. Of course, repairs and maintenance is the second item that probably you'll remark that we have an increase in costs with 50 percentage from RON 46 million last year to RON 70 million in 2021. I told you last year that there are several repairs, maintenance and other operations that should be postponed for 2021, okay? This is reflected in this item and the increase of 50% is justified mainly due to this postponement of operations from 2020 to 2021. Another important item for you as well, cost of running fuel increased with almost 20 percentage. Please take into consideration that the cost of running fuel doesn't mean only uranium that represent around 50 percentage, 52 percentage out of this cost of running fuel. There are other components and mainly utilities, wages and other raw materials that conducted to this increase in cost of running fuel. I will present a little bit later when I'm going to present the OpEx exactly these components of this item. Going forward, resulting -- regarding the net result evolution, the next slide. It's a synthesis of what I've already said. Sales in electricity contributed with RON 383 million to the increase of net results, RON 26 million coming from other income and personnel expenses being lower than the similar period of last year contributed -- has a positive contribution with RON 9.6 million. On the other hand, as I've already mentioned, the cost of traded electricity contributed negatively with RON 132 million. Repairs and maintenance, I've just presented, RON 25 million; RON 19 million cost of running fuel and an important item -- nonmonetary items and depreciation adjustments contributed with RON 22.5 million to the net financial increase. Regarding the financial position, I think that only 2 things worth to be mentioned. We are trying to follow our strategy of cash building up. And you will remark the cash and cash equivalents increased with 2 percentage. I think that is necessary to mention that this strategy is mainly due to the fact that during the next year, our CapEx strategy is to invest a lot in refurbishment of Unit 1, a very large project. We have to be prepared to have -- to prepare our -- the company contribution in addition to the loans that, for sure, we'll have to contract in order to complete the refurbishment of Unit 1. And not only the treaty renewable facility, it's an important CapEx component of Nuclearelectrica and other small projects, but as important as well for the company. But during this period, long-term borrowings decreased from RON 290 million at the end of last year to RON 152 million. You remarked that we are continuing the payment of the loans contracted for completing -- for finishing the Unit 2 building. I think that these 2 items are important to mention because at the end of the day, where -- the financials of the company are very sound and if there are some items that you would like to insist on during the Q&A, I'm ready to do it. Coming back to the sales of electricity, I mentioned that we have an important increase in revenues during these 3 first quarters. We have an increase in total quantity of electricity sold by 1.9 percentage at a weighted average selling price by 19.9 percentage, let's say, 20 percentage higher. So it could be a question why only 20 percentage the selling price is higher compared with the similar period of last year. Probably you know and I would like to mention again that our strategy is to sell as much as possible on competitive markets. We are in process of selling 2022 and 2023 this year. So you are remarking that 86 percentage of our electricity was sold on competitive market during mostly last year 2020 at the prices that were in the market at that period. So as I told you, 86 percentage on competitive market compared with 30.7 percentage in spot market, day-ahead market mainly. Just to have the figures going to the next slide, you will see that those 86 percentage on competitive market were sold at RON 248.92 per megawatt hour. And on spot market, those 13.7 percentage were sold at a higher price. It's totally different compared with last year when the head market had very low prices. This year, we had the opportunity to sell at RON 342.55 per megawatt hour. Going to the operational expenditures. I have already mentioned a few posts, but let's have a more complete image of OpEx. Depreciation and amortization, there are no significant changes between the 2 periods, 2020 and 2021. Personnel expenses decreased by 2.9 percentage due to the decreasing number of personnel. And also, there is an important component about SNN's commitments to employees representing benefits and rewards. Cost of credit electricity, I've already explained you that there several -- it were several unplanned outages that conducted to this very important increase, and we have to buy electricity from the day-ahead market where the prices were very high. Other operating expenses, it were recorded an overall increase of 11 percentage, mainly due to increase in provisions and other services performed by third parties. Cost of uranium, I told you that I'll come back to this item. It increased by 19.8 percentage due to increase in weighted average costs, which comprises all cost components. It's important to mention that cost of uranium decreased from RON 491.64 per kilogram compared with the last year price of RON 510.91 per kilogram, but this represents only around 50 percentage of the total cost of uranium fuel because you know we have the factory in Pitesti where we are loading the bundles for Cernavoda and other components increased in costs and the result even if the main part uranium decreased in its cost, the result is higher with almost 20 percentage. The contribution -- the fees contribution for decommissioning and for permanent storage of waste recorded an increase of 4.7 percentage, and this is mainly due to the exchange rate variation. Okay. And [indiscernible] contribution, the reserve significant decrease, and this is due to the change in the percentage tax paid by SNN from 2 percentage that we paid during last year to 0.1% this year in 2021. Regarding capital expenditures, you can remark that we have a 50 percentage -- 50.8 percentage total value of the investment program, but it's important to mention this is -- we are using as reference, the budget approved on May 6 this year. Probably you know that it was a budget rectification last month. And I can tell you that if we are reporting the total investment program to the new approved figure for capital expenditures in 2021, you'll see a 68 percentage total value of investment because we decreased some items that we are pretty sure that we are not completing this year. And this is probably you'll see that for equipment -- acquisition of equipments. We are below of the target at 22.7% only reporting the figure to the approved budget in May this year. Regarding the capital expenditures again and aspects related to main investment and long-term strategic projects. Unit 1 refurbishment, it's our main investment for the next, I would say, 7, 8 years because it will start in 2026 -- at the end of 2026 and will take up to 32 months. We are preparing -- we are in the first stage of the project right now. We are preparing financially and technically this very important project. We are estimating that we'll have the feasibility study by the end of this year and to present it for approval in the general shareholder meeting at the end of first quarter 2022. So it's important, it's on track, and it will start on time for sure of the -- at the end of 2026. Regarding the increase of the production capacity. And we are talking about Unit 3 and 4. I'll explain again. A very important event during the third quarter of 2021 is that in July 2021, Romania has ratified the agreement between the Romanian government and the U.S.A. government on cooperation in connection with nuclear power project in Cernavoda and Unit 3 and 4 is a very important point from this agreement. So we are continuing the plans to extend our production capacity not only with our main partners, the Canadians, but the U.S. government and for sure, as probably you know in the statements, there are some European partners that will be part of this project and will participate to it. A very complex project that is around EUR 1.5 billion, EUR 1.6 billion, so a very large investment. Regard the acquisition of uranium oxide processing line from National Uranium Company, Feldioara branch, you know that we signed a contract in March this year. The CPs are not already fulfilled, but we expect that in a few months to have all the CPs ready in order to make the payment and to take over those assets, it's important to mention that we have created our subsidiary in order to use those assets and to take over at the end of the day, part of the National Uranium Company in order to have the entire circle of uranium processing in Romania. On the other hand, we signed on August 4, 2021, an addendum with National Uranium Company for taking over the concession license of Tulghes-Grinties exploitation activity. For the moment, I can tell you that we are just analyzing the strategy for using this license, it's not a decision taken yet regarding the using of it. Very important as well there are some data regarding the technical performance of the Cernavoda plant. The first one, radioactive emission on nuclear fuel burn-up factor, capacity factor. I can tell you that the data and the figures for these factors are very, very good and Unit 1 and Unit 2 from Cernavoda Power Plant is the Romanian nuclear factory amongst the first 3 most -- with the most good performances amongst the CANDU nuclear factors around the world. So I think that this figure is representing a lot for our colleagues from Cernavoda. And it's -- I can be proud that we are operating such a good -- a very good factory from the technical point of view from -- with technical performance -- very good technical performance. I think that I'm ready with the presentation, and I'm ready as well to take questions from you because I'm pretty sure that it could be -- there could be some points that you would like to be clarified.

Christian [indiscernible]. Just a few questions. One is related to the small capacity power plants that were discussed in the media recently, the American Technology. Second is regarding capping prices and if you see any effect on you? And basically, that's it. I will follow up if...

Okay. So let's take it one by one. Regarding the SMRs, the -- you know all the news from the newspapers, from press releases, and so on. What is very important at this moment, it's important to mention for you that there is no financial impact on Nuclearelectrica. We do not have to contribute at this moment. We are the technical supporters for implementing the SMRs. We are very happy that we've been chosen by the American partners to be the first partners outside U.S. But being at the financial presentation, that's probably the most important point. There is no financial impact, not even on capital expenditures right now because right now, we are analyzing with the American partners, the financial structure, all the technical questions regarding the implementation of the technology, and so on. So Nuclearelectrica has not committed any cent at this moment for this project. We'll keep you informed regarding the evolution of the discussions during the next month for sure. Regarding capping prices in the market, look a little bit at the figures. Okay. First of all, we are talking only about this winter, so the period is limited. On the other hand, it's important the decision how it will be applied because it's not very clear at this moment will be the most important for us. If the decision is to keep the prices at the average selling price for that period as we ask for it, the impact will be minimal for Nuclearelectrica. I can tell you that it could be almost 0. If we'll treat transaction by transaction, then the situation could be different, but I don't think that this could be a solution not from technical point of view. It's almost impossible to treat every transaction and the price of every transaction. In my opinion, the solution is going to be -- to have an average selling price of every company and to report this selling price at the RON 450 per megawatt hour.

Sorry, the cap is at RON 450?

RON 450 , sorry. That's the same, RON 450. Sorry. Yes.

Okay. And just a follow-up on another question on Unit 1 and Unit 2 refurbishment. If there -- I mean this -- in the previous, let's say, statements, there was a 24-month interruption of production. Now you stated you were talking about maximum 32 months. Are there any other things that we should expect, like increase in total CapEx or can you detail a little bit here?

Sure. You'll have the final presentation when the feasibility study is going to be approved, and I told you that we'll submit for approval probably at the end of the first quarter of '20 -- of the next year, 2022. I can't tell you right now because there are no final figures. And yes, it's too early to discuss on it.

Laura [indiscernible]. Can you hear me?

Yes, I can, Laura.

I have a couple of questions. First, regarding the cost for acquired energy.

Sorry, sorry, I don't hear very well. Sorry, can you talk a little bit louder? It seems that there is a problem with your mic, sorry.

Okay. Referring to the cost with the acquired energy. You had the budget rectification last month, as you said. And I was wondering why you -- didn't you anticipate this higher cost because Q3 was over at the moment of the rectification? You exceeded your budget for this item with 20% for 9 months. So for the whole year, you clearly will exceed by more than 20%?

If you'll have a look on the rectificated budget, you'll see that we took into account what has happened up to the moment when we proposed this budget rectification. And I can tell you it was at the beginning of September. So it's very difficult for me to take into account future events which are not predictable. It's probably you know that we had in October as well an unplanned outage, almost impossible again to consider and to budget with high fidelity this kind of events. But again, the rectificated budget took into account all the events that were up to the beginning of September when it was -- the budget rectification was submitted for approval to all the bodies within the company.

So we understand that a large part of the cost is due to the unplanned outages from September?

Exactly. Yes. It's part. In September, we had an important outage 53 hours, others in July, yes. September has...

Yes, in July it was the planned outages of Unit, I don't know.

No, the planned outage was in May, June. In July, were 2 unplanned outages, one of 78 hours and another one of 72 hours.

And also referring to personnel costs in relation to the budget figure, there, you are below the budget. And what do you see -- how do you see this item for the whole year, you will be below the budget for the whole year as well?

It is possible to be below the budget. Probably you know that we increased with the personnel -- even if we are below the budget at the end of 9 months of the third quarter, we increased with, if I remember correctly, with RON 14 million of the personnel expenditures because we hired the new colleagues during the third quarter. The personnel number increased in the company, and we expect to have in the third quarter some -- a little bit higher expenditures with personnel. And on the other hand, on the third quarter, there are some premiums, some other expenditures outside the regular expenditures that would lead to a small increase. But nevertheless, we'll remain a little bit below the ratificated budget. We will be within the rectified budget.

Okay. And one more question regarding the sales structure. Could we use as an indication for the last quarter, the structures that you had on the fourth quarter?

You can use it. I don't know. It's your choice. I cannot disclose right now. Probably know that even during our last calls, I cannot disclose exactly the future structure of sales, it's not permitted to do it.

This is an [indiscernible]. Couple of questions on my side. I know you can't disclose, but still they are a public contract for selling power. So is there -- regarding 2022, should we expect you to sell and should we expect the percentages being spot and forward to replicate compared with this year? I mean, do you see similar percentages? Even this year, you sold more on the spot market in the first and the second quarter, but less in the third quarter. What triggered the difference? And what should we expect for next year, of course?

So our strategy is very clear, to sell as much as possible on long-term market, but no more than 80%, 85%, we had 86% for the third quarter, yes, okay, to keep a part of our energy for the head market. Again, this is the strategy. But at the end of the day, the market, it's indicated the potential. We have the same strategy in 2019 for 2020. Probably you will realize that was not possible due to some factors, of course. Okay. For the first quarter of 2021, we had a smaller part on competitive market, again due to the market. We sold as we could on competitive long-term market. And we are not trying to speculate on day-ahead market. Our task is to produce energy and to sell it on -- to have predictive on the market.

I'll also say that our -- I just want to step in here, Cosmin Ghita, the CEO. There's -- we noticed the behavior in the market last year where a lot of the supplier and leading up to the preparation of Q1 at the end of the prior year, so we're talking end of 2020. When we had announcements for liberalization, obviously, we were prepared for that. But a lot of the buyers, some of the large suppliers that are working in -- that are servicing households and what used to be a regulated market did not contract for Q1 and the beginning of Q2. So a lot of the market is actually there. And that's another contributing factor.

Sorry, just a follow-up on the structured, Christian [indiscernible]. You mentioned at a certain point that you are already selling the 2023 production? Just to make sure I understood correctly. You mentioned -- okay.

Yes. It's correct. We put offers in the market. And we reported some transaction for 2023. So -- there are some public transactions for 2023. And the answer is yes.

Sorry, according to what's public, is this significant amount?

Not really. Not really.

We'll let you do the math.

Yes. Sorry, sorry.

I think the quantities are very well illustrated on OPCOM and our communications as per -- as a listed company, we have to report these transactions. We don't have them on our -- in front of us, but I'm sure that they will be available and we can derive. We do not foresee a change in our production rate and capacities for 2023.

Would it be possible to disclose the average price for the volumes for contract forward for 2022?

Okay. You'll have to follow the OPCOM side because there you will see which are the prices -- the selling prices for next year.

Are you in line with the market price because we can definitely see the average for the market? Are you in line with the market price at the moment? That's around...

Each transaction -- obviously, we're aligned with the market price. But each transaction is reported on OPCOM and we issue a current report based on that. So there's a very good...

But there's no price here, just the value of the contracts. So it's kind of hard to determine the price. Maybe on OPCOM, it might be available?

Okay. I think you'll have a significant amount of information that's being posted in that site.

Okay. Regarding the refurbishment of Unit 1, is it possible that it will take more than 24 months? I mean, should we understand that it is possibly going to take more than 24 months?

At this point, I think that the most important piece is to take a final investment decision and that's what we're working towards in Q1 of next year. There's been practices where it took less than target. Obviously, being on the tail end of this technology and technology implementation will benefit from a lot of experience after 10 refurbishments in Canada and in Argentina. So obviously, technology-wise, the project should flow very, very smoothly. But these are all due considerations that will be put together in the final note for an FID, that will be submitted to the general shareholders meeting when that happens, and we forecasted that to happen in Q1 of next year.

And regarding the small reactors, can you provide any details on that? I mean, yes, at the moment, there is no financial impact. But what should we see -- what are the next steps in the process? When should we expect any sort of...

I think my colleague answered some of those questions previously. Thank you.

[indiscernible] from Beta Capital Partners. I would like to ask about cost of nuclear fuel. Considering that recently in the recent 2 months, we see an increase in uranium costs on international markets. So I would like to ask you to comment on this and maybe to disclose when this cost will impact the company's results?

To comment on the prices of commodities right now, it's very difficult considering the international -- you know that the international commodities trend, I don't think that anybody...

We can no longer hear you.

Sorry, there is some problem with the sound.

Right now, you are hearing me?

Yes, yes, yes.

Okay. What I was telling is that it's not possible for me to comment on the prices on commodities on international market. What is important for us is to mention again that the cost of uranium represents only around 50 percentage of the cost of fuel bundles for Nuclearelectrica. And I think that it's important as well to take into consideration the utilities prices, as an example, the Zilliqa rate, that's another very important component, the Zilliqa price evolution, which represents around 10 percentage out of the total cost of the fuel bundles. So okay, you can see an increase in price of uranium for -- in 2021 last month. It's -- the impact for sure, will be -- do you hear me, sorry?

Yes, yes, yes. Please continue.

Okay. The impact -- yes, sorry. The impact for sure will be seen in the next months or next year. It's very difficult to predict due to the fact that we have some uranium, some stocks of uranium right now at a certain price. We are buying continuously. And we'll put in production continuously. For sure, the impact will not be 100 percentage at the running cost increase in the market, but it could be seen for the next year results.

Okay. Okay. And another question is regarding dividends, considering that this year, the company realized record profits. But on the other hand, the company has a lot of investment going forward. So what is the management view regarding dividend distribution strategy?

It's important to follow the cash buildup strategy, that's very important to tell you. You've seen that the shareholders approve a 70 percentage dividend payout ratio for this year for -- in 2021 for the results of 2020. Our will is to prepare it as good as possible the future investments of the company. And as I told you, refurbishment of Unit 1, it's probably the main capital expenditure for the next 7 to 8 years. That's all what I can tell you. The final decision is with our main shareholder, and it's difficult to predict for their decision. Okay. If there are no further questions, thank you very much, and period for the next results, probably, we'll have the yearly results in January or the beginning of February. I don't know exactly how the financial reporting calendar will be for 2021. But...

Just one thing, if I may. You mentioned regarding the windfall tax. You mentioned that -- I mean, the law says that it's taking into account the average -- the monthly average selling price. But you seem a bit concerned that this might apply to each contract. I mean, is it something -- I mean, when would we know if this is the case?

I told you that the question was about the impact and the impact of this law on SNN results. And I told you if this will be -- because at least for me is not very clear from the law they are going to apply, how it's going to be applied at the law. But if it will be exactly what how everybody of us is understanding the law, there is -- the impact on the company will be almost 0. Okay. Again, thank you very much, and have a nice evening.

Thank you.

Thank you. Good bye.

Thank you. Bye-bye.