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

Hello, everyone. I think you can all hear me. My name is Valentina Dinu. I am IRO with Nuclearelectrica. And today's Investors Day Conference Call actually addresses the preliminary unaudited individual financial statements for the year ended on December 31, 2021. We are going to unfold this conference call as usual. The first is the presentation of the financial statements. [ Then we are going to address ] any questions you may have, but please allow me to introduce Mr. Dan Niculaie-Faranga. He is the new CFO of Nuclearelectrica, highly specialized and experienced within the financial domain. So Mr. Faranga, the floor is yours. Thank you.

Thank you very much. Thank you very much for participating in this conference call. As mentioned, my name is Dan. I used to work in various industries as CFO, CEO or operational officer. I joined Nuclearelectrica 2 weeks ago almost or 1.5 weeks from another energy company named Transgaz. And I'm happy to present the preliminary results, unaudited, of Nuclearelectrica as of December 31, 2021. As you probably have seen, we have -- we had a good year. We basically almost doubled the net profit as opposed to the previous year. And this is largely the result of an increase in the price of electricity; and keeping the costs under control, with small variations for almost all the categories of costs; and only having an increase in cost of traded electricity because of increasing prices of electricity that we are bound to purchase because of periods of outage. In terms of EBITDA, as you have seen, we have an increase of almost 30%, which is giving us comfort in the future, for taking debt is necessary for our investment program. Discussing a little bit about the net profit: As mentioned, the main driver of increased profitability is the increases in price of electricity. We had almost -- on average, price for the entire year was around RON 280 per megawatt hour. And other than that, as mentioned, the biggest cost item was -- increase was cost of traded electricity. In terms of balance sheet positions, there is nothing spectacular or new here. The good thing is that we are slowly repaying all the indebtedness; and we expect that -- next year, the indebtedness to become 0. And this is a good thing because it gives us enough room to prepare to attract debt for our investment program, namely the funding of the re-technologization of Unit 1. As you probably have seen in the newspaper, [ a positive ] decision of the shareholders has been taken with regard to this project. We are discussing about a EUR 1.85 billion investment, which will allow Nuclearelectrica to generate revenues and profits well into the future 30 years from now [ or even later on ]. In terms of the electricity sales evolution, you have a slide here which shows the elements generating a negative effect and a positive effect, but as you've seen, we have increased revenues from electricity from RON 2.4 billion to almost RON 3.1 billion, the biggest driver being the fact that we have sold on a competitive market at higher prices, which allowed us to increase our sales. One element which had a negative impact was the balancing market, [ but on overall ] we have nominated less than we have actually delivered, so we had to pay this fee for the balancing effects. As you -- these -- all the details are presented in this slide, structural analysis. As mentioned, the largest volume of electricity was sold on competitive market, representing almost 87% of the total volume, while the spot market was a fraction of that, 13%, but allowed us to generate revenue per megawatt hour higher than the average revenue for the competitive market. Okay, the next slide. This is a detailed presentation of the operations costs. As mentioned, the biggest driver of change in costs was the cost of traded electricity. Other than that, the variations are pretty small in percentage-wise as compared to last year. In terms of our ability to invest the CapEx or ability to drive investments, we have been able to exceed our target level. We have managed to invest almost RON 320 million out of the total investment program of RON 350 million, which is well above our expectations. And also it exceeds the estimated investments for 2020. Now in terms of big investment programs, as you well know, we have already started the Unit 1 for phased refurbishment. We are working towards developing Unit 3 and Unit 4, and we are in contact with potential contracting entities and financing entities to move this forward. You are aware of the fact that Romania and United States of America have signed an intergovernmental agreement which facilitates of -- investments of -- in nuclear energy in Romania. We have also secured a processing line from the National Uranium Company, and the entire process of transfer is in -- is ongoing. Going further, a little bit about radioactive emissions. We are within our guidelines; no issues with regards to our operational efficiency, radioactive emissions. We are well within our targets. And the disclaimer is not interesting for anybody. The following -- in this slide, you will see the following schedule for [ the group 2022 ]. And I will be honored to participate in the next call. [ And this is due ]. Thank you. Any questions?

This is Iuliana Ciopraga. Can we discuss a bit about the -- about 2022, the budget that you presented, some of the assumptions behind that? For example, how much you assume you'd be signing on the forward market? How much has already been contracted? About the dividend and the dividend policy going forward, actually the dividend for 2021 as well, if you can say anything about that.

Yes, yes, sure. So 2022 will look even better than 2021 because we expect that -- the prices of energy to remain elevated and, we expect, to become even higher in the context of the recent developments in Ukraine, but looking particularly what we have budgeted, and it was approved by our shareholders, we are contemplating revenue of about RON 5 billion, expenses of about RON 2.6 billion, which will generate, well, gross profit of RON 2.5 billion, which is almost 2.5x higher than what we have achieved in 2021. This is mainly the result of the fact that we've been exceedingly good in selling forward our energy with -- we have sold more than 75% out of our energy on the forward market. And in -- at this moment -- and this at an average price per megawatt of RON 470. In terms of payout ratio for 2021, 2022, we have assumed a 50% payout ratio. We are -- we believe that ultimately we will pay 50%. And this is because we are -- as you are well aware, we are looking into this huge investment program for the re-technologization of the Unit 1, and we need all the cash that we can put our hands on to finance our equity contribution for this project.

But we were only talking about [ 300 million ] more compared with previous estimates. And we are talking about a totally different context of power prices right now, and that's why it's a bit unusual that you're reducing the payout. You mean -- or you already have a budget approved for 2021 where the payout is 70%. Are you contemplating to distribute 50% out of 2022 -- 2021, sorry, as well? Because it's a bit unclear at the moment.

We are analyzing both scenarios, but we'll probably stick with the existing budget for 2021. Now in terms of 2022, we are aiming for 50-50 payout ratio -- 50%.

So to clarify. Most likely, you will be paying out 70% [ out 2021 ], and starting 2022, it will be 50%. And most...

Most likely. We're fighting for -- we're fighting to keep more resources at our disposal for our investment program [indiscernible] in the [indiscernible] yes, in the next period.

And are there -- I mean, apart from what we already know about -- so the -- apart from the refurbishment basically and DICA, is there something else in the pipeline that you're planning to finance? Because as far as we understood and -- reactors 3 and 4 will be financed most likely by the state. You'll only be financing the project until the selection of the EPC. Is that correct?

We are contemplating this tritium removal investment. And this is well -- and the process of financing this investment is well advanced. In terms of how we are going to finance Unit 3 and Unit 4, we are exploring all the possibilities that are available to us at this moment. And we haven't focused on one specifically as of today.

I -- you mean -- are you contemplating that Nuclearelectrica will be financing part of that project as well?

We are analyzing all the options at this moment.

Regarding the SMRs. And what would be the -- is there anything happening here? How that project will be financed. Has anything happened in the last months?

SMR is a very interesting and innovative project. And it's somehow different from U3 and U4, where we know that we're discussing about proven technology, proven [ farmers ] or proven site, et cetera. SMR is -- it's a, well, new development. And we are at the early stage of identifying the partners, in excess of NuScale, of course; of finding ways to finance this investment, so this is too early to come with something concrete about the way in which we are going to finance this. We are, of course, under the umbrella of the intergovernmental agreement with the U.S.A., which will facilitate, for sure, the financing of such investment.

And coming back to the budget. And regarding this tax on power producers, what do you assume in the budget? Did you assume that the tax would only be kept until the end of March as per the current legislation?

We are talking about the windfall tax...

Yes.

I'm not sure what to say. We are following the law. We are prepared to keep on paying if necessary, especially given the fact that the prices of energy will be elevated. So we are respecting the law, whatever the law will be.

Can you comment anything on -- can you say anything about -- on what you think is going to happen going forward? I mean, after April, what -- the -- are you aware of what's being discussed in the government regarding prices, et cetera? Because it's a bit unclear right now. What are the scenarios envisaged by the government? I mean regulation is still something that is being talked about, as far as I've seen, but I'm not sure in what way.

We are not aware of the discussions with the government. As soon as we find -- and we get input from the government on these matters, we'll make sure that all our shareholders are well informed.

Congratulations for the results and the position. My question is regarding what do you think is the optimal gearing level for the company going forward, let's say, at the top of the investment program; and if there is any, the concept of, well, changing the shareholder structure in the sense of coming to the market in any shape or form.

Okay, thank you, [ Caius ]. Well, with regards to our gearing, maximum gearing, you probably know that currently the maximum gearing in terms of net debt-EBITDA is pushing above 5.5, maybe 6, multiple of EBITDA. So we expect that, at the top of our investment program, we are going to be there. In terms of changing shareholder structure, we are not envisaging at this moment any change in shareholder structure and to raise any equity on the public market in order to fund our equity needs.

One more question, as a follow-up to [ Caius's ] question. The 5.5x, 6x net debt-to-EBITDA is -- would be when one of the reactors is closed, right? It doesn't have to...

No, no. It will be when we will reach the maximum debt level to fund our investments. And it may be -- I don't think this will happen when our reactor will be closed. It will be maybe later on in the future.

And would that include financing for reactors 3 and 4?

Sorry. U3 and U4...

Would it include the financing for reactors 3 and 4? Because 5x, 6x EBITDA...

We don't know at the moment. As mentioned before, the overall financing structure for U3 and U4 is in the -- is not yet cast in concrete, so we are exploring various options. We are -- but in -- my preference will be not to use the balance sheet of Nuclearelectrica to fund the Unit 3 and Unit 4; my preference, of course. We'll see what happens in -- when these projects will be mature enough to require heavy equity investments or investments.

[ Christian Petre ] from [indiscernible]. Just a clarifying question. So you are budgeting for 2022 a RON 2.5 billion gross profit, as you sold already 75% of the power you produced.

Yes indeed, correct.

Okay. And another question is related to refurbishment of Unit 1. And Unit 1 costs are a little bit higher than what was expected previously. Can you comment on how reliable are the figures? What stage of contracting are you with -- how reliable are these figures?

Well, it's there are -- at this moment, these are numbers taken from our feasibility study. As you probably are aware, the costs of raw materials [ and the energy ] have exploded in the last 2 or 3 years. In this -- in the last year or so. In this context, we expect a potential increase in the price of the project, but given the time line of such a project, we may end up with not necessarily a big impact on the overall project cost, depending on the evolution of the raw material price [ and the energy ].

Okay. So EUR 1.85 billion is the middle figure because you also had an estimate of [ 2.15 ], I think, right, [ the top ]...

This is the best estimate at this moment. This is just the estimate that was approved by our shareholders.

[ And you're guiding the 32 months ] when the -- one of the reactors would be closed. How likely is that to be 32? Or even more? I mean there was quite a range and -- for the duration...

The range is still ongoing. I have no change in what was publicly presented.

I mean -- sorry. [ Christian Petre ], also from [indiscernible]. Just if you can comment a little bit here because the range was somehow initially at 18 months, with a maximum of 24 months. And now we are talking about 32 months. This is a maximum, I guess, or...

If you look at other nuclear investments worldwide, if you look at the project in France, if you look at the projects in U.K. In those instances, the budget was exceeded by orders of magnitude. And the time line was exceeded also by order of magnitude. So to be honest: I do think that we will do a better job than was done in these countries. However, I cannot really put my finger on whether it's 32 months, 28 months or 36 months. It's a very, very demanding project. And we are relying and we are potentially relying on supply chains with -- which are not as reliable as 2 years ago or before the pandemic, so any estimate with regards to the -- to their time line have to be taken with a grain of salt. And that's why I'm also standing to -- at this moment, behind those estimates, because these are reasonable estimates. And I have no other information at this stage proving that these estimates are wrong.

Procopovici, Dumitru from BT Capital Partners. I would like to ask you specifically about next quarter and about sales structures for the next quarter and maybe some prices already contracted on forward market.

I think this is confidential information. I don't have access to such granular information at this moment, and I'm not really sure if I'm allowed to comment on those at this moment. I'm sorry.

Okay, okay.

Any other questions, please?

Are you contemplating any changes to the CapEx? I mean you had an investment program approved 2 years ago, if I remember correctly. Are there any changes to that apart from the refurbishment? Any significant changes to the tritium [ removal ] facility [indiscernible]?

No, no, no. We have -- the tritium station is -- and we have the refurbishment. I think we have enough on our plate for the next 24 months...

Can you remind us, what was the investment for the tritium? What was the amount to be invested?

Just 1 second. If I'm correct, the latest estimate is well above EUR 150 million.

Again Dumitru Procopovici from BT Capital Partners. I would like to ask about last quarter and about sales structure during last quarter and the prices at which the company sold electricity on day ahead market and on forward contract...

Without entering into many details. The last quarter was a very good quarter for us because it drove the overall revenue -- the average revenue and the overall revenue higher -- and if I may, just 2 seconds to look in some data, 1 second. So we're talking about last quarter. Well, we had an average price of RON 345 per megawatt hour with the transportation costs included. And most of it was done on the [ concurrential ] market. And the revenue -- quantities were 2.8 -- 2,860,000 megawatt hours [indiscernible].

Yes, but I would like to ask. How much of this, out of this electricity was sold on day ahead market? And how much was sold on forward market? And at which prices?

Well, on the [ concurrential ] market, it was -- the average price is RON 344. While on the OTC and selling on contracts of PCCB, it was RON 263. And on the next-day market [ PZU ], it was even higher. We're talking about 1,000 -- more than RON 1,000 per megawatt hour. And the overall, as mentioned, is RON 345. So it's -- because most of the energy was sold on the [ concurrential ] market, the average is close to RON 345 per megawatt hour. It's 99% sold on [ concurrential ] market.

Please -- how much, 95%?

99%, 99-point-some percent...

99%...

9-9, almost 100%.

On concurrent. And only 0, 1% on day ahead.

And part of -- yes, in -- within the [ concurrential ] market, day ahead was 10%, yes. It's a small amount. The difference between 100% in the total sales and the sales on [ concurrential ] market was the result of positive balancing, which is small in nature.

Okay, okay. So I understand it correctly: 10% of electricity was sold on day ahead market during fourth quarter of 2021.

[ Almost like this ], yes.

And just to clarify [ that in ] balancing. You've incurred some costs on the balancing market. Because it wasn't very clear. You mentioned something in the beginning of the presentation.

Yes, yes, yes. We have incurred then a cost of about RON 70 million, if I'm correct. It's in our presentation, at page -- at the OpEx page, 8, Page 8. It's called under the header of cost of traded electricity. There is -- I am putting it on the screen now. One more, here it is. So increase in expenses with imbalances of RON 70.8 million. So is -- the difference is between, as mentioned before, notified quantities versus delivered. It comes from ability to read the market and notify quantities on -- and then proceed with actual delivery.

Yes, okay, I see. I see now, okay. And I see some costs with provisions. In the fourth quarter, I think, they came up. Can you tell a bit? It wasn't large. It was about [ 25 million ], if I remember correctly. Is it a recurring item?

I don't think it's a recurring item. I think it's a small item. If you'll bear with me 1 second, I will check with my colleague. I don't know by heart the nature of such provision. 1 second, please. Could you please clarify this provision? What -- is it -- where have you seen it? Because it's not in the presentation.

It is in the presentation here, other operating expenses, "recorded an overall increase mainly due to increase in provisions," but actually it's in the financial statements, under operating expenses, where they're detailed. I think it was about [ 25 million ]. And I think this came up in the fourth quarter, but then I'm not sure. I don't think you provide such granularity in the...

No, yes, under operating -- yes. It was under -- yes, under operating expenses, but I don't know how -- I don't have the data with me, to respond, but I don't think it's something that is recurring.

Is that -- it's nothing -- is it related to salaries, to the provision for bonus, the bonus? And...

I don't even know. Sorry to...

Okay. No, it's fine, okay. No, it's not that important anymore. And regarding uranium, can you comment a bit? What are your expectations regarding uranium costs in 2022?

It may increase a little bit because in the overall cost of uranium we have to incorporate the cost of energy. And the cost of energy is increasing. Therefore, we anticipate also a cost in uranium but not dramatic, so I think it's we can deal with it without a meaningful impact on our P&L.

And what's your -- what was the assumption including in the budget regarding spot day ahead prices?

Sorry. In our budget...

Can you comment, what was the assumption for day ahead prices included, embedded in the budget?

Just let me check. It was in the region of RON 400 per megawatt.

So it's very conservative.

Yes. We like to be conservative. We like to show the market with better results.

And lower dividends...

Yes, yes.

Are there any more questions?

[ I might say ] no.

Okay, then thank you very much then. Thank you, Mr. Faranga. As usual, I am going to send to you the presentation and the audio file. And for those who haven't sent a confirmation e-mail, you can find those on SNN website, investor relations page. Thank you all, and have a great day.

Thank you. Thank you, everybody. Looking forward to see you again.

Thank you so much.

Bye.

Bye.

Yes, bye.

Bye-bye.