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

This meeting is being recorded. Preliminary financial statements for 2022 [Technical Difficulty] Dan Niculaie-Faranga is going to deliver the presentation for you, and then you can go straight to questions and answers. [Operator Instructions] Thank you very much for your understanding and cooperation. Dan, [indiscernible] statement.

Sorry. But we cannot hear anything. We cannot hear them.

can you hear us now?

No. I mean I can hear you. Just you. Okay. Now I hear you.

Okay. Up again. Thank you very much for joining this presentation. I'm going to present the preliminary unaudited individual financial payments. We are not discussing about audited or consolidated. We are discussing about unaudited and individual financial statements as of 31st of December 2022. Exceptional year 2022, a lot of changes, a lot of challenges. However, from a purely financial perspective, it was a very, very good year. I think one of the best ever. So as you see in the first slide, we predict some sort of [indiscernible] same quantity of energy. However, the revenue was double. The operating expenses were higher than last year, but there is a good reason for this. So therefore, the net profit is RON 2.7 billion as opposed to RON 1 billion in 2021. In terms of the performance of -- in the last quarter, it was also a very good quarter. The net profit was doubled as compared to 2021. And in terms of the overall this preliminary results compared to the budget, the results were higher than the budget with about RON 500 million, which is 21% mainly because we managed to keep the cost under control. Okay. Next slide, this is very nice color the slides show the elements which impacted the financial results. As you can see, the biggest driver of our profitability was the increase in the sales of electricity, the last green bar. We have the largest driver of or the largest increase in costs were this [indiscernible] the red bar in the middle and there are a lot of plus and minuses, but overall, these are the main drivers. The next slide is a summary of our balance sheet position. Basically, our balance sheet, total equity and liabilities increased from RON 9.6 billion to almost RON 11.8 billion. And the largest increase was driven by the increase in the profit from the last -- previous period. However, there were some small changes in fixed assets. So as more -- decreased by 1%. So we have the current assets basically with focus on the cash and cash equivalents increased by RON 1.8 billion. Long-term debts, we are slowly paying all of our debts. In 2024, we will have gross debt payable to EURATOM. Current liabilities, maybe the largest increase because of this solidarity contribution, the windfall tax we have to pay it by 25th of each month, which means that we have a current liability, but everything was paid in time with no delays. And as mentioned, the equity increased because of the profit in the previous period. Now the next slide will present more detailed profit and loss payment income statement. So you've seen the main headlines in terms of sales of electricity and total revenue. I'm not going to discuss them in detail. However, I will present a little bit some variations on the OpEx. So as compared one of the main elements in our P&L, of course, is the personnel expenses. We have a recurring increase of 27.2% for the personnel expenses. There is also an increase significant in cost of traded electricity for obvious reasons, which will be detailed in a later slide. Repairs and maintenance, roughly the same. And of course, the largest impact on -- in terms of operating expenses, the contribution to the energy transition fund remain several times in 2022. We have a difference of about RON 1 billion as compared to 2021. In terms of other operating expenses, roughly equal, for this reason, the EBITDA is higher, it's RON 3.5 billion compared to RON 1.7 billion, it's actually doubled. And of course, this drives the net profit. We managed -- in addition with the increase in revenues, we managed to extract value from our deposits. So for this reason, we have a net financed income, which is higher than last year. In terms of comparison with the budget, the revenue is roughly the same. Operating expense is a little bit higher maybe the reason being operating -- other operating expenses. But overall, the EBITDA realized. So basically, this interim unaudited EBITDA is better than the one that we refurbished in the budget. For this reason in 2022, we managed to generate this RON 2.7 billion profit as opposed to the RON 2.2 billion budgeted net profit. Okay. So in this slide, we are presenting the reasons why we managed to sell -- to extract more revenues from the [indiscernible] '22 compared to 2021. So the reason is the fact that basically, we were able to sell more on a competitive market price, we managed to sell more on the spot market. So basically, with everything resulted a higher weighted average selling price and including the balance in the market. Now the next slide is a very, very [ weakened ] sale structure analysis. You will see that the quantity was basically similar. The competitive market quantities, the quantity sold on the competitive market representing almost 90% of the total volume of elasticity which is a little bit higher than last year. However, the average selling price was RON 529 per megawatt hour without Tg, which is almost double from the one last year. The quantity sold on the spot market represents 10.5% of the total sales volume, which is a little bit lower than last year. However, the price that we managed to sell -- the quantity on the spot market was considerably higher, I think, 2.5 or 2 almost twice, so even more than twice the price achieved last year for 2021. In terms of Actual versus Budgeted, in the lower half of the presentation, you will see a table presenting in details, what happened, I'm not going to run through these available information. Now going forward to a little bit of explanation on the OpEx side. As mentioned in the last slide, we had a big impact on our P&L with the windfall tax, maybe the largest -- for the largest cost. It's at RON 1 billion. This RON 1 billion additional cost is a result of the [indiscernible] in 2022 in various shapes and forms. In terms of depreciation and amortization, a little bit of increase as a result of a revaluation report, personnel expenses, we have increased the number of employees. We are getting back for investments. So the number of employees [indiscernible] increasing the personnel cost. Cost of the uranium fuel is slightly the same, the decommissioning obligations, no notable variation. Water and energy for nontechnology for our -- increased a little bit almost 9% because of the increase in the price of the utilities. Cost of traded electricity, you can imagine that it limits the evolution of the overall increase in price of energy on the market. So for this reason, we have an increase of 100% electricity doubled. And this is explained in the following paragraphs with details about the fact that the quantity that was purchased was smaller, but the average price for the purchase of such quantities was higher larger prices. And we had an increase in expenses with imbalances. So that drove RON 53 million increase in costs. Electricity transmission expenses, of course, the transmission tariff meant the evolution of the energy from the overall market. And the cost with spare parts, repairs and maintenance was a little bit higher, not significant almost 1%. In terms of CapEx we managed to invest RON 0.5 billion, in fact, RON 561 million, which was total investment program of RON 609 million. Of course, we've achieved the 60% target. So we are very comfortable in terms of a comparison between the budget and the degree of compression, you have the data in front of you so basically, the RON 609 million that was budgeted. Speaking of 3 categories, ongoing investments RON 409 million, investments made on various tangible assets, another RON 100 million in 3 months roughly RON 100 million. So basically, we managed to have a very, very good degree of completion on our current investment and investments was made on tangible assets more than almost 90%, which drove on a balance 89.6% or completion of the investment program. No, just sorry, [indiscernible] it's 92%. Okay. In terms of CapEx, unit 1 the refurbishment, we are now entering into [indiscernible] of the project, and we're working to financial resources for the implementation of the project. We're working on the contractor architecture, finding the right departments to achieve this refurbishment. And we're working, of course, on regulatory approvals, authorization for the implementation of the project. With regards to unit 3 and unit 4 projects, we are working to secure financing for the project. And as you probably see in the newspapers, we managed to obtain a commitment, a letter of interest from USA team, which is the export credit agency of United States of America for a package of financing, which is roughly $3.05 billion which is between RON 50 million for pre-project technical services of engineering and RON 3 billion for the rest of the program. In addition, another significant development we are progressing with just for the issuance of the support agreement to design between Nuclearelectrica and the Romanian government for the development of the Units 3 and 4 project. And this support agreement to allow the project to be funded because it will stipulate additions of [indiscernible] for the debt providers of the project and a lot of other support missions. The Draft law is progressing very well through the Senate. We managed to get the approval of the Senate Commission on February 6, and we are looking forward to get similar agreement from the Chamber of Deputies. Okay. In terms of the other project, the Small Modular Reactor, a memorandum of understanding was signed between RoPower Nuclear SA which is the project company for the development of this small modular project in Donalam, which is part of the Beltrame Group, a leader in steel production. And we are looking to -- we are trying to collaborate and explore the opportunity for investment in support of the development of the first SMR project in Romania which, of course, will advance the ticket of both [indiscernible]. And in addition, we are progressing with engineering phase of the project, the project company RoPower signed an engineering contracts, the front engineering and design contract [indiscernible] the provider of the technology which means that the project is progressing quickly. In the next slide, there is a traditional presentation of the radioactive emissions. As you can see, we are well below the [indiscernible]. Nuclear burn factor very good. CANDU Technology performance. You probably know that Unit 1 and Unit 2 are one of the best in the world, over 400 units worldwide. So we are very proud of this. And to conclude this, I'm going to present a little bit in the next event. So the next event will be on the 27 of April when we publish the annual audited financial statements, will be another conference call 4:00, et cetera, and then there will be the first quarterly report on 12th of May. The same 4:00 the publication of the first quarterly report. So this is very great for the next several months. So this is about the presentation. If you have any queries, we will be able to be -- happy to respond.

Good afternoon. This is Iuliana Ciopraga. I have a number of questions more related to 2022, not necessarily to the past year. So first, can you comment on the [indiscernible] to sell on the centralized market because it's not very clear for the regulations. I understand that it was supposed to be 80%, but then it might be even more than 80%. Can you comment a bit [indiscernible] here on these sales to the centralized market?

Yes, of course. The legislation imposes to sell from the regulated market, 80% [indiscernible] was not sold in the previous year. Is that roughly mass contracted which means that we are going to sell on the regulated market, basically not at a regulated price, about 48% was quantity.

Like a maximum 80%. I mean, it was supposed to be net 80% of the available volume. So that 80% was a maximum right?

Yes, yes. So basically, we have presented the regulator the regular quantity, and we signed a contract, as you probably know, in which we committed to early each month to deliver [indiscernible] of the quantity [indiscernible] each of the balance for the remainder of quantity and we signed additional [indiscernible]

You signed an initial contract with 50 and the rest is done monthly? But I'm looking to the budget and looking through the budget, the realized price, if I take the sales of power and I deduct the cost with our acquisition and the windfall tax then the net realized price seems to be below 450. Can you explain? I mean, did I do something wrong or?

I think -- basically, we are selling about 48% of our quantity at RON 450. The rest of the quantity -- it's going to be sold at less than RON 1,000 almost RON 1,000. So yes, there must be a misunderstanding somewhere.

No, no. But I mean, of course, total revenue, excluding the costs with the acquisition of power for balancing and the windfall tax...

No. There is a misunderstanding over the methodology, and you may be aware that in accordance with recent format of the methodology. The expenses which is, of course, it's the Law of 357 at the end of December. You don't -- we -- in the computation of the windfall tax the cost to the purchase of energy is not deductible in the competition relative.

So starting -- beginning -- starting in January, you are no longer allowed to deduct the cost of the acquisition of power?

Yes.

[indiscernible] Can I ask more or if anyone wants to intervene?

This is [indiscernible] from BT Capital Partners. I also want to ask like a few questions. Are there any updates on the tender related to the acquisition of uranium with Cameco and Kazatomprom and my second question or I can ask it after basically.

It's ongoing.

Okay. Just can I ask one more question and then I'm going to let Iuliana ask one more, I guess, a few and then I'm going to come back. Can you confirm if for the quantities of electricity sold outside the centralized procurement system, you are still subject to the solidarity tax or not?

Yes, of course, it is. We call it income tax because it's usual because they change the name all the time about so basically, 48% of the quantity is sold on the regulated market with RON 450 per megawatt and [indiscernible] has been sold previously, and we have a higher price for this.

Yes, I did have more questions. First on the salary because in the budget, you included quite an increase in salaries. I think it was around 40%, 2023 compared with 2022. Should we expect that to materialize because it's not the first time when you budget significantly higher personnel costs, but it doesn't happen. Should we take that for granted -- should we take...

So your question about the budget 2023.

Yes, of course.

Right? Yes. So you have to take it into account because it's driven by the increase in the number of personnel, the fact that a lot of the employment have been made in the last year, which now has an impact on the full year of 2023. We are incorporating some requirements that came from [indiscernible] in terms of, we call it [indiscernible] regulations. And of course, we are trading with the inflation in terms of increase of salaries. And for this reason, I think you have to take into account this increase in the overall personnel cost.

So can you explain on what you agree -- what has triggered the increase?

So basically, last year, we've employed a lot of people for our development. And of course, these colleagues were employed in tranches, each month, we've employed a number of colleagues. Now the net -- the cost of bringing these colleagues on board is fully reflected in the full year 2023 because in 2022, we own the process. A small portion were employed. So this is -- the second driver is the fact that we are allowed in accordance with law to increase the salaries of the -- of our personnel in accordance with inflation and the third driver are various -- one of the largest reason is this request from [indiscernible] in accordance with the NSN required.

And regarding -- coming back to the previous question, is because it's not something to be neglected because actually, your cost with the acquisition of power were very high in 2022. And assuming they remain quite high because I think their budgeted to remain relatively high, this is the power that you're buying during the shutdown. So planned shutdown. So the amount can be quite high. And the fact that you're not able to do that, then would significantly impact your results basically. Is there any way to reduce these volumes? And are there negotiations with the government on this?

No, it's a reality. Of course, we will try to improve on that amount, the budgeted amount, but a little bit conservative in our evaluation and our forecast.

No, I understand, but I mean I was more thinking whether it's possible to revise the law. I mean I was just going to ask if there is any -- if there are any discussions with the government to revise this because we are actually paying tax and something we are not even realizing.

We will be glad if such a change in law happen. We'll be more than satisfied.

And just one more, when do you expect to pay the contribution to Energonuclear EUR 185 million.

This was happening [indiscernible] needs to pay engineering services.

Well, will that be due this year or next year? Do you have any idea on the time line?

I have a gross estimation, but I will not jump to conclusions as of this date because I'm not really sure. The conversation with our partner is ongoing, and we'll see what will be the result.

Okay.

One more question from me or maybe 2. Regarding the support scheme for Unit 3 and 4, when should we expect it to be implemented? Is it by midyear or maybe closer to the end of the year? And my second question is regards to the capacity factor. Can you tell us precisely what was the overall capacity factor in the fourth quarter?

On signing the support agreement. We do hope that by the end of March, we have the result or see what happens. And cost implementation will take some time before we need to sign the contract, then depending on the range that the project progresses we'll start benefiting from the support bank. And with regards to the CapEx factor, let me just give you one second because I'm not sure you had the figure. My colleagues [indiscernible] in the last quarter of 2022, there was a 92% average capacity factor for most reactors, blended.

So if there are no more questions, thank you very much for joining [indiscernible]. Thank you, Dan, for the presentation and all the information, and I will make sure you can find both the presentation and the audio file on our website, Investor Relations page. Thank you again, and have a great weekend, everyone. Bye.

Thank you. Bye.