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

Okay. Thank you very much. My name is Valentina Dinu. I'm with the Investor Relations department at SNN. And this conference call addresses the financial statements for the first quarter of 2023. The presentation is going to be delivered by Mr. Dan Niculaie, he's CFO of the company. And then after the presentation, we can go to questions and answers. So Dan, the floor is yours. Thank you very much.

Hello. Good afternoon, everyone. Thank you for participating in this presentation. Today, I'm going to present individual interim financial statements as it end for the period of 3 months ended March 31, 2023, basically the first quarter of this year. So the presentation will include -- presentation of -- the short presentation of the financial statements, starting with the profit and loss statement. As you can see from this slide, the quantity of energy sold in the first quarter of this year was almost identical with the one in the quarter of 2022, small variation. However, the sales of electricity was -- including thermal energy was about RON 2.09 billion way higher than the one in Q1 2022. The operating expenses were higher than the one in 2022. And for this reason, the EBITDA and the net profit is slightly less than the one in 2022. The reason why the revenue is higher, it's based on the fact that we are able to sell almost 50% of our eligible quantity at higher than prices -- average prices than RON 450 per megawatt. In terms of operating expenses, we have a significant impact on this, we call it, contribution to the energy transition fund, and I'll present the detailed impact in a later slide. In terms of the breakdown of this net result, you will see here that in 2023 first quarter compared to the first quarter of 2022, we have a significant increase in windfall tax contribution. It's almost RON 400 million impact, so higher energy transition fund contribution. Increase in personnel costs is a relatively small amount. Increase in sales from increase of electricity with a positive impact of RON 250 million. And we managed to derive a good financial result with a net impact of RON 104 million. Okay. In balance sheet position, nothing significant changed here. We have one small increase in new current assets, mainly coming from the fact that we've invested profitably in long-term bonds issued by a local bank, Czech Bank, with a fixed annual interest of 7.5%. We granted some loans to our subsidiaries. In terms of current assets, of course, we are -- we have an increase of 15%, mainly derived from the increase in cash and cash equivalents and increase in trade receivables by 37% because of the fact that we managed to sell half of our -- almost half of our quantity at higher-than-anticipated prices. There's more decrease in our loan with [indiscernible]. And of course, an increase in our current liabilities, mainly because of the fact that we are paying this contribution to the energy transition fund in April. So therefore, we have a payable. Equity, the corresponding impact are as a result of the profit being carried forward. The next slide presents a detailed picture of income statement. The highlights were presented in the slides -- in the first slide. What I wanted to point out in this financial highlight income statement is the fact that, we managed to sell almost the same quantity of energy for higher revenues compared to the first quarter of '22. It's almost -- and with RON 50 million more than as anticipated in our 3 months budget. In terms of operating expenses, you will see that we have a significant impact from the contribution to the energy transition fund, higher than the budgeted and of course, much higher than the one in the first quarter of 2022. Another good news is that we managed not to purchase electricity because we managed to keep the reactors almost uninterrupted in these 3 months, in the beginning. So therefore, the cost of credit electricity is significant compared to the budgeted value. EBITDA, almost RON 1 billion -- RON 956 million which is higher than the budget. And the net profit is similar, it's almost 38% higher than the budgeted amount. The next slide presents a breakdown of the impact on sales, you'll see that with this green shadow, you see the positive effect on our electricity service evolution, and we need with the other colors, you will see the negative impact. In terms of more detailed analysis of our electricity service evolution, I will point you to the next slide, where we see that we managed to sell 44.41% of our electricity. Wind is much mechanism which allows the sale of electricity at RON 150 per megawatt. And the rest of the energy was mainly on the competitive market, about 43.6% at an average price of RON 1,100 per megawatt hour, which is much better than the same average price in the first quarter of 2022. On the spot market, about 11.7% of the total. The average was still very good, RON 613 (sic) [ RON 615 ] per megawatt, which is lower than what we managed to obtain in the first quarter of 2022. In terms of operational expenses, you will see on top of the page, the main elements. Of course, the first element doing for tax expense of RON 840 million and then the personnel expenses. Technological and non-technological water and energy depreciation and amortization, I'll go through, let's say, the first 4 or 5. So the windfall, you may remember that this is -- we are impacted by a special legislation providing that we need to pay a contribution to the energy transition fund. And basically, we have to -- first of all, we need to -- we are taxed at the level of 80% to the additional income resulting from the difference between the average monthly selling price of electricity and the regulated fixed price of RON 450. And because of this taxation, we derived this RON 840 million cost. And in the first quarter of 2023, there was -- the legislation changed and then we are taxed at 100%, not 80% as in 2022. So therefore, we have this higher windfall tax expense cost. Personnel expenses, we increased the number of employees, and we have increased some of the salaries, and we have recorded a quota for GMP's participation to profit. Technological and non-technological water and energy, a 10% increase because -- mainly because of higher utility prices. Depreciation and amortization is slightly the same. Cost of uranium fuel almost the same. The contribution to [ another year ] for decommissioning, the same notable variation. The electricity transmission expenses, a significant increase of almost 70% of the increase of the level of the transmission tariff into the grid as compared to 2022. Cost of traded electricity. It's a significant decrease of 72.3% because in the first quarter, we haven't had any unplanned outage. So we managed not to -- we were lucky enough to be forced to buy electricity on the competitive market. In terms of CapEx, we budgeted for the entire year about RON 2.3 billion of investments, out of which RON 1.1 billion was for ongoing investments, RON 111 million for investment managed on tangible assets and the rest for equipment. In terms of completion, we've managed to invest so far about RON 73 million, but we're catching up for, I believe. So by the end of the year, I'm confident that we'll achieve our target CapEx. Okay. In terms of the main projects, you probably know all about these projects. But the Unit 1 refurbishment is one of the largest in terms of value. And of course, it's extremely important for us. We are working -- we're collaborating with SNC-Lavalin Group, basically whether subsidiary in order to progress with this project, we're signing engineering contracts in order to substantiate the production of prolonged materials and other elements required for this refurbishment project. With regards to the other big project of the company, the development of 2 new reactors by our subsidiary, Energonuclear. You probably know that on March -- at the end of March, the parliament and then our President adopted Law #74 for the approval of the signing of the support agreement between the Romanian state and Nuclearelectrica. This is a milestone for the development of the project because it includes a host of measures for the -- in support of the development of the project, including the issuance of sovereign guarantees for 100% of the value of the debt, the implementation of our contract for different mechanisms and a lot of regulatory administrative, urbanistic and type of support. In terms of small modular reactors, we are working with our partners in order to progress the project, you may remember that we have the support of the U.S. government in terms of subsidizing part of the engineering costs and the project is progressing as anticipated. In terms of radioactive emissions, not seeing very good performance, nothing really to report on that. The same with nuclear fuel burn factors. In terms of capacity factor, we had this exceptional 3 months with 98.91% capacity factor, which is confirming the fact we are running on all the best nuclear power plants in the world. And that's about it. The next event will be the publication of the first half year report, which is you and the conference is due on 14th of August, 4:00 as usual. But up until then, thank you very much. So I'm here to listen to any questions.

A question me, Iuliana Ciopraga. On windfall tax, can you clarify how that's calculated? I mean, in the second quarter, you're probably going to see significant costs with the electricity bought because you've already started the works on one of the reactors. How would those be treated? I mean how would you take them into account in the wind project? Are you going to take them into account this same way?

I think we're not anticipating any change in our calculation of the windfall tax because the retechnologization process will start on 1st of January 2027.

No, no. From the -- from the maintenance, from closing one of the reactors due to maintenance.

The standard outage?

Yes, exactly.

Yes. Unfortunately, given the formula, which is applied for this computation of this -- of the tax, the energy -- again -- no, sorry, the energy for the outage is computed in the tax. The energy for unplanned closure is not computed in the tax, if that was the question.

So the energy that you need to buy for the outage is accounted for in the tax? Yes? I mean you basically are allowed to use those..

Yes, the formula allows us. But basically, our strategy, we have not sold the capacity of the reactor, which is under outage. So therefore, we are not forced to buy on the market, the energy in order to complement what was -- what we sold. So there is no impact.

Okay. Okay. So you don't anticipate basically to buy significant volumes like you did in the previous years?

No.

Okay. And also on the CapEx plan, you started deploying -- you didn't start, but you're probably going to start deploying significant CapEx towards the refurbishment, the one side in 2027. You already provide an estimate for the total CapEx. If I remember correctly, it's somewhere around EUR 1.9 billion. Are you going to reanalyze that, revise those figures? How would it work? Because you're 4 years away right now, and I guess that costs have changed in the last year. How that -- how do you know what the final costs are? Have you contracted anything?

We have contracted some of the pre-engineering contracts. And we will, of course, revise the budget in direct relation with the value of the contract that we're concluding. So we will know the actual and the total value of the project once all the -- first of all, all the contracts will have been concluded. And second, we'll see what will be the final value of the works at the end of the project.

But do you expect to have an updated estimate for the cost? Of course, you'll know when you can put the contracts up.

We will know with greater accuracy, the budget for the retechnologization, somewhere in mid-2026. By then, we are slowly but surely contracting the necessary engineering and the works and the materials in order to complete the project.

And how much of the costs should be deployed before 2027? I mean we can see what we included in the budget because you build a budget for -- you include also estimates for 2024, 2025, but how much in total would need to be spent before 2027?

I think it will be in the region of EUR 300 million, but we know for sure when we conclude our contracts.

EUR 300 million -- around EUR 00 million of the capital invest?

Yes, basically, we'll buy some lingering materials, and we will invest in engineering. The lingering materials are the components with a long production cycle that we need to order. So that is on 1st of January 2027, I think it's deployed on the site, waiting for the reactor we closed and the start of the works on the reactor.

But I see in the budget that you book much more than that. I mean, you book EUR 700 million already in 2023, EUR 963 million in 2024 and EUR 1.6 billion in 2025.

These are all estimates. It's -- as I mentioned before, we'll know for sure when we sign the contracts, and we are currently in discussions with our partners.

And for -- I mean, for the amount for this year, for example, EUR 700 million, EUR 721 million, how likely is that will happen? But that's already significant. I mean, it's EUR 150 million?

We think that it's very highly likely to happen because it relies on either soon to be signed contracts or by the end of the last quarter will be signed and paid advances.

Okay. But then you're a bit less ensure in 2024, 2025. So it's possible that CapEx for [ retubing ] would be lower than what you've been including in the budget?

It all depends on the cash curve negotiated with our partners. So this is something that is still under discussion.

Okay. One more thing, if I may. Are you allowed to conclude forward contracts now? I mean can you sell energy forward?

We are under the current mechanism, we have to sell whatever is not already sold, the unknown, I call it in the legislation. The non-contracted quantities, we are bound to sell on under the margin mechanism with up comers or counterparty.

So whatever is not contract you have to sell on the satellite market?

Yes. There is this mechanism of 80% of the quantity that was not sold that we need to sell and with OPCOM and the rest may be sold on forward contracts, but basically using stock exchange prices and mechanism.

You mean when you say you have to sell them via up comer. You mean you can sell them forward via the market, but not necessarily on the centralized market. So not necessarily at RON 450. That's what I'm trying to understand. I mean...

Basically, this year, in the mechanism as implemented as anticipated, about 50% of our energy will be sold at RON 450 and the rest will be sold at the average price, which is indicated basically in our budget. So this year, we are lucky that we manage in 2022 to sell almost half of our available quantity at very good prices.

So you don't anticipate going forward as well? You don't anticipate be selling much on the day ahead market. Because you sold around 12%, if I remember correctly on the day ahead market in the first quarter, that's probably going to be the same in the following quarters, right? Do I understand correctly?