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

So hello, everyone. My name is Valentina Dinu. [indiscernible] Nuclearelectrica and the conference call today addresses the financial results for the first semester of 2023. As usual, we are going to go ahead with the presentation delivered by Mr. Dan Niculaie, CFO of the company, and then we can go straight to Q&A. So Dan you have the floor. Thank you very much.

Thank you, Valentina. Hello, everybody. Thank you for joining. I'd like to present the results for the first semester of 2023. It's been an exceptional first semester, and you will see why. So in terms of financial performance, in terms of the quantity that was sold, a slight decrease of 1.4% compared to the first semester of 2022. In terms of sales, we managed to sell roughly RON 3.78 billion, an increase of 20.4% compared to the first semester of last year. OpEx was higher, an increase by 50% from RON 1.4 billion to RON 2.1 billion, and I will explain the reason for such an increase. EBITDA was RON 1.6 billion as compared to RON 1.7 billion last year, a slight decrease of 4.7%. The financial results was higher than last year, which led to a net profit of almost RON 1.9 billion compared to RON 1.22 billion last year. As you will see in the next slides, I will present the main drivers for such a financial result. We see here the waterfall. With Green, you will see the positive impact and with red, the negative impact. So starting from last semester's results of RON 1.2 billion, we will manage to sell more electricity or higher value of electricity as RON 0.6 billion. We managed to have a positive impact in terms of the cost of credit electricity, RON 0.23 billion. We managed to extract more financial results by using our cash position, RON 0.59 billion. This is on the main elements that contributed to the increase in our profitability. In terms of negative impact, the largest impact, of course, is with the increase in the windfall contribution of RON 0.875 billion, and we had a negative impact of RON 39 million for personnel expenses. So this is the overall picture of our performance. In detail, you will see on this slide a granular view of each relevant revenue and operating expenses or financial expenses performance. And as mentioned before, in terms of total revenue, the main factor was an increase in the sales of electricity by 19.8% from almost RON 3.1 billion to RON 3.7 billion. We had an increase -- relatively small increase in the revenue from electricity transmission. In terms of operating expenses, main elements, personnel expenses a little bit higher than last semester with 16.3%. Cost of credit electricity, we managed to keep the cost under control, and this resulted in a net benefit of RON 308 million. Repairs and maintenance roughly the same amount, electricity transmission expenses, a difference of RON 11 million. Cost with spare parts, roughly the same number. And the cost of uranium fuel a little bit higher 10% increase. In terms of the largest operational expense was the contribution to the energy transition fund. So last year, we paid and we incurred an expense of RON 585 million. And this year, in the first half of the year, we've incurred RON 1.46 billion, which is more than an increase of 149%. In terms of depreciation and amortization, a new small increase of 4.4%. In terms of financial results, as mentioned before, we managed to extract more value from the market with an impact -- total impact of, if I remember correctly, RON 159 million, which led to the aforementioned profit of RON 1.28 billion, an increase of RON 5.6 million compared to last year. In terms of budget, we are presenting also a positive view in terms of total revenue, higher revenue is 3.1% as realized versus budgeted. In terms of operating expenses, a decrease of 13.7% overall from almost RON 5 billion budgeted to RON 2.1 billion realized. In terms of net profit, we budgeted RON 842 million, and we realized RON 1.2 billion, which is an improvement of 52.9%. In the next slide, we are going to present a breakdown of the sales of electricity comparison between the first 6 months of '22 with the first 6 months of 2023. As in the previous waterfall graph, the elements presented in green show a positive effect and the elements presented in purple present a negative effect. So you'll hear that the main driver for the increase in the electricity that was sold was the fact that we've managed to sell on the competitive market price, RON 2.4 billion. And then we have a positive effect from the imposition of the so-called [ Mache ] regulation. And the largest negative impact was the fact that the quantity that was sold on the competitive market was lower, which led to an impact of RON 2.26 billion, negative impact. Ultimately, all these elements contributed to the sale of electricity amounting to RON 3.7 billion for the first 6 months of the year. More detail in the next slide. With regards to the centralized electricity acquisition mechanism, the acronym being MACEE or [ Mache ], we call it in Romania. The main driver was the fact that the company sold electricity at competitive market at higher prices, thus generating more revenue. In the average price generated by SNN was RON 745 per megawatt hour, while in the first 6 months of last year, it was RON 614. In terms of the spot market price in the first 6 months of 2022 was almost RON 1,027 -- RON 1,028 per megawatt hour, which was reduced to RON 529 in the first 6 months of this year, which led to this positive impact in our overall revenue. All the details are presented here in granular. In terms of OpEx, you will see a detailed presentation of the change from the 6 months 2022 compared to 6 months 2023. The largest impact, as mentioned before, was related to the windfall tax and the contribution to the solidarity energy transition fund as it is called. Basically, we recorded a significant increase of almost 150% in terms of an increase of RON 876 million. You may recall that in the first 6 months of last year, this tax revenues of SNN exceeding RON 450 were taxed at 80%. In the first half of this year, the revenue is exceeding RON 450 were at 100% which led to this -- was one of the factors contributing to the increase of this tax. In terms of personnel expenses, so we have a slight increase in the number of employees and a little bit of increase with salaries adopted in Q4 2022 under employee's participation to profit. Technological and non-technological water and energy, an increase of 17% due to higher utility prices recorded in the first 6 months of 2023. Depreciation and amortization, an increase of 4.4%. We have some new asset put in function, cost of uranium fuel -- the cost of the average or the weighted average cost of fuel bundles increased by 10%. In terms of the contribution to [indiscernible], no notable variation a slight decrease of 5% cost repairs and maintenance as compared to the first 6 months of last year. Electricity transmission expenses, an increase of 17% as a result of increasing the level of the transmission tariff mostly. Cost of traded electricity, significant decrease, 94.4%. This was -- this is the result of excellent management -- operational management of the plant. We were able to keep the plant functional for almost all the time. So we haven't encountered the unexpected closures on the plant, which allowed us not to go into the market and buy electricity in order to supplement the energy that we contracted to our clients. The contribution to NRM, a little bit of increase. In percentage-wise, it's much higher, but overall, it's not a big impact. Okay. In terms of the financial highlights, the balance sheet, as we call it. So you see that overall, the total equity and liability or total asset value has increased marginally, 0.1%. We have some variations in the noncurrent assets, 5%, mainly from the purchase of long-term bonds, increasing financial investment in some of our affiliates and some depreciation recorded during the period. Current assets, minus 5% because we decreased cash and cash equivalents, including deposits by 9%. And we bought some [indiscernible] that in order to buy some bonds. On current liabilities, we are slowly decreasing our long-term portion of the external loan contracted from EURATOM. And in 2024, we will -- we have no EURATOM loans on our books. Current liabilities increased -- a small increase of 3.5% because mainly of the windfall tax due for June, which is usually paid in 1 month delayed, so basically paid in July. And the equity, of course, the increase in the result carryforward in the profit of the previous period. In terms of CapEx, RON 371 million, which is basically similar to what we have compared in or achieved in the first 6 months of 2022. Our annual investment program is higher than the program of last year because of our large CapEx program. And for these reasons, we have a lower degree of completion, but we are confident that we'll be able to rectify this. And all the investments that were made in 2023 were made in accordance with the planning for year 2023. COC, a small table, presenting the budget of the ongoing investments, degree of completion, the comparison with the budget for 2020 as of 26 of June 2023 and 2022, split by tangible assets and equipment. Okay. In terms of main CapEx program, we have, of course, the unit on refurbishment. In March 2023, we signed a contract preproject work for CANDU reactor. This contract is worth approximately CAD 65 million, increased in terms of Unit 3 and Unit 4. The increase of the production capacity project. You probably know that by the end of March, a law has been enacted, Law #74 for the approval of the signing of the support agreement between the Romanian government and Nuclearelectrica regarding the project of Unit 3 and Unit 4 of Cernavoda. The result of this law in the beginning of June, support agreement was concluded between the Romanian government and of course, the General Secretariat of the Government, the Ministry of Energy, Ministry of Finance, Ministry of Transport and the company, each of these ministries and branches of the government assuming obligations in accordance with the support agreement. We consider the signing of the support agreement, a very good sign for the development of the Unit 3, Unit 4 project because it will allow a series of support measures, including the setup of contract for difference, allowing the signing of the contract for the improvement of the critical engineering necessary to update the project. It will allow, of course, the continuous updating of the project budget. It will allow additions and the obtaining of the favorable opinion of the European Commission and the notification of the project in accordance with Article 41 of the EURATOM Treaty and a host of other elements that will be beneficial to the project. In relation to the small modular reactor project, [Bucharest] on May 2023, U.S. and the host of multinational private partners announced financing in relation to this project, $275 million from a number of investors and the Letter of Interest from U.S. Exchange for $99 million financing under the EXIM Engineering Multiplier Program. In addition, U.S. EXIM and U.S. IDFC issued Letters of Interest of financial support for -- of up to $3 billion from EXIM and another $1 billion from IDFC. Another element of interest in June, the beginning of June, NuScale, E-INFRA our partner, Flour Enterprises, a large U.S. company, and Samsung C&T Corporation sing a Memorandum of Understanding to collaborate in the agreement of NuScale VOYGR power plants in Central and Eastern Europe and in Romania. And in July, investment fund from Korea signed with Nuclearelectrica, Nova Power & Gas and the other shareholder in RoPower, a Term Sheet Agreement for a potential investment of EUR 75 million for the financing of the FEED 2 study, Phase 2 of RoPower. Another significant element S&M concluded a contract with KHNP, Korea Hydro & Nuclear Power for the first Detrition Facility Project in Europe. This is a contract for roughly EUR 195 million. The total project is now estimated to cost in the region of EUR 255 million. And the result of this project will be an improvement in the operational performance, economic financial efficiency and increased production -- protection of the population stuff in the environmental in accordance with the objectives of Nuclearelectrica in Romania and in Europe. In terms of radioactive emissions, everybody -- all these factors are respected in -- as per the limits imposed by our nuclear regulator, [indiscernible]. Nuclear fuel burnup factor, we have a very good nuclear fuel burnup factor. Capacity factor, exceptional. Even though during the first 6 months of the year, you need to enter the plant outage program. And on the 7th of May, the synchronization with the national power system has been restored on 15th of June 2023. So this is about the financial results for the first 6 months of 2023. The next presentation for the -- will be for the third quarter report on 13th of November 2023. [indiscernible], we welcome your presence in this teleconference. So if you have any questions, I am free to answer.

Iuliana Ciopraga Wood & Company. Regarding the current regulation on the centralized market, et cetera, have you heard of any changes planned for next year? Regarding [ Mache ], regarding taxation, should they be -- I mean, I haven't seen anything, but I was wondering, have you heard of any changes to the existing legislation regarding the windfall tax, for example?

We haven't received any formal notification. In this respect, we are working under the assumption that the current legislation will be held up until March 2025.

So you're not aware of any changes being planned right now. Anything in the parliament or whatever?

No, we haven't been announced of any changes in the parliament. We are not currently aware of any legislative initiatives to amend this piece of legislation.

And secondly, I've seen a comment, rather recent comment. I think it was from Mr. Burduja [indiscernible] with them are looking for partners. Can you comment anything on that side? Because in the last discussion, I think we discussed that 3 and 4 will be on your balance sheet. So you would assume the risk. It will be guaranteed by the state, but you would be developing the project. Is that the case now? Or how would it work?

Currently, in accordance with the support agreement, the government will become a shareholder in the company by bringing the first tranche of heavy water and uranium or for no changes to this plan.

So they're not -- there is no discussions on an additional partner? No, not the government on a partner.

When do you discuss pipeline, when any of these discussions or potential discussions will be more mature. We will -- sorry, inform the shareholders...

Yes, I was just wondering about the intention that if there's, at least the intention to get another partner.

We are analyzing all the options that are available at this moment in order to strengthen the balance sheet of the project and move forward with the project.

And can you remind us on the time line for both for SMRs and for -- and actually for the Detrition? I got name right, CapEx as well. So a bit on the time line project Unit 3 and 4, SMRs -- and the 3 and 4. So what are the next steps in all this?

Yes. So the CTRF project, the facility that will filter the tritium out of the heavy water. We are envisaging a period of 15 months for the EPC contract. And we are in the early preparation. We signed the contract and now we're gearing up for the start of the project. For Unit 3...

So you signed already the EPC, okay?

The contract is signed. We started the work under the contract, the early phases, the kickoff meeting, et cetera. So the time line is 15 months from the signing of the contract for the finalization of the project. In the Unit 3, Unit 4, the current time line is for 1st of January 2026 to start the CapEx, which means that 6 months in advance will have financial closing for the project. And it will be finalized in about 5 years, 2030 -- 2031, it will be financed. With the first modular reactor in Bucharest, we are working now on the initial engineering basis, which will inform the potential calendar for the development of the project. So I have no answer at this moment to give to you on -- with regards to the Bucharest SMR platform.

And regarding 3 and 4, so there is no feasibility study yet on this project. When will that become available? So how -- I mean start CapEx that's already super advanced.

We are working now on revising the time line, the budget. And we are doing the preliminary work in order to determine these elements.

Okay. So you have the first contribution right now because if I remember correctly so, you have the support agreement. What's next, you needed to contribute with cash, with [indiscernible] to EnergoNuclear? What needs to happen for you to dispose that cash? So what's the next step.

Basically, we are currently doing engineering works in order to the time line and the budget. And as you may remember, since we are remember the European Union, we need to prepare ourselves to submit a notification under article 41 of the EURATOM Treaty in order for the official start of the project. And we are working also on this aspect.

But when do you need to increase the share capital of EnergoNuclear. There was -- I can't remember right now the amount, quite a significant amount, approval already via OGMS.

So in accordance with our support agreement, the maximum amount that SNN contributes to the comment of this project is EUR 185 million.

EUR 185 million, okay.

We will contribute to this amount as that is needed.

So you don't need -- it will not be a lump sum? You'll contributor, I don't know, whatever is needed. And this is all until when?

The support -- up until the final investment decision. So the EUR 185 million is...

I'm copying everyone. I'm just signing.

The amount that is contributed by SNN in accordance with the support agreement, either through increasing share capital of EnergoNuclear for shareholder loans in order to inform the FID decision, yes FID.

And the FID will be probably those 6 months before start-up works, right?

The FID will probably -- we will need to take the FID when we have all the information, which is customary for such a decision, including a budget with a reasonable degree of probability, completed time line, contractual architecture, approval from EURATOM, financing. And I guess it's going to be 6 months before the start of hard works.

Okay. If there are no more questions. Anybody has any questions? If there are no more questions, thank you for joining us. You will be able to find both the presentation and the audio file on our website, Investor Relations page. So thank you very much. Have a good evening, everyone. Thank you. Thank you, Dan.

Thank you, everybody. Thank you.

Bye-bye.