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

Hi, everyone. My name is Valentina Dinu. I think it is already 4:00, so we can start the conference call for the financial results for the first 9 months of 2023, the third quarter of this year. We are going to go ahead as usual. First, my colleague Dan Niculaie, the CFO of the company, is going to deliver the presentation, then we can go ahead to questions and answers. So hoping that everyone can hear me. I would have to kindly, kindly ask you to mute your telephone laptop during the presentation so can everyone hear the presentation. This being said, thank you all. Dan, you have the floor. Thank you.

Hello. Thank you very much. Welcome to the presentation. So today, as presented by my colleague, we are going to talk about the individual interim financial statements as at -- and for the 9-month period ended September 30, 2023. So the presentation will include first section of the financial highlights, and then discussion about sales of electricity, OpEx, CapEx, subsequent events, technical performances and at the end, a small recapitulation of SNN details. So in terms of financial results, quantities sold Q3 2023 compared to Q3 2022, roughly the same quantity. However, the sales of electricity increased by roughly 15.3% in -- representing an increase of RON 748 million. In terms of OpEx, we are talking about a decrease of roughly 22%. This excludes the windfall, which was higher than the windfall that are paid and computed for the last 9 months in 2022. We are having here a large increase of 135 -- almost 136%, representing RON 1.1 billion. Even though we incurred this substantial windfall tax costs, our EBITDA is roughly similar, with a decrease of less than 5% as compared to the first 9 months of 2022, leading to overall because of better performance in the financial result, to net profit of RON 1.9 billion, similar to RON 1.9 billion in 2022. And this is the rough presentation. I will enter into details in the following slide in which you will see what elements contributed to the financial performance. So as mentioned, net profit is a little bit higher than the net profit for the first 9 months in 2022. The positive impact generated from an increase in source of electricity, similar quantity but higher electricity prices, decrease in traded electricity costs because we managed to have less unplanned outage hours and increasing the financial results. The negative impact stemmed from a significant increase in windfall tax, the RON 1.1 billion that we spoke about and increase in personnel cost, a smaller impact of roughly RON 70 million. On the next slide, we have detailed the breakdown of the OpEx cost. As you can see, larger decrease in the uranium sorry -- in -- with respect to contribution transition fund, and then roughly the same elements. In terms of financial costs, we -- and financial revenues, income, we managed to extract a net gain, which led to this financial -- good financial performance. In terms of financial highlights, balance sheet noncurrent assets increasing by 4%, mainly from purchase of long-term bonds, increasing financial investment in subsidiaries and a small impact on depreciation. Current assets increasing by 7.7% because we managed to generate more cash. Non-current liabilities are little bit lower because we switched -- we completed the EURATOM loan. We switched to the short-term accounting treatment. Current liabilities a little bit higher as a result of the increase in windfall tax for September, which is usually paid in about 25 days roughly in October and increased accounts payable from a general increase in prices. Equity, of course, with the increased -- with the results carried forward from the profit of 2022. In terms of sales of electricity, you probably know that we managed to sell roughly half of our electricity at the regulated price of RON 450 per megawatt. On the competitive market, we managed to obtain a higher price, 50.5%. However, the quantity was 51.4% lower because we sold it on the restricted market and the regulated M-A-C-E-E mechanism; spot market, a significant decrease in price with a small decrease in quantities sold, and the balancing market, again, a decrease in price with a similar quantity sold. The next slide presents a more detailed presentation of the -- of what I've indicated in the previous slide. We've -- as mentioned, the company sold electricity on competitive market at higher prices, generating additional performance. The quantities also [indiscernible] MACEE mechanism represented 44% of the total volume of electricity sold. And on the competitive market, we saw the difference, which is roughly 42%, which is decrease from the last year when we managed to sell on the competitive market, 86%. However, because of this positive mix, we -- the average selling price was RON 939, roughly, per megawatt hour without Tg, which represents a 50% increase compared to the last year average price, which was RON 624 per megawatt hour. On spot market, quantity similar representing [ 13.7% ] of the total percent volume. The average price on the spot market, RON 516 per megawatt, which was, of course, lower as compared to the spot market prices last year when the entire market was in crisis mode. In terms of OpEx, you'll see here a detailed breakdown. The largest item, of course, is the windfall, the explanation for the increase in the windfall tax is, first of all, the amount that is taxed last year, we're taxing 80% of the additional revenue above RON 450 per megawatt in the first 9 months with 100% of whatever was above RON 450 was taxed. So therefore, we -- in addition to the fact that we have an average price in a competitive market which was higher led to this increase in the windfall tax. Personnel expenses in line with our budget, increase -- slight increase in the number of employees, increase in salaries, participation of such employees to the profit of the company. We have an increase of 32.3% due to higher utility prices for technological and non-technological water and energy, an increase in cost of uranium fuel due to increase in the weighted average cost of fuel bundles. On the ANDR contribution for decommissioning, no notable variation. We have an electricity transmission expense. We have an increase of 60 -- almost 68% to the increase of the level in transmission tariffs into grid. That's it, we couldn't influence this cost. Cost of traded electricity, significant decrease of almost 92%. Our operational performance was excellent. This year, we haven't had significant unplanned outages. And in addition, we had lower cost with imbalances, which led to this significant decrease of cost. The contribution to the local energy regulator, a significant increase percentage-wise, but no big impact. In terms of CapEx, our revised investment program is RON 0.7 billion. The first 9 months, we achieved RON 456 million investment, which is a similar degree of completion compared to the last year similar period. And you have a breakdown on types of investments. So you will see that ongoing investments for the large projects represent the largest of the investments, and then we have some smaller investments on tangible assets and equipments. In the next slide, I'm going to talk a little bit about our CapEx. Our main investments and long-term strategic projects, Unit 1 refurbishment, Unit 3, Unit 4, small modulators and of course, the CTRF project, the Detrition Facility Project. In terms of Unit 1 refurbishment, we've signed pre-projects engineering contract in March for about CAD 65 million with our counterpart SNC-Lavalin with a division CANDU of member of the SNC-Lavalin group, which is now called AtkinsRéalis. And in October 2023, we signed one of the most important contract for the technologization, basically, the contract for the supply of reactor components and the required tools. This contract will enter into force at the moment when we are going to receive the corporate approvals, basically the shareholder approvals from both of our shareholders and the Canadian Commercial Corporation, which is part of the consortium with CANDU in this contract. With regards to Unit 3 and Unit 4, in March 2023, the Romanian state and Nuclearelectrica signed a support agreement, providing a lot of support measures for the development of the project, including the provision of sovereign guarantees, contract for difference, mechanism of administrative and regulatory support. And of course, this is a presentation of the impact of such support agreement. We've made significant progress in moving to an Article 41 of the EURATOM Treaty notification. And in terms of financing, the Canadian government finally show their support for development of the project by providing a commitment of CAD 3 billion to be deployed through EDC. Small modular reactors. We are receiving a lot of support for the project. On May 20, 2023, U.S. announced the interest of various investors in the project with $175 million and including support measures from U.S. EXIM, which is the U.S. ECA for about $99 million under the EXIM Engineering Multiplier program. In addition, the U.S. EXIM and DFC issued cumulatively about $4 billion letters of commitment for the financing. The project company is progressing with the development of project by signing a memorandum of understanding with the reputable international potential EPC developers such as Samsung, Fluor Enterprises. We are also attracting interest from private investors with DSPE, Korean Investment Firm, being interested to provide EUR 75 million equity contribution from the development of the second phase of our engineering study, we call it FEED Phase 2. And of course, we are also progressing with our regulatory authorities with the confirmation of the licensing basic documentation by our national regulatory agency. With regards to the CTRF project, the Detrition Facility Project, you probably remember that we signed EUR 195 million engineering EPC contract with KHNP and this contract will take about 50 months for execution. We're confident that we'll be able to achieve it in the estimated time line. Good news, Fitch confirmed our rating. It's a BBB- with stable outlook. And this gives us comfort about the perception of the market with regards to our company. In terms of KPIs, radioactive emissions, very good. Nuclear fuel burn up factor as anticipated, excellent. And unit performance, the capacity factor, we are running a very, very tight ship. So we are running the reactor very good capacity factor cumulative 9 months, almost 90%. So this is it in a nutshell. I'm here to answer any questions if needed.

Iuliana Ciopraga from Wood & Company. I have a number of questions, actually. So first on the cost with the acquisition of Power, you're mentioning something regarding balancing in the presentation. This is actually deducted from the windfall tax, right? Because I think there's a difference. So if you trade, you probably had to deduct them, you're not allowed to deduct them, but if it's balancing [indiscernible] from the windfall tax, is that right?

Yes, yes, it's deducted in the computation of windfall tax [ order ].

Okay. And regarding the contract for re-tubing with CANDU, that's for CAD 65 million for pre-engineering work, not for equipment or anything else, right? I'm a bit confused on the amount...

The first one is for pre-engineering. Yes, it's basically engineering for the project. The second contract, it's a larger amount and it's for supply of the components...

But what's the value for the supply -- what's the value of the second contract then?

It's up to CAD 800 million will -- is going to become public knowledge at a later stage.

Okay. So it's -- okay. So that's the missing bit. But how do these amounts compare with the feasibility study that we -- that you released last year. I think it was -- you had some...

It was EUR 1.85 billion. We are constantly analyzing the implications of any supply chain or energy impact, and we will probably know in the next 6 months if we need to readjust our budget or not.

Okay. And regarding the SMRs, we saw the news that the U.S. project was canceled. So NuScale's U.S. project was canceled. And I was wondering what would be the implications for you? You'd be basically the only one developing such technology locally -- not locally, worldwide. I mean, it proves to be quite expensive because beginning of the year, they hiked the LCOE, the cost basically for the projects, it's seems to be quite an expensive project, where maybe in Romania, it will be cheaper, I don't know, but what are your thoughts on this?

The LCOE for the carbon-free project reflects the U.S. costs embedded in the project and the financial structure of the project. In addition, in our understanding the decision of the municipalities to not invest in the project anymore reflects the specificity of the U.S. energy mix. And you probably know that U.S. is producing a lot of gas at very low prices. So they need to run their numbers in order to determine which mix of energy in their portfolio, it's better suited to their strategic interest.

So at the moment, at least, you're not -- I mean, you're not influenced by the decision as far as I can see. I mean it seems that you're moving ahead with this with no scale. You're not changing supplier, basically. That's actually the question. Are you considering a change in technology following this?

We are trusting the SMR technology because it's suitable to replace oil-producing assets. NuScale, it's the first technology which was approved through the NRC and the U.S. regulators. So we don't see a reason why to change our strategy.

But I guess there are several SMR technologies approved worldwide already, right?

No. So far, with the exception of the SMR technology developed in China, there is no other SMR technology, which passed the regulatory hurdles. NuScales, it's the first one so far, and that was one of the main reasons why we have decided to team up with NuScale for this project.

And regarding reactors 3 and 4, if I remember correctly in the support agreement, you're supposed to call GMS to approve it somehow. So after the law that was passed, with the support agreement, I understand subsequently, you needed to call a shareholders' meeting to approve it. And I haven't really seen that happening. It looks to be a delay on that side. Can you provide some color here?

We are working towards convening such shareholder decision. We are focusing ourselves now to conclude the engineering contracts to support such decisions, and we will come back with news when available.

But the -- so just for me to understand, so your call -- you're going to call GMS when you have the result of the engineering contract? Because I don't think I've seen that in the support agreement. So that's actually what I'm asking, why is the delay?

The support agreement allows us to come by the end of this year with GMS. So we'll either comply or delay, we'll see what is the best strategy.

But why haven't you concluded one yet? Why haven't you called one yet, [indiscernible]?

This is confidential information. I cannot answer to this.

So I guess you'll provide more color before the end of the year, just to conclude here.

Everything that is of public knowledge will be for sure communicated to all the investors.

Any other questions, please? Okay. Thank you very much for joining us. We are going to publish on our website, Investor Relations page, both the presentation, the audio file and as well as the transcript. I think the transcript is going to become available starting tomorrow. As well, I would like to inform you that this conference call has been recorded for the very purpose of publishing the audio file for the interest of our shareholders and investors. Thank you very much. Have a good evening, everyone.

Thank you. Have a nice evening.

Thank you. Bye.