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

My name is Valentina Dinu. I am with the IRO Department in Nuclearelectrica. And today conference call will address the financial results for the first quarter of 2024. We are going to start this conference call with the presentation. The presentation is going to be delivered by my colleague Vasile Dascalu, CFO of the company. And right after the presentation, you can ask him whatever is of interest to you regarding the financial statements and results and investment projects or technical and operation on status quo of the company for the first quarter of 2024. So this being said, Vasile, the floor is yours. Thank you.

Thank you, Valentina. Hello, everybody. The presentation will include the financial position. income statement, net results evolution, income net statement actual versus budget, sales of electricity, structures analysis, information regarding OpEx and CapEx and technical performance indicators. Regarding the company's financial position at the end of Q1, we may notice noncurrent asset position, which remained stable compared with the previous year. The current assets are reflected by decreasing in trade receivables, mainly as a result of electricity sales reduction and increasing in cash and cash equivalents. In terms of noncurrent liabilities, position remains stable compared with the previous year. Regarding current liabilities, this decreased by 38% because of reduction to 0 of the windfall tax due at the end of Q1. Regarding income statement. The net profit for the first 3 months of 2024 recorded a 26% decrease compared with the first 3 months of 2023, and this is mainly due to a decrease in revenues from energy sales, RON 927 million, compensated by decreasing in windfall tax expense by RON 840 million. Increase in other operating expense, RON 37 million, mainly due to increase of technological water price during this period. Increasing trade electricity cost resulted from higher cost on balancing market and increase in personnel cost by RON 29 million alone as a result of salaries increase. Also, financial results decreased by 35%, representing RON 38 million due to lower interest revenue recording during this period. Therefore, net profit at the end of Q1 is RON 563 million. Next slide is a graphic representation of the main contributing element to the net results. And as it was mentioned earlier, the main impact is coming from decreasing of electricity price compensated by decreasing of the windfall tax. As you probably know, the windfall tax for Q1 2023 was 100% on the revenue exceeding RON 450. Sales structure has seen changes in the last year. This slide is presenting the information related to the quantity sold by market and average price used into the relevant markets. We can notice that electricity sold through centralized mechanisms increased from 44% to 68% in total sales and a decrease on the market, competitive market from 55% to 32%, the sales in competitive markets, decreased from 55% to 32%. In terms of sales price evolution, the next slide, -- it's showing that the average selling price decreased by 44% from RON 752/megawatt to RON 417/megawatt. On the centralized electricity selling mechanism, which is representing 68% of the total electricity sold in Q1, selling prices remain stable with an average of RON 446/megawatt. And on the competitive market, which is representing 32% of the electricity sold in Q1, the selling price dropped from RON 999/megawatt to RON 351/megawatt. The price on the spot market decreased during this period from RON 613/megawatt to RON 347/megawatt. In terms of operational expense, besides the information already presented into the previous slide, we may notice that the operational costs are lower by 14% than the budgeted ones. And this is coming mainly from the reduction of cost of traded electricity foreseen by us. It's a reduction of 47%, personnel expenses by 13% and cost of uranium fuel by 35%. The comparison between the actual and the budget is continuing on the next slide. Here, we may see that revenues are in line with our expectation with the budget and the operational costs are 19% lower than budget. Therefore, EBITDA and net profit are higher by 16% and 18% than the budgeted level. With the next slide, we'll start the CapEx presentation. Investment value of this year, it's RON 1.6 billion, and the degree of completion is 4.2%, in line with the schedule for Q1. Mainly investments on long-term strategic projects are presented within the next slides, where we can see Unit 1 refurbishment elements. Here, we can notice that we are in the second phase of implementation, which includes the provision of financial resources and obtaining all necessary approvals and endorsement for project implementation. As you probably noticed on February 2024, SNN signed Memorandum of Understanding with SACE and Ansaldo Nucleare both for the same purpose for Unit 1 refurbishment project. Also, company completed a framework agreement related to preparation and implementation of the Cernavoda Nuclear Power plant, Unit 1, the refurbishment project with a maximum value of EUR 243,616 (sic) [ 243,616,360 ]. This was concluded with Canadian Nuclear Partners. The main activities underway in Q1, it's obtaining the environment agreement and building permit, development of the population health assessment study with a completion date in Q2 this year. Regarding Units 3 and 4, I'm stressing the support agreement between Romanian State and SNN. This support agreement allows securing the project's financing by granting the state guarantees to the project financing parties to the lenders, implementing the contracts for difference type scheme that is allowing us to sell on the market, in-kind contribution to financing of the project by increasing the share capital of an EnergoNuclear, which is the company project, increasing of the share capital by the government of Romania with heavy water, Uranium Octoxide, Nuclear Fuel Load for the first use. General Shareholder Meeting on 17th of April approved an addendum to the support agreement where the main provision aimed at updating the budget related to Stage 2, LNTP, the preliminary works and updating the data related to investment decision 1 and 2 accordingly with the current implementation schedule of the project related to small modular reactors. You may notice that during this time, on 9th of April, the company together with the project company, SMS (sic) [ SMR ] announced the successful implementation of the IAEA SEED. And the follow-up mission, which focus on the selection of Doicesti site, planned for the safe development of the first small nodular power plant in Romania. Also, the National Regulatory Authority issued official approval letter in August 2023, confirming the licensing basis document, which is in conformity with the national regulatory requirement. Regarding the tritium removal facility project, this installation is capturing the tritium from the heavy water used in the nuclear electric power plant. This will lead to an improvement in operational performance, economic financial efficiency and increasing protection of the population, staff and environment. To support completion of the Europe's first tritium renewal facility, SNN and the European Investment Bank have signed a loan agreement in value of EUR 145 million. Also, Nuclearelectrica and Korean Hydro & Nuclear power plant signed on June 2023, the EPC contract, the Engineering Procurement and Construction contract for the completion of this first Europe nuclear waste disposal facility at Cernavoda plant. Main activity underway in Q1 for this project, it's evaluation of the documentation for long cycle equipment. From KPI point of view, we are in line with the limits. We keep the limits. The relative emission is good, with good results. The same result was obtained for the fuel burn up factor and also for the capacity factor, which hit 97.9% at the end of Q1 this year. The presentation will be ended here. If you have questions, we are at your disposal, please.

Thank you very much for your presentation. Congrats for the results. I had 2 questions. If you could, detail a little bit what happened to the balancing market in the first quarter, leading to that increase in cost, because I'm not very clear what was the cause for that. And there were some distortions not only in your case, but in other market participants. And this is the first question. The second question is regarding what do you see now in terms of sales mix? If you can comment, we are already in the middle of the second quarter. Since March has become optional, so what do you see and what is your strategy in regards to the sales mix after 1st of April, if you can comment on that. Thank you so much.

We are not able to [ read ] the market in this moment. What we can notice is that the market is stabilizing and we'll see the results for the next quarter and we'll comment on it.

Yes. And what about the -- what happened in the balancing market in the first quarter. Maybe you can comment on that?

Well, yes, during the first quarter, we had to cover the, let's say, the variable prices that appear on the market. And the cost that we have -- it was lower than the one budgeted anyway, meaning that we foresee this variation.

Thank you for the presentation. I have a follow-up question regarding sales mix. So in the first quarter, you have a higher-than-usual number of sales on the spot market. And if you could comment on the reasons behind it because we know your strategy is to sell as much as possible on the long-term market. And if I remember in the budget, you mentioned that about 43% of this year's production was already contracted. And I assume it was on MACEE. What -- and I saw, for example, in April, according to [indiscernible] Reports, some quantities are already moving on the [ foreign ] markets. So how do you see for the rest of the year this mix between MACEE and [ foreign ] markets.

As I had mentioned earlier, we are not able to comment on what will happen into the next period. And we took all necessary measures during the Q1 to adapt to the -- what's happening in the market.

And what about the spot market in the first quarter of -- the quantity was higher than usual. Usually, you had up to 20% and now you had over 30%.

Yes. We adapted to what happened in the market in Q1, and you can see here the results...

So you had additional quantities from contracts that were canceled because the production is the same. You are forced? This is the question because the price was also lower on the spot market, you're forced to sell there?

No, we are not forced to sell that. We catch the market, where the market help us to sell on the best price.

Yes, but why not selling on the foreign market at a higher price, the price on the spot market was lower.

This was the decision at the time we saw this price, and we took a good decision at that moment.