Central Puerto S.A. (NYSE:CEPU) Q3 2022 Earnings Call Transcript

Central Puerto S.A. (NYSE:CEPU) Q3 2022 Earnings Call Transcript November 10, 2022

Operator: Good morning and welcome to Central Puerto Conference Call, following the results announcement for the Third Quarter ended on September 30, 2022. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. If you do not have a copy of the press release, please refer to the Investor Support section on the company’s corporate website at www.centralpuerto.com. A replay of today’s call may be accessed by accessing the webcast in the Investor Support section of the Central Puerto corporate website. Before we proceed, please be aware that all financial figures were prepared in accordance with the IFRS and are stated in Argentinian pesos, unless otherwise noted.

It is worth noting that the financial statements for the third quarter ended on September 30, 2022, include the effects of inflation adjustments. Accordingly, the financial figures mentioned during the call, including the data from previous periods and the growth comparisons, have been stated in terms of Argentine pesos at the end of the reporting period. Also, please note that certain statements made by the company during this conference call are forward-looking statements, and we refer you to the forward-looking statements section of our earnings release and recent filings with the SEC. Central Puerto assumes no obligation to update forward-looking statements, except as required under applicable securities laws. To follow the discussion better, please download the webcast presentation available on the company’s website.

Please be aware that some of the numbers mentioned during the call may be rounded to simplify the discussion. On the call today from Central Puerto is Fernando Bonnet, Chief Executive Officer; and Federico Bozhori, Financial Controller. And now I will turn the call over to Federico Bozhori. Mr. Bozhori, you may begin.

Federico Bozhori: Thank you very much. Good morning and welcome. We are joining you today with our management team from our site at Argentina to report the results for the third quarter of 2022. After the presentation, we will answer any questions you may have. I would like to begin today’s call by analyzing the recent events, the industry in general, and finally, the operating figures of the third quarter of 2022. I would like to mention the following updates regarding Central Puerto. Central Puerto successfully bids in CAMMESA’s auction for 10 megawatts of dispatch priority for our Parque Solar San Carlos Project under MATER framework located in San Carlos, Salta province. Regarding Brigadier López plant, Central Puerto is negotiating with an engineering company expecting to start the work related with the completion of the combined cycle power plant from the first quarter of 2023 on.

High-voltage power lines. Electricity distribution station. high voltage electric transmission tower. Distribution electric substation with power lines and transformers.

A fixed a fit rating subsidiary decided to modify the long-term issuer debt rating of the company from Category A+ with a stable outlook, high-grade quality to category, AA- with a stable outlook, very high grade quality. On October 13 of the 2022, the company’s Board of Directors approved the acquisition of shares issued by the company. The maximum payable price for the shares will be US$5.4 per American Depository Receipt on the New York Stock Exchange, up to a maximum of Ps167 per share in Ares Stock Exchange. On September 30 of the 2022, the shareholders of Central Puerto decided to amend the Section 4 of the company bylaws those regarding incorporated purpose with the aim of not only having as primary line of business, the energy generation and to broaden the scope and consider other industries such as mining, forestry and agriculture.

Now I would like to comment on the main metrics of the industry. As you can see on Page 3. In terms of install capacity, the system reached 42,899 megawatts compared to 42,589 megawatts in the third quarter of the 2021, resulting in 1% increase mainly based in new renewal projects developed. As of September 30 of 2022, the installed capacity continued to be 59% thermal, 25% hydro, 12% renewable, and 4% nuclear. In the third quarter of the 2022 energy generation decreased 10% to 33,452 gigawatts compared to 37,059 gigawatts in the third quarter of the 2021, mainly due to: first, 21% decrease in thermal; second 19% decrease in nuclear, partially offset by an increase of 13% hydro and 3% in renewal. Thermal decrease was mainly due to a lower dispatch related to an increase of hydro dispatch and minor to a lower availability of certain machines.

Regarding the generation from nuclear source, the decrease was related with the shutdown maintenance of Atucha I and Embalse nuclear power plant and a technical problem with In contrast, the increase in the hydro generation is mainly related with increase of the river water flows that softened the draw that the region had experienced last year. As for the renewal energy, the increase in generation was created with increase in the install capacity and its subsequent energy demand. During the third quarter of the 2022, the main sources of energy generation continue to be thermal and hydro with a share of 57% and 22% respectively while renewals were 14% and nuclear was 7%. Finally, energy demand increased 1% up to 34,730 kilowatts compared to 34,454 kilowatts in the third quarter of the 2021 where commercial demand grew 5% and residential decreased 1%.

As of the third quarter of the 2022, demand structure was 46% represented by residential users, 27% by commercial activity and the remaining 27% was related to a great demand industrial/commercial. Going now to our key performance indicators for the quarter, as you can see on Page 5, energy generation during the third quarter of the 2022 was 3,932 kilowatt, 14% higher than the same period of the 2021. The increase was mainly caused by first, a 17% increase in energy generation from thermal units, mainly from CAMMESA due to high dispatch related to the combined cycle full operation and higher dispatch of Puerto steam turbine, partially set by the external maintenance in 2027 outlook on the Puerto power generation. Second, 21% increase in energy generation from the hydro plant in Piedra del Aguila due to higher water flows of Limay River compared with the third quarter of the 2021.

Third, an 8% decrease in energy generation from renewal unit due to less wind resource and minor failures in some wind turbines. Regarding the reliability of our thermal unit during the third quarter of the 2022, it reached 81% in line with the strong availability history of the Central Puerto’s equipment. At a reference, the market average availability for thermal units for the third quarter of the 2022 was 78%, according to that from CAMMESA. Steam production increased 90%, totaling 568,557 tons produced during the third quarter of the 2022 compared to 298,997 tons during the third quarter of the 2021 due to the commissioning of the Terminal 6 cogeneration plant. And now I will comment on the results of the third quarter of the 2022. Going now to the results for this quarter, as you can see on Page 7, our revenues were Ps.20.3 billion as compared to Ps.24.3 billion during the third quarter of the 2021.

This 17% decrease was mainly due to first, a 35% decrease in which total peso Ps.7.5 billion in the third quarter of the 2022 as compared to Ps.11.5 billion in the third quarter of the 2021. Due to higher inflation than the price adjustment and scale maintenance of certain things Second, a 2% decrease in sales and contract, which amounted to Ps.11.2 billion during the third quarter of the 2022 as compared to Ps.11.4 billion in the third quarter of the 2021, due to a higher inflation adjustment over the phase of depreciation in the period. Also, it was impacted by a termination of Brigadier López PPA contract in August of the 2022 partially offset by increases in sales due to terminal sales combined cycle competition, partially offset by a 15% increase in the steam sales, which total Ps.0.9 billion in the third quarter of the 2022, compared to Ps.0.8 billion in the third quarter of the 2021 due to a 90% production increase.

Going to Page 7, we can see the changes in our EBITDA including impairment and falling FX difference and interest, which was Ps.13.8 billion in the third quarter of the 2022 compared to Ps. 11.8 billion in the third quarter of the 2021. This 16% increase was driven by the following change. First, after as 13% decrease in revenues expense before partially offset by, a 13% decrease in the cost of sales that total Ps.11.1 billion compared to Ps.12.7 billion in the third quarter of the 2021, mainly due to a decrease in amortization charge, decrease in maintenance expenses and decrease in insurance costs. At 26% decrease in administrative and selling expenses, the total Ps.1.5 billion in the third quarter of the 2022, primarily driven by decrease in fees and remuneration for services and decreases in taxes among other expenses.

Adjusted EBITDA was Ps.20.7 billion in the third quarter of the 2022 compared to Ps.14.6 billion in the third quarter of the 2021. This increase was mainly due to the above mentioned variations and $5.1 billion increase foreign exchange difference on operating assets mainly related to FONI trade receivables that generated Ps.6.8 billion compared to Ps.1.7 billion gains during the third quarter of the 2022 due to a higher depreciation of the Argentine peso during the quarter and lower 12 receivables balances maintained. Third, 24% increase in interest from clients, which total Ps.2.1 billion during the third quarter of the 2022 compared to Ps.1.7 billion in the third quarter of the 2021, mainly related to an increase in the interest rate applied by CAMMESA for payments delay.

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As of September 30, the delay was 20 days. Fourth, an increase in other operating result mainly due to lower non-regained grades recovered in the fourth quarter of the 2021 and 0.7 FX differences on account receivable and 0.5 billion increase in commercial interest from account receivables. All these variations were partially offset by a 7% decrease in depreciation and amortization that total Ps.4.4 billion during the third quarter of the 2022 as compared to Ps.4.3 billion during the third quarter of the 2021. As a result, adjusted EBITDA excluding FX difference and interest related to FONI trade receivable and impairment on property plant and equipment was Ps.13.8 billion in the third quarter of the 2022 compared to Ps.11.8 billion in the third quarter of the 2021.

Continue, we can see that consolidated net income was Ps.4.5 billion in the third quarter of the 2022 compared to a consolidated net income of Ps.4.9 billion in the same period of the 2021. In addition to the above mentioned factor, net income was negatively impacted by first, an increase in financial expenses which amounted to Ps.10.3 billion during the third quarter of the 2022 compared to Ps.3.8 billion in the third quarter of the 2021, mainly due to an increase in foreign exchange difference any due to a higher depreciation of the Argentine peso during the quarter. Second, an increase of net monetary position loss of $8.2 billion, (0:14:45) which amounted to Ps.8.5 billion during the third quarter of the 2022 due to a higher inflation during the third quarter of the 2022 and higher balance of monetary asset, partially upset by the share of profit associates with Ps.0.2 billion gain during the third quarter of the 2022 compared to a gain of Ps.0.3 billion in the third quarter of the 2021.

Third, an increase on income tax expenses that amounted to Ps.3.0 billion in the third quarter of the 2022 compared to Ps.1.9 billion in the third quarter of the 2021. And positively impacted by first, an increasing financial income that amounted to Ps.9.4 billion in the third quarter of the 2022 compared to financial income Ps.0.5 billion in the third quarter of the 2021, mainly due to higher financial assets result in the third quarter of 2022 of Ps.8.6 billion, second, higher FX difference and interest in foreign receivables in Ps.4.5 billion. FONI collections related to the trade receivables for Vuelta de Obligado plant totaled Ps.2.5 billion in the third quarter of 2022 as compared to Ps.5.8 billion in the third quarter of 2021. The amounts are being collected on time and according to the signed contract.

Going to Page 13, you can see our cash flow for nine months of the 2022. Net cash provided by operating activities was Ps.35.2 billion during the nine month of the 2022. This cash flow arises from first, Ps.21.2 billion from the other operating results net obtained during the nine months of the 2022, second, Ps.8.2 billion in collection of interest from clients, including the one from FONI, third, Ps.2.2 billion in evaluations in other non-financial assets and inventories. Fourth, insurance recoveries of Ps.1 billion and fifth, adjustment to reconcile profit for the year before income tax with net cash flows it was Ps.11.0 billion, which was partially offset by Ps.4.6 billion evaluation in trade accounts payout. Other accounts payable, other non-financial liabilities and employee benefit liabilities and income tax expense of Ps.3.8 billion.

Net cash used in investment activities was Ps.25.5 billion in nine months of the 2022. This amount was mainly due to first, Ps.24.8 billion losses from the investment in short-term financial assets. Second, Ps.0.5 billion in payments for the purchase of property, plant and equipment, which was partially offset by Ps.0.1 billion obtained in the sale of property, plant, and equipment and Ps.0.1 billion in dividends collected. Net cash used in financial activities was Ps.9.3 billion in the nine month of the 2022. This amount was mainly the result positive of Ps.0.6 billion bank and investment account overdraft paid offset by Ps.5.8 billion in loans paid mainly related to the loans received for expansion project and Ps.3.8 billion in interest and financial expenses paid mainly related to those loans.

Thank you. And now we invite you to ask any questions you may have.

Q&A Session

Operator: Thank you very much. We’ll now begin the question-answer-session. Your first question is coming from Martin . Martin your line is live.

Unidentified Analyst: Hi. Well, first of all thank you for the materials as always. I have four questions. Sorry for the extent, I would like to go over them one by one if that’s okay. My first question is that if we are not mistaken, there have been some extensions on hydroelectric power plants concessions to 2025. If you could give us any updates on the discussions regarding Piedra del Águila and if you think that you will see a similar extension.

Fernando Bonnet: Okay, thank you, Martin for your questions. Yes, we can go one by one. The first one regarding the concession of Piedra del Águila hydro plant. We have been talking with the government with the new Secretary of Energy about that. They are still getting in place because they assume a few months ago. So they are analyzing the point. They have a perhaps different approach from the previous Secretary of Energy. So they want to analyze indeed all the consequences that to extend the concession to not to extend, which is related to the claims that the, all the owners of the concession have related to the freezing of the prices and the restriction to contract the electricity of those power plants that was allowed in the original concession.

So they are analyzing this and they will come to us with a conclusion perhaps early the beginning of the year or early next year. But today we don’t have any insight about how they going to proceed. We assume that or we can assume that whenever the time of the finalization get close, perhaps they will use that one year extension that you mentioned as a gaining time to finalize the analysis. But we don’t have any information yet or any concrete information to conclude that.

Unidentified Analyst: Okay. Very clear. Well, my second question then is about the Brigadier Lopez project. If you could comment on unexpected COD and the price for energy and capacity payments?

Fernando Bonnet: Okay. In terms of Brigadier Lopez, as Federico mentioned, we are working with an EPC provider, an engineering company to 20 in a contract to close the cycle. And with Siemens also, which is the steam provider. We don’t have yet the timing of the closing. We expect to have a close contract with them at the end of the year or the beginning, perhaps generally next year. So we can expect a timing for the completion in terms of between 22 months and 24 months from that when we close the contract. So that could be the timing. So we don’t have yet the confirmation because as I mentioned, we don’t close the deal. But you can consider that time in 22 months, 24 months after we signed the contract. And in terms of €“ and the other part of your question was about the PPA, sorry.

Unidentified Analyst: Yes. The payment.

Fernando Bonnet: The PPA regarding Brigadier Lopez as you mentioned.

Unidentified Analyst: Yes.

Fernando Bonnet: Okay. Yes. Whenever we close the cycle €“ the combined cycle, we start receiving a PPA for the steam turbine, not the gas turbine, the PPA related to the gas turbine finish on August this year. So right now the GTs receiving the base payment €“ the payment. But whenever we close the combine cycle, we start receiving a PPA for 10 years related to the steam turbine. The PPA is around $22,000 per megawatt capacity.

Unidentified Analyst: And for energy?

Fernando Bonnet: Sorry?

Unidentified Analyst: And for energy?

Fernando Bonnet:

Unidentified Analyst: need of a real catch up to keep up with maintenance or is still their room to go less as we have been going this couple of years?

Fernando Bonnet: Okay. In terms of, well depend on the units. In terms of steam device we need to do some maintenance in terms of keep them operating in operation and we expect to have some maintenance related to the T6, the Steam Terminal 6 and we expect to have a maintenance of our combined cycle, not next year. I want to say the combined cycle, not next year, the next one in 2024. And we are discussing with the government additional remuneration to do those maintenance, especially the combined cycle, which is €“ which imply a life extension in fact. So we need to perform maintenance in the boiler and big maintenance in the boiler. And we are talking with the government and related to have an additional remuneration to cover that, that life extension maintenance.

It’s the same, it’s not only Central Puerto, it’s the same of all the combined cycle that were installed in late-90s, at the beginning of 2000. All these combined cycle are reaching the lifetime limit, so they need an extension and because of that all the generators are working together. So will have a remuneration or additional remuneration to cover those maintenance. But this is more or less what we are talking about in terms of maintenance. The combined cycle of Mendoza, the lifetime extension comes in 2025. So we are not expecting big maintenance on this combined cycle for these two years to come.

Unidentified Analyst: Okay. So if I understand correctly, it’s like an additional payments only for maintenance is not like that you’re expecting like less remuneration to go about inflation, is that right?

Fernando Bonnet: No. Yes. That are two parts of the remuneration. We are, of course talking with the government in terms of increased or to maintain the remuneration in real terms, but we are talking about additional maintainer. This is for their normal operations. So we are talking with the environment related to additional increase in this year, for the resolution to 138. That implies the maintenance and the operation, the current maintenance and the current operation not implies, and life extension of the combined cycles. In that sense, we expect, we don’t have a confirmation yet, but we expect another increase in the Energia asset prices for this year. And we are talking about what’s going to happen in next year trying to set some increases in advance, not working below the inflation that what’s happened this year. So we are working towards that. We expect to have a confirmation for a new increase this year and then set a path of increases for the next one.

Unidentified Analyst: Okay, very helpful. And my last question then if you are considering paying dividends next year?

Fernando Bonnet: Yes, that is under analysis. And we are giving all the information and all the consideration related to that to our shareholders and it’s a possibility, yes not close yet, but we need to discuss that with our shareholders. But it’s a possibility Central Puerto has a positive cash flow generation, so it’s a possibility. Yes.

Unidentified Analyst: Well thank you very much for your time and that follow on my side.

Fernando Bonnet: Thank you for your question.

Operator: Okay, there appears to be no further questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Bonnet for any closing remarks.

Fernando Bonnet: Thank you to everyone for your interest in Central Puerto. We encourage you to call us for any information that you may need. Have a great day.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.