Central Puerto S.A. (NYSE:CEPU) Q4 2024 Earnings Call Transcript March 12, 2025
Operator: Good morning, ladies and gentlemen. Welcome to Central Puerto’s Fourth Quarter of 2024 and Fiscal Year 2024 Earnings Conference Call. A slide presentation is accompanying today’s webcast and is also available on the Investors section of the company’s website, www.centralpuerto.com/en/investors. [Operator Instructions] Please note, this event is being recorded. If you do not have a copy of the press release, please refer to the Investor Relations Support section on the company’s corporate website at www.centralpuerto.com. In addition, a replay of today’s call may be accessed by accessing the webcast link at the same section of the Central Puerto’s website. Before we proceed, please be aware that all financial figures were prepared in accordance with IFRS and were converted from Argentine pesos to U.S. dollars for comparison purposes only.
The exchange rate used to convert Argentine pesos to U.S. dollars was the reference exchange rate reported by the Central Bank for dollars for the end of each period. The information presented in U.S. dollars is for the convenience of the reader only, and you should not consider these translations to be representations that the Argentine peso amount actually represents this U.S. dollars amount or could be converted into U.S. dollars at the rate indicated. Finally, it is worth noting that the financial statements for the fourth quarter ended on December 31, 2024 include the effects of the inflation adjustment. Also, please take into consideration that certain statements made by the company during this conference call and answers to your questions may include forward-looking statements, which are subject to risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by industry remarks.
Thus, 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 Financial Officer, Enrique Terraneo; and Alejandro Diaz Lopez, Head of Corporate Finance and Investor Relations Officer. And now, I will turn the call over to Alejandro Diaz Lopez. Please, Alejandro, you may begin.
Alejandro Diaz Lopez: Thank you very much, and good morning, everybody. Thank you for joining us today on a new session of earnings presentation where we are going to discuss our financial results for the fourth quarter of 2024 and the fiscal year of 2024. As usually, I will begin the presentation by addressing in shortly the main figures of the quarter and the whole fiscal year, followed by a quick update of the regulatory framework and relevant news. Then, I will show an overview of the Argentine electricity industry, moving afterwards to our operational and financial results. Finally, at the end of the presentation, we will be happy to address any question you may have. Before going into a more excessive analysis of our financial and operational results, let me briefly review Central Puerto’s main figures for the fourth quarter of 2024 and the whole fiscal year.
The group’s installed capacity remains at 6,703 megawatts and energy generation amounted to 5.4 terawatt hour during the fourth quarter of 2024, increasing 5% year-over-year. Annual generation rose 4% to 21.6 terawatt hour. Regarding our financial results, it should be noted that due to Central Puerto’s accounting methodology of items in pesos must be inflation-adjusted to the end of the quarter local currency, while the company reports its results in dollars by converting them at the end of the period official exchange rate, the so-called Central Bank A 3500 exchange rate. This causes a non-cash impact that affects positively or negatively as appropriate our financial metrics. Also, the sharp devaluation of December of 2023 created a distorted base for comparison.
Revenues for the fourth quarter of 2024 amounted to $168 million, increasing 71% year-over-year compared to the fourth quarter of 2023. While annual figure reached to $671 million, rising 25%. Adjusted EBITDA rose 44% year-over-year for the fourth quarter of 2024 to $65 million, whereas annual metric increased 4% to $288 million. Net income for the fourth quarter of 2024 was negative in $28 million, and the result for the fiscal year of 2024 was positive in $52 million. Finally, net debt as of December 31st of 2024 amounted to $132 million, a reduction of $154 million vis-a-vis December of 2023, showcasing a net debt to adjusted EBITDA ratio of about 0.5 times. Now, let’s move to the most recent regulatory updates and news. Spot prices have been adjusting once a month since June of 2024.
For the fourth quarter of 2024, we had 3% in October, 6% in November and 5% in December. For the upcoming first quarter of 2025, we will have a compound 10% increase with respect to December of 2024 figures. As we anticipated in our last earnings session by means of Resolution 294 issue last year, it was established a contingency plan for the electricity industry with the aim to mitigate possible critical situation during the period December of 2024 and March of 2026 with action plans for generation, transmission and distribution, as well as for major demand. Central Puerto’s eligible units to adhere to this resolution include steam turbines located in Buenos Aires and Luján de Cuyo, gas turbines located in Luján de Cuyo as well as the Brigadier López thermal power plant.
For Central Puerto, the additional remuneration for power varies from $2,000 to $2,500, depending on month, hours and units considered. Continuing with news and regulatory updates, as you may know, the Secretary of Energy aims to deregulate the industry and normalize the wholesale market. In this sense, the first step was the issuance of Resolution 21 last January that eliminated some restriction and set path for future administrative decisions. We should highlight that thermal power plant installed after January 1st of 2025 are able to celebrate PPAs with private agents. Since March 1, 2025, thermal generators are allowed to manage the fuel. Finally, an ending is settled for the Energía Plus framework. Current contracts will be in place and continue until their ending day, but new agreements and extension will have a deadline, October 31, 2025.
Also in January, the Secretary of Energy through CAMMESA issued a document with new regulatory framework for the industry with the objective to put into operation by November of 2025. The basic idea is to rebuild the spot term markets, reinstating a marginal cost system in the first one with some adjustments. Generators will declare again a variable cost of production, including the cost of fuel. There will be three sources of remuneration, power, energy and fuel being the spot prices determined by the market. The new scheme will put focus on energy remuneration aiming to reinstate the market signal to boost investment and efficiency as well as properly reflect cost and scarcity. The last concluding remark concerning the industry situation is the issuance of Resolution 67, which call for storage capacity tender process.
We are carefully analyzing the terms and condition of this process since we are interested in this project. Moving now to Central Puerto’s corporate news and updates, we recall the dividend payments of last November with the distribution of $39.47 per share. Moving to Slide 7, we also announced in December our high-voltage transmission line project with the goal of supplying efficient, reliable and competitive energy to mining companies located in the Puna region, which is in Northwestern of Argentina. In December, we signed an agreement with the IFC to finance the feasibility studies and project analysis, and in January of 2025, we set an agreement with YPF Luz to jointly carry on the development of this remarkable project. With regards to our mining activity, we have recently executed two investments.
We have acquired a 27.5% stake in Tres Cruces, which is a lithium project, and we have increased our equity participation in AbraSilver to 9.9%. Finally, a concluding remark regarding our investment projects currently in execution. I mean, the San Carlos Solar plant and the Brigadier Lopez combined cycle. Brigadier Lopez is on schedule moving at a good pace, while the contractor of San Carlos has presented some delays in its workflow. We are currently working together to sort out issues and keep the project on track. Now, let’s skip to the Argentine electricity market picture of this quarter that will be shown on Slides 8 and 9. By the end of the fourth quarter of 2024, the country’s installed capacity reached 43,350 megawatts, which means a decrease of 1% or 423 megawatts, compared to the 43,773 megawatts recorded as of December 31, 2023.
The variation results from the installation of new power facilities and reduction installed capacity and adjustment on repowering two power plants already in operations. The contraction of 423 megawatts is composed as follows: the addition of 925 megawatts of renewable sources, of which 614 megawatts correspond to wind farms, 307 megawatts to solar plants, and 4 megawatts to biogas power plants; then, a reduction of 1,195 megawatts in hydraulic sources; and a decrease of 153 megawatts in thermal sources, where a contraction was recorded in gas turbines, steam turbines and diesel engines, being all partially offset by an addition of combined cycles. It is worth to highlight that the decline of 1,195 megawatts in hydro in cell capacity is basically explained by a reassessment of Yacyretá’s power available between Argentina and Paraguay.
Since August 2024, 50% of Yacyretá’s installed capacity is allocated to Argentina, whereas it used to be approximately 88% before then. Generation decreased 2% during the quarter on a year-over-year basis. This decrease was driven by nuclear and hydro generation, 48% and 30%, respectively. Nuclear generation decreased basically by the two-year maintenance shutdown of Atucha I, which started in November and a seasonal maintenance program of Atucha II, carried on between the end of September and the beginning of December. Hydro generation shrunk due to a combination of two factors: the aforementioned change in the allocation of Yacyretá’s installed capacity and energy generation upon Paraguay claim; and a reduction of river flows, mostly in the Uruguay and Paraná Rivers.
Finally, renewable and thermal generation rose 13% and 24%, respectively. The growth in thermal generation led to higher fuel consumption. 65% rise in gas oil, 9% in natural gas and 3% in fuel oil. Focusing now on the demand, as you can see, electricity demand kept almost flat during the fourth quarter of 2024 vis-a-vis in the fourth quarter of 2023. There was a slight contraction in residential consumption almost offset by commercial and major demand. Higher temperatures recorded during October of 2024, in comparison to the same month of 2023, prompt higher retail consumption, which shrunk then in November and December as a result of milder temperatures compared to equal months of 2023. For the whole 2024, residential demand barely grew 0.4%.
And major and commercial demands both ending 2024 with a 1% decrease in their consumption, though some positive interannual growth rate were observed during the second half of the year, especially for food and beverage, oil and gas and mining. Finally, the electricity trade balance resulted in a net import situation during the whole quarter with the peak in November. In line with the demand trend showcase above, net imports were recorded in October and November, being substantially lower in December. We now go to Slide 10 to our key operating indicators for the quarter. We can see that electricity generated by Central Puerto rose 5% to 5,416 gigawatt hour compared to 5,168 gigawatt hour during the fourth quarter of 2023. Hydro energy generation from Piedra del Aguila dropped 31%, reaching 1,164 gigawatt hour from 1,678 gigawatt hour during the fourth quarter of 2023.
This decline was primarily due to a 7% reduction in water levels of the Collón Curá River and 22% in the Limay River, which both resulted in lower availability of water for generation. Wind generation decreased 3%, reaching 396 gigawatt hour during the fourth quarter of 2024 compared to 410 gigawatt hour during the same period of 2023. This decline was mainly due to lower wind reserves and also some maintenance works. On the other hand, solar energy generation reached 88 gigawatt hour during the period under analysis compared to 73 gigawatt hour during the fourth quarter of 2023, basically as a result of higher results availability. Thermal generation increased 25% during the fourth quarter of 2024 compared to the fourth quarter of 2023, reaching 3,767 gigawatt hour from 3,007 gigawatt hour.
The growth was mainly due to higher dispatch of some steam turbines in Puerto site and some steam and gas turbines in Luján de Cuyo as well as higher generation of the Brigadier Lopez open cycle and the combined cycle of Santa Fe. Also, a higher availability and dispatch were recorded for the Mitsubishi combined cycle located in Costanera side. Finally, it is worth to highlight that during the quarter, some important maintenance programs were carried out in steam turbines and combined cycles, especially that executed in the combined cycle located in Nuevo Puerto. That maintenance lasted more than expected due to some findings recorded in the steam turbine and the generator, while performing the overhaul. These findings were partially settled and are expected to be completely sold-out during the next maintenance program to be carried out next September.
Notwithstanding this, the combined cycle is 100% operative. Now, let’s move to our revenue breakdown. As you can see on Slide 11, this amounted to $168 million in the quarter as compared to $98 million in the same period of 2023. The variation in revenues is a consequence mainly of: A 61% or $29 million increase in spot market revenues, driven by: a cash effect on the gap between currency devaluation and spot remuneration increases; higher thermal generation, mainly in steam turbines, the Brigadier Lopez open cycle plant and Costanera Mitsubishi combined cycle; finally, a non-cash effect on the gap between currency devaluation and inflation primarily attributed to the one-time devaluation of December of 2023. Then, we have a 62% or $27 million increase in sales under contract, driven by: higher solar generation of Guañizuil farm; higher energy sales of cogeneration units, especially in the San Lorenzo plant; and also, a non-cash effect on the gap between currency devaluation and inflation.
Those were all partially offset by lower wind generation, mainly due to lower wind resource and extraordinary maintenance. Then, we have a 109% or $4 million increase in steam sales, driven by higher steam production in both Luján de Cuyo and San Lorenzo facilities, but substantially in the later on as a consequence of higher demand from clients. As we commented in our last earnings session, we expect that steam demand will continue to be higher in the future, showing a new trend due to new economic activity levels in some industries, remarkably in oil and gas. On Slide 12, we can see the dynamic of our adjusted EBITDA. During the fourth quarter of 2024, the group’s adjusted EBITDA amounted to $65 million, pricing 44% or $20 million when compared to the fourth quarter of 2023.
When analyzing the adjusted EBITDA, we can observe that the variation is mainly explained by: The previously stated higher aggregate sales driven by spot sales and sales under contracts, spot remuneration increases higher than currency devaluation and a positive non-cash effect on the gap between currency devaluation inflation. Then, we have a $43 million increase in cost of sales, explained basically by a rise in maintenance expenses and a real appreciation of the Argentine peso. On the other hand, production costs were also negatively impacted by a non-cash effect on the gap between currency devaluation inflation. SG&A rose $11 million, mainly by higher fees and compensation for services related to one-time projects and the real appreciation of the Argentine peso.
Similar to production costs, SG&A were also negatively impacted by the so-called non-cash effect due to the gap between currency devaluation and inflation. Finally, other operating results net were positive and higher than the fourth quarter of 2023 figures by $4 million, basically as a consequence of insurance recovery, which was partially offset by lower interest from clients due to lower CAMMESA delays, the effects of the Resolution 58, and the negative non-cash effect on the gap between currency devaluation and inflation. Moving to the next slide, the consolidated net income. During the fourth quarter of 2024, Central Puerto’s net income amounted to a loss of $28 million. This is basically the result of negative impacts driven by non-cash effects.
We should highlight an impairment of almost $100 million, higher D&A and some one-time gains from M&A transaction registered in 2023. These effects were partially offset by better results driven by the change in purchasing power of the currency due to lower inflation and higher variation biological assets. Then, we have lower funding FX difference and interest due to lower FX variation and some positive effects were recorded by the aforementioned adjusted EBITDA dynamic and net financial results, which were driven by lower FX differences on financial liabilities and lower bank commissions. Finally, income tax was higher due to higher income before tax. Lastly, on Slide 14, we have the cash flow dynamic during the 12 months of 2024. Net cash provided by operating activities was $250 million during 2024.
This cash flow arises mainly from net income for the period before income tax, collection from interest from clients, insurance recovery, being all partially offset by income tax and other taxes payment. Net cash used by investing activities was $160 million during 2024. This amount is mainly explained by acquisitions of property, plant and equipment and inventory and acquisitions of other financial assets, being all partially offset by dividends collected and the sale of property, plant and equipment. Net cash used by financing activities was $106 million during 2024. This is basically a result of long-term debt repayments, interest and other long-term debt cost paid and dividends paid being all partially offset by long-term loan received and net overdraft received.
Consequently, our cash position as of December 31, 2024 amounted to $4 million. If financial assets are included, our total current liquidity amounts to $233 million. With this, I conclude the presentation. Now, we invite you to ask any questions to our team. Thank you very much for your attention.
Q&A Session
Follow Central Puerto S.a. (NYSE:CEPU)
Follow Central Puerto S.a. (NYSE:CEPU)
Operator: [Operator Instructions] Our first question comes from [Tomas Francisco] (ph) with Balanz.
Unidentified Analyst: Hello? You can hear me correctly?
Fernando Bonnet: Yes, Tomas.
Unidentified Analyst: Okay. Good morning to all. I’m Tomas from Balanz Capital. I want to ask three questions. So, the first one is what impact do you expect from Central Puerto from the new regulations that aim to legalize the power sector? What is your view on this topic and future interest of generators to invest?
Fernando Bonnet: Okay. Thank you for the question, Tomas. We are seeing different phases of the deregulation that the government are trying to establish, and we are talking with them. The first one was the Resolution 21 that we explained in the script, this is a minimum deregulation that allowed us to start buying some fuels and gas, which is very important for us because, as you know, right now, all the fuel and gas is provided by CAMMESA and in the past, we do that, and we can have some efficiency because, as you know, we are the biggest one, and we have a very power purchase quantity of gas and fuel. So, we are expecting to start buying our own fuel since March, since this month, minimal amount because, as you know, it’s — CAMMESA have already set contract with the gas providers, the plant gas.
So, the volumes out of that are right now small volumes, but we are start doing that. So, it’s the first phase of the regulation, start buying fuel and gas for us. I mean, this is very, very good, because as I mentioned, we can do — we can have advantages there. In terms of new capacity, the Resolution 21 established that we can — with new capacity, we’re going to start selling power through private PPAs. So, this is a good start. Of course, it’s not easy because right now, the demand or you have — the demand are covered by renewables. So, we are not expecting perhaps too much new power plants building in the Resolution 21. And the other change that the government are talking about is the possibility of having certain conditions of marginality, prices in the future.
We are talking about in October, we have a new regulation in place, a full new regulation in place, and there, we can have some advantages of our combined cycle that are selling right now in the spot market. So, we are seeing some improvement there since November, this year, we can have some improvement in our remuneration, which is right now only at the spot market, and we can have some — or we can receive some additional prices in terms of some kind of not pure marginalism, but some kind of marginalism that the government are willing to establish some benefits to the equipment that are more efficient and have less — or yes, are more efficient and have better availability. So, we are seeing there some important opportunities for our most efficient combined cycles.
And as I mentioned, we have some opportunities in terms of buying our own fuel, which is small right now, but I think in November, December, could be more important when the government establish the full deregulation scheme. So, I am optimistic about that. I think they are in the good path. They are trying to establish more competition in the sector, not only in the energy generation sector, in the gas sector also. And I think we have — we are in the good path. Of course, this 20 years of regulation, it’s not easy to remove in only one year, but I think we have some opportunities in order to start selling new capacity to perhaps a spot or have a niche transactions in terms of the capacity, in terms of new capacity, but also in terms of the existing capacity, have better prices for the efficient equipment that allowed us to keep maintaining those equipment and to improve those equipment, which is already 20 years old.
So, we need to improve that. We need to maintain that. So, we are seeing opportunities there having more flexibility not only to go to spot, but have some — or cut some marginal prices somehow. And in terms of fuel also, we are looking forward to do that to have our own fuel and gas provision. So, we see some — also some improvement there in our remuneration.
Unidentified Analyst: Great. Thank you. The second one is you may have some small investment in mining and you also have the transmission project with YPF Luz, probably some generation products in the portfolio. Will we see more aggressive investment this year?
Fernando Bonnet: Well, we — first, we have the — we mentioned it, but we have an option for battery supply from CAMMESA we are looking first, we are looking there. Actively, we are looking to participate. Of course, it’s a technology that we are entering. It’s not a technology that we know, but we are looking forward to participate in that auction first, it’s in May. Then, of course, we are working heavily with YPF to develop the transmission line in the Puna, so this is another important project for us. And the cogeneration depends on not only the regulation. The regulation, as I mentioned, established the possibility to establish a private contract with the demand for new capacity. The thing about that is we need to have the demand when you think about the cogeneration, the most important thing for the [outtaker] (ph) is the steam, but we also need to have the demand for the electricity to cover that — or the complete business.
So, we are looking for that. We have one or two projects on — we are looking at, but it’s not easy to set the whole package to set the steam contract and to set the electricity contract. So, it perhaps take more time than the other assets that we are looking, the other project that we are looking. And in the mining case, we already invest in developing projects, and they are fully funded for this phase of developing, and we are not seeing additional CapEx in this year for those projects.
Unidentified Analyst: Okay. Thank you. And last one is any news on the hydro auctions?
Fernando Bonnet: Well, we are talking with the government, and they are moving forward, not as fast as they plan at the beginning. They think that they could have the auction in place on February, but I think they are taking, I think, a little bit more, but they are confident that they’re going to have the auction in place between April, May, and then they can move forward with that. So — but we are not having a specific input about how they are planning to do it and if they are thinking in a PPA with CAMMESA, with the Secretary of Energy or they are thinking more in contracts with the demand or distribution companies. We are not ready there, we don’t have that information yet. But we know that they’re willing to move forward April, May this year.
Unidentified Analyst: Okay. Thank you.
Operator: [Operator Instructions] This concludes our Q&A session. I would like to turn the conference back over to Mr. Fernando Bonnet for any closing remarks.
Fernando Bonnet: Thank you, 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: This does conclude today’s presentation. We wish you a good day.
