Central Puerto SA

BCBA:CEPU

Earnings Call Transcript 2023-Q1

[Operator]

Good morning, and welcome to the Central Puerto Conference Call following the results announcement for the First Quarter ended on March 31, 2023. All participants will be in listen-only mode. [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 Support section on the company's corporate website at www.centralpuerto.com. A replay of today's call may be accessed by accessing the website 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 IFRS and are stated in Argentinian pesos, unless otherwise noted. During the call, including the data from previous periods and the growth comparisons, have been stated in terms of Argentine pesos of 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 Enrique Terraneo, Chief Financial Officer; and Federico Bozhori, Financial Controller.

And now, I will turn the call over to Federico Bozhori. Mr. Bozhori, you may begin.

[Federico Bozhori, Financial Controller]

Thank you very much. Good morning. We are joining you today with our management team from [indiscernible] Argentina to report on the results of the first quarter of 2023 and then answer any questions you may have. I will like to begin today's call by analyzing the recent events, the industry in general, and finally the operating figures of the first quarter and the most recent financial news and results.

I would like to mention the following updates regarding Central Puerto. On December 12 of 2022 through resolution 826/2022, the Secretariat of Energy authorizes generators a tariff increase of 25% in February of the 2023, and 28% in August of the 2023 to spot energy. On February 7, 2023, through resolution 59/ 2023, the Secretariat of Energy authorizes generators that have combined cycle units to other to the agreement on availability of power and improvement of efficiency with the aim of encouraging the necessary investments of major and minor maintenance of the machines.

Through this agreement, the other in generators undertake to achieve at least 85% availability of average monthly power in exchange for a new power and generation price. In the case of power, an amount of $2,000 per megawatt month is established plus the sum in pesos corresponding to 85% and 65% of the power by established in resolution 826/2022 for the periods of spring, autumn, and summer, winter respectively.

Additionally, the price for generated energy is set at $3.5 per megawatt in the case of using gas and at $6.1 per megawatt for alternative fuel like this, new investments and acquisitions. In-line with our growth strategy, focused on new opportunities in the energy sector and other business in which Argentina shows strong competitive advantages, we perform the following transactions: On February 17, 2023, Proener S.A.U. acquired from Argentina S.A., 75.68% of the capital and voting stocks of Enel Argentina S.A. called Central Costanera.

The transaction price amount $48 million. By taking possession of Central Costanera, Central Puerto reinforces its growth in Argentina, consolidating as market leader in the generating sector. The value of Central Costanera represents a unique opportunity as a strategic asset – the growth potential of each acquisition is based on the operational and corporate synergies, experience management and knowledge in technical and operational field.

On May 3 of the 2023 Proener S.A.U. acquired 100% of the capital stock and votes of Empresas Verdes Argentina S.A., Las Misiones S.A. and Estancia Celina S.A, consisting of 88,063 hectares geographically located in the center of the province of Corrientes, of which approximately 26,000 hectares planted with spine out of a total of approximately 36,000 plantable hectares. The company is focused on increasing its environmental performance and contributing to global decarbonization objectives.

Now, I would like to comment on the main metrics of the industry, as you can see on Page 4. In terms of installed capacity, the system reached 43,278 megawatts in the first quarter of 2023, compared to 42,821 megawatts in the first quarter of 2022, resulting in 1% increase. As of March of the 31st of 2023, the installed capacity is divided in 59% thermal, 25% hydro, 4% nuclear, and 12% renewables.

In the first quarter of 2023, energy generation increased 8% to 38,627 gigawatts per hour, compared to 35,719 gigawatt hour in the first quarter of 2022, mainly due to, first, a 1% increase in thermal generation. Second, a 74% increase in higher generation, which was partially offset by: first, a 28% decrease in nuclear generation; and second, a 3% decrease in renewable generation.

The increase in thermal generation was mainly due to higher dispatch. The average system availability was 73% in the first quarter of 2023, compared to 76% in the first quarter of 2022. The increase in hydro generation is mainly related with the increase in the inflow of the Paraná River. In contrast, in the case of generation from nuclear sources, the decrease is related with a severe technical failure in Atucha II.

Regarding renewal energy, the decrease in generation was related to lesser wind reserves. Energy demand increased 14% to 39,490 gigawatts hour, compared to 34,513 gigawatt hour in the first quarter of 2022, in which residential demand grew 25%, commercial, 7%, and large industrial commercial demand, up 4%.

Going now to our key performance indicators for the quarter. As you can see on Page 6, energy generation during the first quarter of 2023 was 5,137 gigawatt hour, 12% higher than the same period in the 2022. The increase in the energy generated by Central Puerto was due to, first, a 15% increase in energy generation from thermal units, mainly from the acquisition of Central Costanera, partially offset by lower generation of Puerto site; second, an 8% increase in energy generation from the hydro plant Piedra del Águila due to higher inflow of Limay and Collón Curá Rivers, partially offset by; third, a 7% decrease in energy generation from renewable units due to lesser wind results.

During the first quarter of 2023, availability for thermal unit was 73%, compared to 84% in the same period of the 2022, due to lower generation due to the technical pages of Puerto site steam turbines. As a reference, the market average availability for thermal units for the same period was 73% according to data from CAMMESA. Steam production decreased 6% totaling 435,055 tons produced during the first quarter of 2023, compared to 460,735 tons during the first quarter of 2022, due to lower demand of our client Terminal 6 S.A.

Going now to the results for this quarter. As you can see on Page 8, our revenues decreased ARS 27.9 million in the first quarter of 2023, as compared to ARS 35.1 billion in the first quarter of 2022. This 20% decrease was mainly due to: First, a 36% decrease in sales under contracts, which amounted to ARS 11.7 billion during the first quarter of the 2023 as compared to ARS 18.4 billion in the first quarter of 2022. It was impacted by the ending of Brigadier Lopez TG PPA contract in August of 2022, and negatively impacted by a higher inflation adjustment of the peso depreciation in the period.

It's worth to mention that the impact related to the ending of Brigadier Lopez TG PPA contract, will be recovered with a new PPA contract for the Brigadier Lopez steam turbine when we fixed the closing of the combined cycle by the end of 2024.

Second, a 7% decrease in Spot/Energía Base Sales revenues from solution 826/2022 Secretariat of Energy, which totaled ARS 13.3 billion in the first quarter of 2023 as compared to ARS 14.3 billion in the first quarter of the 2022, negatively impacted by a higher inflation adjustment over the tariff increase in the period and due to lower generation, mainly for clinical failures of Puerto site steam turbines of ARS 2.8 billon, partially offset by Central Costanera revenues of ARS 1.8 billion.

Third, a 23% decrease in sales, which totaled ARS 1.3 billion in the first quarter of 2023, compared to ARS 1.7 billion in the first quarter of 2022. Fourth, for segment, that total 1 billion in revenues during the first quarter of 2023. We can see the changes in our adjusted EBITDA of ARS 29.8 billion in the first quarter of the 2023, compared to ARS 32.2 billion in the first quarter of 2022. The 7% decrease was driven by the following changes:

First, the above-mentioned drop in revenues; second, 16% increase in administrative and selling expenses that totaled ARS 2.4 billion in the first quarter of the 2023 as compared to ARS 2.0 billion in the first quarter of 2022 for Central Puerto. The deviation is mainly driven by ARS 0.17 billion increases in the third-party services, ARS 0.11 billion from Central Costanera and ARS 0.05 billion are coming from forestry segment; third, 9% increase in cost of sales that totaled ARS 17.0 billion in the first quarter of 2023 compared to ARS 15.5 billion in the first quarter of 2022.

The revision is mainly explained by including Central Costanera for ARS 1.3 billion and [indiscernible] segment for ARS 0.6 billion, partially offset by a reduction in Central Puerto of ARS 0.6 billion, mainly driven by lower third-party services and insurance costs in the first quarter of 2023. Fourth, 3% increase in depreciation and amortization at total ARS 6 billion during the first quarter of the 2023, as compared to 5.8 billion during the first quarter of 2022.

ARS 6.4 billion increase, mainly explained by, first, foreign exchange difference on operating assets, mainly related to FONI trade receivables that generated a positive variation of ARS 3.4 billion during the first quarter of 2023. ARS 9.4 billion in the first quarter of 2023 compared to ARS 5.9 billion during the first quarter of 2022, due to a higher depreciation of the Argentine peso during the quarter.

Second, an increase in ARS 4 billion, due to a fair value recognition and biological assets from forestry segment. Third, ARS 1 billion decrease in other income results due to an insurance recovery in the first quarter of 2022. As a result, adjusted EBITDA excluding FX difference, interests related to FONI trade receivables and biological assets fair value recognition was ARS 16.5 billion in the first quarter of the 2023, compared to ARS 26.3 billion in the first quarter of 2022.

In Q1 of 2023, adjusted EBITDA includes ARS 0.8 billion from Central Costanera since March 2023 and ARS 0.4 billion from Forestry segment. We can see that consolidated net income was ARS 0.1 billion in the first quarter of the 273 million, compared to a consolidated net income of ARS 9.8 billion in the first quarter of 2022.

In addition to the above-mentioned factors, net income was negatively impacted by first, an increase of ARS 7.3 billion in net monetary position loss, which amounted ARS 13.7 billion during the first quarter of the 2023, due to a higher inflation compared to ARS 6.4 billion loss in the first quarter of the 2023.

Second, an increase in share of the loss of associates of ARS 0.3 billion in the first quarter of the 2023 amounted ARS 0.7 billion in the first quarter of the 2023, compared to ARS 0.4 billion in the first quarter of 2022.

Third, an increase in financial expenses, which amounted to ARS 14.7 billion during the first quarter of the 2023, compared to ARS 9.6 billion in the first quarter of 2022, mainly due to an increase in foreign exchange difference, due to a higher depreciation of the Argentine peso during the quarter, partially offset by an increase in financial income that amounted to ARS 6.8 billion in the first quarter of the 2023, compared to financial income ARS 3.5 billion in the first quarter of 2022, mainly due to higher financial asset results in the first quarter of 2023.

Fourth, an increase in depreciation and amortization of pesos ARS 0.2 billion in the first quarter of the 2023 and positively impacted by, first, lower income tax that amounted to ARS 1.4 billion loss in the first quarter of the 2023, compared to ARS 3.7 billion loss in the first quarter of the 2022 million; Second, an increase of ARS 3.5 billion on foreign exchange difference and interest related to FONI trade receivables.

Third, fair value recognition forestry segment, biological assets that amounted ARS 4 billion. FONI collections totaled ARS 3.9 billion in the first quarter of 2023, including VAT associated to FONI trade receivables for Vuelta de Obligado Plant, compared to ARS 4 billion of the first quarter of the 2022, representing a total of ARS 3.9 billion in which ARS 0.5 billion corresponds to Central Costanera. The amounts are being collected on time and according to the signed contract.

Going to Page 12, you can see our cash flow for 3 months of 2023. Net cash provided by operating activities was ARS 5.6 billion during the 3 months of 2023. This cash flow arises from: First, ARS 1.5 billion gain from the pretax income obtained during the 3 months of the 2023. Second, adjustments to reconcile profit for the year before income tax with net cash flows of ARS 10.5 billion gain. Third, ARS 2.7 million gain in collection of interest from clients, including the ones from FONI. Fourth, insurance recovery is ARS 0.1 billion, partially offset by with ARS 2.1 billion loss in variations in other non-financial asset inventories and biological assets.

[Sixth] [ph], ARS 5.7 billion variation in Trade Accounts Payable, Other accounts payable, other non-financial liabilities and employee benefit liabilities. Seventh, income tax paid of ARS 1.4 billion. Net cash used in investment activities was ARS 6.4 billion in the first 3 months of 2023. This amount was mainly due to: First, ARS 7.3 billion from Central Costanera acquisition; Second, ARS 1.4 billion on investments in CapEx, partially offset by ARS 2.3 billion gain in sale of financial assets.

Net cash used in financing activities was ARS 1.1 billion in the first 3 months of the 2023. This amount was mainly the result of, first, short-term financing representing ARS 5.6 billion, partially offset by, second ARS 0.8 billion of dividends paid; third, ARS 1.4 billion in debt service amortization of existing loans mainly related to expansion projects; fourth, ARS 2.3 billion in interest in financial expenses, mainly related to those loans. Thank you. And now we invite you to ask any questions to our team.

[Operator]

[Operator Instructions] Your first question for today is coming from Martin Arancet at Balanz Capital.

[Martin Arancet, Balanz Capital]

Hi. Well, thank you for the presentation and for the materials as always. I have four questions. I would like to run them on one, if that's okay. My first question is about Evasa acquisition. I was wondering how much did you pay for the company if you did came with cash or debt also if it was a [hard dollar] [ph] payment [abroad] [ph]?

[Fernando Bonnet, Chief Executive Officer]

Okay. Thank you for your questions. In terms of the payment of Evasa acquisition we cannot provide that information because we signed a confidential agreement with the seller. So, we are not allowed to comment on the pricing. And in terms of payment, we pay [abroad] [ph], yes.

[Martin Arancet, Balanz Capital]

Okay. Thank you. And a follow-up, maybe what EBITDA do you estimate for these new forest?

[Fernando Bonnet, Chief Executive Officer]

Well, in terms of EBITDA, the – more or less the idea or the decision that we take was the same that they were implementing, the Evasa were implementing is to conserve the forest and to increase the quantity of [indiscernible] that we plan. So, we are not – we are not selling the trees right now. We expect a better convenient exchange rate and a better convenient price. So, we are using the cash flow to increase the [hectares plant] [ph]. So, we are not having the cash EBITDA that we have received from these.

Also, [indiscernible] is not relevant for Puerto right now, for this year, at least. We expect start cutting the trees in next year’s coming and increase EBITDA in those moments, but right now it's almost not relevant for Puerto, these two acquisition brings.

[Martin Arancet, Balanz Capital]

Okay. Then any updates that you can share with regarding the Brigadier Lopez expansion? And also, if you could give us an expected CapEx for 2023 and 2024?

[Fernando Bonnet, Chief Executive Officer]

Okay. In terms of Brigadier Lopez, we are working with EPC construction right now in terms of reaching a contract with them. We expect to have this contract signed, I think, in 2 months from now, and we expect to have the plant working in the combined cycle at the end of 2024. In terms of CapEx, we don't have the number yet about the Brigadier Lopez expansion, but will be around $130 million something.

[Martin Arancet, Balanz Capital]

My last question then is about the new resolution 59. I was wondering what power plants did you add to that? And how much additional EBITDA do you expect from this resolution?

[Fernando Bonnet, Chief Executive Officer]

Okay. In terms of the plants, we signed the contracts for the combined cycle of Buenos Aires, the combined cycle of Mendosa, the combined cycle of Costanera and Mitsubishi, and the combined cycle of the Siemens one, the small one, which is in Costanera also. And we expect – depending on the evolution of the dollars, of course, and the evolution of the rest of the regulation, you know that the portion that we set in dollars is not the whole remuneration, it's a portion. It's $2,000 per megawatt.

The rest will come, will keep coming from – were still coming from the spot prices that the Secretariat established, but if we can have an increase, trying to reach the inflation and the [Technical Difficulty] dollar is not yet – not get lower than inflation in the future, we expect an increase of around $13 million between $13 million and $15 million in the 12-month period of new EBITDA coming from this new regulation.

[Martin Arancet, Balanz Capital]

Very clear. Thank you.

[Fernando Bonnet, Chief Executive Officer]

You’re welcome.

[Operator]

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference over to Mr. Bonnet for closing remarks.

[Fernando Bonnet, Chief Executive Officer]

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.