Central Puerto SA (CEPU) 2018 Q2 法說會逐字稿

Good morning and welcome to the Central Puerto conference call following the results announcement for the second quarter ended June 30, 2018. (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 note that certain statements made by the Company during this conference call are forward-looking statements and we refer you to the forward-looking statement 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 [equitable] securities laws.

In addition, all financial figures were prepared in accordance with the IFRS and are stated in the Argentinian pesos unless otherwise noted. On the call today from Central Puerto is Jorge Rauber, Chief Executive Officer, and Fernando Bonnett, Chief Financial Officer. And now I will turn the conference over to Jorge Rauber. Mr. Rauber, you may begin.

Thank you and welcome, everyone. We are joining you this morning with our executive team from Buenos Aires, Argentina to report on our second-quarter 2018 and to answer any questions.

Following a very good first quarter for this year, we continue to develop our 794 MW expansion plan with advances in the construction of our cogeneration and renewal projects. Even in a challenging environment our solid balance sheet, good operational results and a proven financial profile set the ground for our continuous capacity expansion through this year. Let's talk about our [term maturation] first.

As you may recall, in 2017 Central Puerto was awarded with the new cogeneration projects, Luján de Cuyo and San Lorenzo, that will add more than 420 megawatts to our installed capacity. During the second quarter we [rushed] the provision of the main components needed for these projects and we began to [see the works] for the construction. I am pleased to confirm that both projects are on time and within budget.

Regarding the last [hike] in the exchange rate, we expect that our thermal projects will not be negatively affected from this devaluation since part of the CapEx for the construction of the new plants are denominated in Argentinian pesos, which may result in a lower CapEx measured in US dollars.

Finally, as for our current thermal units, during this quarter we performed the long-term program maintenance in our common cycle, which resumed its operation at full capacity during the first weeks of June. This (inaudible) maintenance included the replacement of key components such as the rotor of the gas turbine number 11, and -- for a new one -- and complete upgrade of the control system of the combined cycle.

The cost of these works were covered by the long-term service agreement that we have with the supplier of the equipment and, as a consequence, no significant capital expenditure was made by Central Puerto. These operations temporarily reduced availability and generation capacity of the plant during the second quarter.

As a consequence, our availability factor from thermal units dropped to 78% compared to 88% in the second quarter of 2017. This level, however, similar to the 79% average availability of the market for thermal units during the same according to the data from CAMMESA.

As for our duration, during the second quarter of 2018 energy generation from our continuing operations decreased 18% from 3,145 GW hours compared to the second quarter of 2017, mainly affected by a 37% decrease in term maturation explained by scheduled maintenance and Central Puerto common cycle. The temporary impact of the thermal production was partially offset by an increase in hydro generation, 118%, due to greater water inflow. We expect that our generation will recover now that our Central Puerto common cycle is on line again.

As for our renewal projects, I would like to give you a brief overview of the operation of progress in our renewable projects and opportunities coming next in the renewable sector. We recently completed the construction of La Castellana I and Achiras I wind farms and they are now running the test pilot to obtain the commercial operation approval. We expect the commercial operation date to be during August and September respectively in accordance with the terms agreed with CAMMESA in the power purchase agreement -- those contracts.

In addition, we continue delivering on capacity growth. On July 27 we signed PPA contracts for the project La Genoveva I awarded on round two of the RenovAr program. We expect to start the construction of this wind farm that we have 87 MW capacity in the first quarter of 2019 and expect to end the construction during the second quarter of 2020.

Finally, under the term market for renewable energy framework we have recently been granted priority access to build two new additional wind farms, Achiras II, La Castellana II and La Genoveva II, which are near the wind farms that we have mentioned before that we are developing under the RenovAr program. These new plants will allow us to sell 137 MW of new power capacity directly to large private users.

Looking forward, during the second half of the year we will continue to evaluate both organic and inorganic growth opportunities. We believe Central Puerto performance has set us ahead and has reaffirmed our position as market leader in terms of capacity generation. We will continue showing the ability of the Company to consistently increase and store capacity, satisfying the growing demand with our assets and quickly adapt to the new rules of the changing environment.

Regarding the last issue, as you may know, on June 22 President Macri designated a new energy minister, Javier Iguacel, with whom we had the chance to meet last week. According to what he expressed to us and in some interviews to the media, we expect the relation to move towards efficiency and energy generation through reduction of the cost of fuel with less government intervention in the sector and the development of a competitive free-market where private players will have the leading role.

We have already seen some steps in this direction, such as the reduction of the cost of natural gas that CAMMESA pays for [two city] energy generation and a recent increase in the prices that end-users pay for their electricity consumption, which results in less subsidies from the government to CAMMESA.

We think that the changes open new opportunities for Central Puerto and we are eager to participate in the new challenges to come. And now I will turn over to Fernando who will comment on the financial highlights of the quarter.

Thank you, Jorge. Results achieved during the quarter proved the resiliency of our business model in the context of [valuation] of local currency based on the benefit of the dollar denominated (inaudible) adopted in the sector last year. With this exclusion the adjusted EBITDA was of around ARS5.6 billion which compares to that of second quarter 2017 shows a significant increase of 700%.

That increase was mainly generated by a ARS4.5 billion on interest and foreign exchange difference associated with the (inaudible) the other trade receivables denominated in US dollars; a 53% increase in revenues that total ARS2.1 [billion], that rise in revenues show the full impact of the (inaudible) increase established in November last year; an increase of almost 5 points in the gross profit margin mainly driven by this generated (inaudible) in the production costs that were mostly denominated in local currency.

Additionally, it's worth to mention that these results were achieved despite a temporary decrease in production of 18% explained by Jorge before. This (inaudible) was by the skilled maintenance of Central Puerto [lifecycle] plant that starts on mid-March and was finally completed in June.

In order to have more precise information of our operational cash flow generated during the period, it's important to consider the following collections. During the second quarter, we collected ARS108 million from the [main] collection associated with San Martin and Belgrano plants. And regarding the collections (inaudible) trade receivables, CAMMESA is currently working on the formal commercial documents.

As for our financial position, we maintain a solid cash balance with (inaudible). At the end of June we just had approximately ARS2.1 billion for Central Puerto's individual entity and ARS3.3 million on a consolidated basis. During the second quarter we received dividends from TGM and [Distribuidora] de Gas Cuyana for ARS650 million. And on the other hand, on May this year we paid $1.1 billion to our shareholders as dividends.

On the debt side, financial debt was almost nonexistent for Central Puerto as a new entity while CP renewables and its subsidiaries, which hold the renewal proceeds received from IFC and IIC disbursements of $71 million directly related to the construction of Castellana I and Achiras I wind farms. At the end of June consolidated total debt was approximately $152 million for these projects.

We believe that our effective capital balance sheet and management set the ground for a promising second half of the year. Thank you and now we invite you for questions and some additional insights.

(Operator Instructions). Frank McGann, Bank of America Merrill Lynch Argentina.

Just speaking of generation over the next six months or so, 12 months, do you expect for the overall level of generation to go back to, say, the averages you might've experienced in 2017?

And then secondly, looking towards the next couple of years as the government moves towards what seems to be maybe a more competitive industry and a more -- with potential changes in how remuneration would be for -- at least for legacy plants, I was just wondering how well positioned you feel the Company is to go into a market that is more competitive?

I would say in general terms what we expect is not to go back to this patch we had last year. In fact, we anticipate there will be some move to (inaudible) more efficient system. Part of the problem that the system is facing today is that we are still running units that are very old in time.

And this is why we expect a reduction in dispatch of our older units as a norm for the near future. So we don't expect to go back. In fact, what we expect is more a tendency that you have mentioned -- a reduction in dispatch, especially for our most inefficient units.

So a move into the market has to do. I mean, we have to reduce inefficiency, we have to promote more efficient generation and this is the movement that the government is quite committed to go ahead with. So this is a tendency for the market. This is move that we have been expecting for months.

In terms of new regulation, our situation as Central Puerto, we have units that as an average are more efficient than the average of the market. So independently what kind specific regulation the government is going to set. What we expect is that Central Puerto is very good positioned to take advantage of that. Our units tend to be more efficient than the normal standard of this market. So we see a move in terms of regulation as an opportunity, not as a threat.

Okay, thank you very much.

Additionally, adding something that Jorge mentioned. For sure in our combined cycle respect we are going to increase that production in the same levels of the previous year. Jorge, I'm referring (multiple speakers). But for the combined -- the big combined cycle which was in the maintenance period, for sure we are going to recover the full production and the full capacity dispatch in the next half of the year, next quarters.

Okay, great. Thank you very much.

[Florencia Dores], [TPCS].

Congratulations for a strong result. Just a follow up regarding the potential change on the pricing (inaudible) energy to reward efficiency instead of paying for availability. Which is the other issue of inefficiency in terms of capacity that you are estimating of power (inaudible) or power plant?

Well, our estimation is that more or less 40% of the capacity currently in operation is completely inefficient. So, this is what we expect to be reduced in the near future. I mean our regulation should move from those old units to most (multiple speakers).

I think Florencia mentioned in our capacity, not in the market.

You mentioned specifically in our case?

Yes, yes (multiple speakers).

I will remark just some units in Central Puerto is -- one of the units is the most at the margin, which is the unit number 5. In the case of Mendoza the units, the steam turbines that are two very old units, on average in terms of capacity 15% more or less of our total capacity should be considered among the inefficient capacity.

Okay, perfect. Thank you. So clear.

(Operator Instructions). With no further questions I would like to end today's question-and-answer session and turn the conference back over to Mr. Rauber for any closing remarks.

Okay, well, thank you, everyone, for your interest in Central Puerto and your continued support of our Company. We encourage you to call us at anytime for any information you may need. Thank you and have a good day.

The conference has now concluded. We want to thank you for attending today's presentation. You may now disconnect.