Central Puerto SA (CEPU) 2023 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to Central Puerto's Third Quarter 2023 Earnings Webcast. (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 peso 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 U.S. 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 represent these U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated.

Finally, it is worth noting that the financial statements for the third quarter ended on September 30, 2023, include the effects of the inflation adjustment. Also, please take into consideration that certain statements made by the company during this conference call and answer 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 Executive Officer; Enrique Terraneo, Chief Financial Officer; and Pablo Calderon, Corporate Finance and Investor Relations Manager.

And now I will turn the call over to Pablo Calderon. Please, Pablo, you may begin.

Thank you very much, and good morning to you all. We are joining you today with our management team from Buenos Aires, Argentina to comment on our results of the third quarter of 2023. Taking a moment of your attention to review today's agenda, I would like to begin the presentation by addressing shortly the main figures of the quarter followed by a quick update of the regulatory framework of the Argentine energy sector, and then move on to analyze the evolution of our financial results. Finally, at the close of my presentation, we will be happy to address any questions that you may have.

Before going into a more exhausted analysis of the evolution of our main financial and operational data, let me briefly review the main figures of the Central Puerto Group during the third quarter of 2023. As you may know, with the acquisition of Central Costanera performed earlier this year, the group's installed capacity has increased by 48% year-over-year to 7,130 megawatts. Furthermore, energy generation amounting to 5,721 gigawatts per hour being a 46% increase with respect to the same period of 2022. It is worth noting that with the acquisition of Central Costanera and a more recent acquisition of the solar plant Guañizuil II A, the group has become the largest energy generation company in Argentina, both in terms of installed capacity and energy generation, with a diversified portfolio of assets across all power generation technologies.

With regards to our financials, of the quarter, revenues amounted to $166 million, increasing 21% compared to the same period of the previous year, while adjusted EBITDA totaled $89 million, being 5% below the one-off a year ago. Net income for the period was positive in $11 million recording a decrease of 66% as to the same period of 2022. Finally, while we continue deleveraging the company during the quarter, net debt has been substantially reduced, the last November 2, the Board of Directors of the company approved a dividend distribution of ARS 29.7 per ordinary share to be paid on November 16th. This way, when we exclude the dividend amount from our cash and equivalents in a pro forma basis, our net debt would result in a slight $21 million increase with respect to December 2022.

Now moving to the most recent regulatory update, it is worth mentioning the following resolutions. On September 6, 2023, the Secretariat of Energy issued Resolution #750, which updated remuneration prices for energy generation and power capacity for units not committed in a power purchase agreement, increasing by 23% remuneration values since September 2023. Furthermore, on November 2, the Secretariat of Energy issued Resolution 869, which updates remuneration prices for the same generation units, which are not committed to PPAs and resolution increased remuneration values by 28% since November 2023.

On July 26, the National Secretariat of Energy through Resolution 621 announced national and international open call, called, Terconf for the submission of offers for new thermal plants or use with certain characteristics, with the aim of incorporating approximately 3,000 megawatts of firm and reliable thermal power generation capacity to the national interconnected system. The successful bidders under this tender will enter into a PPA with CAMMESA. Submissions of bid took place on September 26, while the technical qualification was carried on October 25. And the opening of economic bids on October 27. CAMMESA will evaluate the economic offers based on different factors such as efficiency of the plan, price offer, node where to be connected and age of the machine.

The combination of these different factors will define the final price with which the pressure will compete. To date, CAMMESA has not issued a decision on the awarding of projects. As part of this bidding process, the group presented process in Central Puerto for 312 megawatts and in Central Costanera for 516 megawatts. Continuing with our strategy to diversify our energy metrics and consolidate in the renewable energy market, on October 18, 2023, Proener, one of our subsidiaries, directly acquired 100% of the capital boats and stock of Cordillera Solar and Scatec Equinor Solutions, owners and operator, respectively, of the solar power plant Guañizuil II A. The solar power plant is located in the province of San Juan and has a nominal capacity of 105 megawatts, generating approximately 300 gigawatts per hour in a year.

The plant counts with over 358,000 solar panels and covers a total area of 270 hectares being the third largest solar farm in Argentina. The solar farm has a capacity factor of around 33%, exceeding the average for the region and positioning it as one of the farms with the best capacity factor in the world, which allows it to produce energy to supply the demand of approximately 86,000 homes. The remuneration scheme of the power plant is a PPA with CAMMESA of around 20 years maturity under the program Renov.ar 2.5. With this acquisition, Central Puerto will generate approximately 10% of the country total solar capacity, reaching a total renewable energy capacity of 475 megawatts, of which 80% correspond to wind energy and 20% to solar energy.

Now let's use the next 2 slides to analyze the evolution of the Argentine energy market during this quarter. As we can see in Slide 7, the country's installed generation capacity has increased by 1% or 554 megawatts, reaching a total of 43,453 megawatts compared to 42,889 megawatts in the third quarter of 2022. This increase in capacity was mainly due to the incorporation of 424 new megawatts from renewable sources increasing 8% vis-a-vis the same period of 2022, of which 235 megawatts correspond to Solar photovoltaic, 183 to wind farms, 3 megawatts to biomass, and finally, 2 megawatts of biogas generation units. In turn, thermal capacity sources recorded a net 0.5% increase or 130 megawatts as a combination of incorporation to the system of 735 megawatts of new combined cycles under the commissioning of 567 megawatts and 38 megawatts of gas turbines and diesel engines, respectively.

Now let's move to the analysis of the power generation and demand of the period. In the third quarter of the year, energy generation increased 7% to 35,861 gigawatts per hour compared to 33,454 gigawatts in the third quarter of 2022. It was mainly due to a strong increase of 63% in hydro generation followed by a rise of 6% in the supply of renewable energy, which resulted in a lower requirement of thermal and nuclear generation with decreases of 12% and 6%, respectively. The higher power generation in third quarter 2023 vis-a-vis the same period of last year was a debt consequence of a 1% increase in energy demand, which was essentially driven by a 4% increase in residential consumption. It is worth mentioning that residential demand decreased during July and remained almost flat during August, due to milder temperatures.

However, lower temperatures recorded during September 2023 boosted residential consumption by 14% on a year-over-year basis, being partially offset by 6% contraction in industrial demand due to a drop in major users' consumption through the distribution networks. The slightly higher demand was mainly covered with more generation from hydro and renewable sources, as previously stated. In the first case, the increase in generation was a direct result of higher flow rates mostly in the Comahue region of the provinces of Neuquén and Rio Negro. Comparing the third quarter '23 with third quarter '22, flow rates of the rivers Collón Curá, Futaleufú, Limay and Neuquén rivers rose 86%, 83%, 64% and 1676% respectively.

Flow rates of Uruguay and Paraná rivers were also higher, but the increments were much lower in comparison. It is worth to mention that during the 3Q23 the flow rate of the Collón Curá river was higher than the historical mean for that period, with peaks even higher than the historical maximum flow rate recorded for September.

In the second case, the growth in generation was a direct consequence of new capacity added to the system, as detailed above. The higher hydro and renewable generation prompted lower thermal dispatch, which was also impacted by lower availability levels, mostly from steam and gas turbines. This resulted in a decrease in fuel consumption, essentially for fuel oil of around 69% in a year-over-year and diesel of 16% on a year-over-year basis. The higher supply of hydraulic and renewable generation also prompted lower nuclear dispatch primarily for Emabalse and Atucha I power plants since Atucha II was under maintenance works. Going now to our key performance indicators for the quarter.

On Slide 9, we can see that power generated by Central Puerto rose by 46% to 5,721 gigawatts per hour compared to 3,932 gigawatts in the same quarter of 2022. It should be noted that this increase includes the incorporation of 767 gigawatts per hour generated by Central Costanera, which was acquired at the end of the first quarter of this year and is not included in the third quarter 2022 figures. Thus, when analyzing the energy generated in the quarter, excluding data from Central Costanera, in the quarter-over-quarter comparison, the increase reached to 26% to 4,953 gigawatts per hour. Higher generation explain most of the 46% increase in gigawatts per hour production in the quarter. Piedra del Aguila hydro power plan increased 248% its energy production, which was a direct result of the rising the flows of the rivers, Collón Curá and Limay compared to the same period of 2022, as previously mentioned.

The slow rate of the Collón Curá river was higher than historical average for the period with peaks even higher than the historical maximum flow rate recorded for September as period mentioned as well. Renewable energy as a whole, increased 1% between third quarter '22 and third quarter 2023, mainly explained by La Castellana II and Genoveva I, and to a lesser extent, Manque and Los Olivos, which recorded high wind resources and availability of wind turbines. Regarding thermal generation, it rose 9% between third quarter '22 and the third quarter '23, which includes the energy produced by Central Costanera. If this power generation is excluded, thermal generation actually decreased 17% in the third quarter of 2023 when compared with the same period of 2022.

This situation is basically explained by the much higher hydro generation of the period, as probably mentioned, which prompted lower thermal dispatch, particularly in the Puerto site. Some steam turbines, mainly at the Central Puerto, Costanera and Mendoza plants were also unavailable during the quarter. While on the other hand, some gas turbines of Mendoza and one of Brigadier Lopez plant increased substantially their energy generation during the period. The generation from San Lorenzo plant shrank in this period because of gas scarcity. In terms of availability, Central Puerto performance continued to be better than the market when we exclude Central Costanera, since this power plant has been carried out several maintenance programs.

Finally, steam production declined 12% during the third quarter of 2023, which is explained by a 28% contraction in the San Lorenzo, an increase of 16% in the Mendoza cogeneration plant. Now zooming in our revenue analysis. As you can see on Slide 10, this amounted to $166.5 million in the quarter as compared to $137.7 million in the same period of 2022. First, it should be noted that in this quarter, revenues of the Central Puerto Group include those corresponding to the acquisitions of Central Costanera and the forestry companies, which contributed with $21.2 million and $8.2 million, respectively.

Thus, when excluding these effects, the variation in revenues would be a slight decrease of 0.4% or $0.6 million as a combination of the following factors: First, at 23% or $11.5 million increase in a spot legacy energy sales, which amounted to $62.2 million in the third quarter of '23, compared to $50.7 million in the third quarter of 2022. This was driven by higher energy dispatch from Piedra del Aguila hydro power plant, a higher thermal availability from Central Puerto's combined cycle, and the end of the Brigadier Lopez serving PPA contract in August 2022, it began to be remunerated in the spot market. All of these being partially offset by lower generation from thermal units on the back of a higher hydro resource and a lower remuneration in dollars.

At 28% or $1.9 million increase in steam sales which totaled $8.5 million in the quarter compared to $6.6 million in the same period of 2022. This was due to a combination of better prices in dollars, a 12% decline in volumes produced, as probably mentioned, and a revenue adjustment with a negative impact in the revenues of the third quarter of last year. Finally, at 16% (sic) [17%] or $12.7 million reduction in sales under contracts with total $63.6 million in the quarter compared to $76.3 million in the third quarter 2022. This was mainly the result of the end of the Brigadier Lopez PPA contract in August 2022, as previously mentioned.

Jumping now to Slide 11 for a better understanding of the evolution of our adjusted EBITDA. During the third quarter of 2023, the group adjusted EBITDA amounted to $88.8 million, including the adjusted EBITDA from Central Costanera and the forestry companies of $6.6 million and $4 million, respectively. Then on a consolidated basis, the adjusted EBITDA of the quarter recorded a contraction of 5% compared to the $93.9 million in the third quarter of 2022.

When analyzing the adjusted EBITDA excluding acquisition, we kind of felt that devaluation is mainly explained by the previously mentioned drop in revenues, a 21% or $10.3 million increase in cost of sales, explained primarily by higher consumption of materials and spare parts due to the continued maintenance performed on the gas turbines at the Luján de Cuyo plant. A 15% increase or $1.3 million in SG&A, mainly driven by higher personnel costs, maintenance activities and taxes on bank accounts. And finally, a 22% increase of $3.3 million in other operating results, net, mainly due to higher interest from operating activities.

Moving to the next slide. Consolidated net income for the quarter amounted to $10.6 million, decreasing 66% on a year-over-year basis. In addition to the lower adjusted EBITDA of the period, the net income was impacted by a combination of the following factors. First, a higher loss on net monetary position of $40 million, which was partially offset by better results on our associated companies, a decrease of $18 million in net financial results mainly due to the higher negative effect difference, partially offset by a gain in financial assets measured at fair value. All of this being partially offset by higher positive foreign exchange differences and interest related to the funny receivables for $25 million and higher positive results from an increase in the variation of fair value of the biological assets from our forestry segment for $60 million; and finally, a lower income tax of $2 million due to the lower earnings before taxes of the period.

Going on to Slide 13, we can see the evolution of our cash flow during the first 9 months of the year. Cash flow provided by operating activities amounted to $171 million arising mainly from the adjusted EBITDA generated in the period and $42.1 million in collection of interest from clients, including those of the FONI program being all this partially offset by income tax payments of $54.3 million and $6.2 million in negative working capital variations. Net cash used by investing activities totaled $78 million. This was mainly due to the acquisition of the companies made along the year, capital with $11.5 million in investment property, plant and equipment, $1.8 million from the selling of short-term financial assets, and $1.7 million from the share buyback program implemented in the quarter. All of this being partially offset by a collection of $2.2 million in dividends during the period.

Net financing was negative in $85 million. It was basically the result of almost $78 million in debt service amortization primarily related to the Brigadier Lopez syndicated loan and the principal maturity of the Manque and Olivos dollar-linked bond in last September . Along with $28.3 million in interest and other financial costs related to the long-term loans, $12.1 million related to bond buybacks and the cancellation of overdrafts in checking account for another $2.4 million All of these were partially offset by $41.4 million in financing obtained in the period. This was mainly due to the issuance of our Class A notes for $37.2 million in last September.

Consequently, our cash position as of September 30, 2023, amounted to $58.2 million, [add] current investment in financial assets, our total current liquidity amounts now to $317 million. To conclude with the presentation, in this slide, I would like to bring to you our debt maturity scale, but in particular, I would like to highlight the successful liability management carried out during September and October and that will considerably elevate our debt maturities for the year 2024. In that connection, on October 17, the company issued its first international bond for a total amount of $50 million with a 2-year tenor added rate of 10%. This allow us to partially prepay only 2 days later, $49 million of the outstanding $55 million of the syndicated loan signed with Citibank, JPMorgan and Morgan Stanley.

Remaining now only $6 million to be paid in January '24. This not only permitted us to refinance short-term debt maturities extending the debt life and reducing financial costs, but also help us to lift dividend payment restrictions that were imposed as covenants of a syndicated loan. In that connection, and as previously explained, the company has announced that we'll be distributing dividends to our shareholders with a combination of Argentine pesos and securities on November 16. This way, maturities for 2024 amounts now only to $38 million being manageable and clearing short-term uncertainties. It is also worth mentioning that on September 14, the company issued the Class A notes denominated integrated and payables in U.S. dollars, for a total amount of 37.2 at a rate of 7% and maturity in 2025. This class A notes were reopened on October 20, for an additional $10 million issued at a price of 102.9%.

With this, I would like to conclude the presentation, and now we invite you to ask any questions to our management team. Thank you for your Attention.

(Operator Instructions) Your first question is coming from (inaudible) Securities.

Given the change in government in 2024, how you're modeling the impact on legacy energy remuneration, what scenarios are we considering in terms of regulatory changes and how this might affect your strategies for your thermal project?

Thank you for your question. I can't hear you very well. I assume that you're asking for Energía Base remuneration framework for 2024, is correct?

Yes. Can you hear me better now?

Okay, yes. Well, as you know, the Energía Base remuneration framework is a framework in which we receive the amounts in pesos and the Secretary of Energy establish the tariff and make the adjustment of that tariff in terms of inflation. Right now, we are reaching -- with the last increase in November, we are reaching an increase this year of 150% for this year. We are trying to push for another increase in December, trying to catch all the inflation of this year, but we don't know now if we can get it or not because, of course, we need to wait until the elections, if we have the same Secretary of Energy or the same government, or we need to discuss with the new one. But we are confident that we can at least cap the inflation this year.

Next one depends on the new administration coming if they're going to establish a regular basis adjustment, which is what we want, trying to have an automatic adjustment trying to cover inflation, not going step-by-step discussing every 3 months, the adjustment is which we have right now. So we are confident to try to set a scheme of adjustment automatically establish trying to catch the inflation, as I mentioned automatically. We talk with the possible Ministry or Secretariat of Energy and they're aware about that. They know that we need to -- to have that, we told with the actual Secretary of Energy, and she knows the same that we need to have an adjustment more automatically than we have now.

And I think this will be the big challenge for next half quarter. Of course, first, they need to adjust the tariff, the end user tariff, and we need to have the same like -- or a scheme which is in order with that. So first, they need to solve, I think the problems to establish a new tariff, end user tariff scheme and then we can discuss how we can enter in that scheme and having an automatic adjustment. So that are our ideas about how we can discuss the future in terms of legacy energy.

And I have a second question, if I may. If you could outline Central Puerto's investment plans for 2024, including potential acquisition targets, progressing and transitioning to combined cycle, and your expectations for the upcoming energy auctions and the impact on the company's position and in performance?

Okay. The third thing that we have ready to start is Brigadier Lopez closing combined cycle, which is in the finish, we are finishing the discussion with EPC constructor in this month, I think, and we'll start the construction perhaps early January. .

So this is the first more clear investment in CapEx. New investment in CapEx. This will be around -- it's not really -- it's not fully closed, but it will be around $140 million and $150 million in CapEx and around 20 months of construction. We will reach output of 400 megawatts in this combined cycle that we have in Santa Fe. And then in terms of new projects, as you know, we are participating in a dealing process and the thermal process, thermal auction, and we are confident that we can at least reach 2 projects there. It's not fully finished.

We expect that to have an announcement perhaps this week or the next one. But of course, that will depend on also -- I think the ending of the result of the election. And in terms of acquisitions, we are still looking in new capacity in renewables. We are seeing several projects there, but we don't have any clear view about how we can continue the process because we are in early stages. We are still looking possibilities in mining, but also in early stages. So we don't have another close possibilities right now. So I think the Brigadier Lopez is the more clear one. And second, the thermal auctions coming is another clear possibility.

Your next question is coming from Martin Arancet with Balanz Capital.

Thank you very much for the materials and for taking my questions. I have 3 questions. I would like to run them one by one also, if that's okay. First, now that you have paid the syndicated loan, what could we expect in dividends or share repurchases for next year?

Well, as you mentioned, we are -- right now, we don't have any limitation to pay dividends, so we want to come back to the regular basis payments as we have in the past. So the amount will, of course, depend on the tariff adjustment, how many, may -- or what we get award in the thermal option. And of course, the possibility of receiving financing in the future. But having said that, we want to come back to regular basis payment.

Very clear. And then you already mentioned something about it, but I was wondering if you have any news on the evaluation of mining projects if you think that entire protocol will close a deal next year?

Well, for sure, we're going to put focus on that. As I mentioned, we are in the early stages, so I cannot comment on how or when we can get a closing, but we're going to put good focus and see alternatives in that sector, yes.

Okay. And my last question, well, you were one of the main bidders in the recent thermal auction. And of course, we are still waiting for the results. What IRR are you aiming for? And do you see a risk on financing rates for next year if the new government removes capital controls?

Okay. Well, as you know, it's an open process right now, so I cannot comment specifically the IRRs that we are seeing. But I can say, yes, that they, of course, are related to the Argentine risk and the risk you mentioned of the financing, perhaps limitations or financing situation that we can face in the near future. So the returns are according to that, but I cannot go forward because it's an open process.

(Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Fernando Bonnet for any closing remarks.

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. Bye-bye.

Thank you. This does conclude today's conference call. Have a wonderful day.