Central Puerto SA (CEPU) 2021 Q1 法說會逐字稿

Good morning and welcome to the Central Puerto conference call following the results announcement for the quarter ended on March 31, 2021. (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 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 IFRS and are stated in Argentinian pesos. Unless otherwise noted, it is worth noting that the financial statements for the quarter ended on March 31, 2021 include the effects of the inflation adjustment. 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 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 security 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 for Central Puerto is Fernando Bonnet, Chief Executive Officer; Enrique Terraneo, Chief Financial Officer; Milagros Grande, Chief Financial Manager; and Nicolas Macchi, Investor Relations Officer. And now I will turn the call over to Fernando Bonnet. Mr. Bonnet, thank you. You may begin.

Thank you very much. Good morning and welcome. It's a pleasure for me now as the CEO join you today with our management team from Buenos Aires to report on the results of the first quarter 2021, and then answer any questions you may have. And I would like to begin today's call analyzing the developments of the first quarter, comment on the progress of our expansion project, and analyze the operating figures of the quarter. Milagros will present the recent financial news and results.

First of all, I'm going now to Page 3. As you may recall, during 2020 the measures adopted to prevent the spread of the COVID-19 virus had an impact on the progress of our project Terminal 6 new cogeneration unit. During the quarter, we have continued with the construction of the new Terminal 6 San Lorenzo power generation plant and reached a progress of 92%. It's important to remark that since November 2020, the plant obtained a partial commissioning of its gas turbine of 269 megawatts selling energy under the spot market regulation. Once the COD of the full project is achieved, which is expected for the third quarter of 2021, the plant will be remunerated under a 15-year PPA on the energy side and sell steam to a private off taker and they're also a 15-year contract.

Moving now to our key performance indicator for the quarter. As you can see on Page 4, energy generation during the first quarter was 3,479 gigawatt hours of electricity, 11% lower than the same period of 2020. This was mainly due to a 306 gigawatt hour drop in generation from our Piedra del Águila hydro plant related to lower water inflows and 180 gigawatts hour decline in our thermal generation, mainly due to small failures in our Puerto's combined cycle and some of our steam turbines, partially offset by the generation from the new wind farms, Manque, Los Olivos and La Genoveva I, renewal energy increased 60 -- 56, sorry, gigawatts compared to the same quarter of 2020. The steam production during the fourth quarter increased 3% due to a good availability and generation of our Luján de Cuyo co-generation plan.

Regarding the availability of thermal units during the first quarter of 2021, it reached 89% as compared to 93% during the same quarter of 2020. This was mainly due to small failures in our Puerto's combined cycle during March 2021 and some of the steam turbines of Puerto and Luján de Cuyo plants. Still, this indicator remains significantly higher than market average availability for thermal unit, which was 81% for the same period according to data from CAMMESA.

Finally, regarding to spot market tariff scheme, it's worth to mention that we have several calls and meetings with the sub-secretary of energy in which we discussed the necessity and the urgency to have an adjustment in this remuneration scheme, which was freezed since February 2020. and we are expecting to have news in this regard in the next weeks.

And now I will turn the call over Milagros, who will comment on the financial highlights.

Thank you, Fernando. I will start referring to some recent financial news for the company and then comment on the results of the first quarter 2021.

On February 25, the central bank decided extend the FX regulatory restrictions established by the Communication 7106 until December 31, 2021 through the issuance of the Communication 7230. The statements under the syndicated downside with Citibank, JPMorgan Chase Bank and Morgan Stanley senior fund for the acquisition of the Brigadier López Thermal Plant maturing on June, September and December 2021 under the scope of such regulation. Therefore, as of the date of this press release, we are maintaining negotiations with these banks to reschedule those installments.

Moving now to the results for this quarter. As you can see on Page 5, our revenues were ARS 10,164 million as compared to ARS 11,419 million during the first quarter of 2020. This decrease was mainly due to a 31% decrease in Spot Sales/Energia Base, which totaled ARS 4,166 million in the first quarter of 2021 as compared to ARS 6,050 million in the first quarter of 2020, mainly due to the lack of monthly price adjustment of Resolution 31 instructed by the Secretary of Energy on April 8, 2020, and to a lesser extent, to small failures in Puerto's combined cycle and some of its steam turbines.

This was partially offset by a 13% increase in sales under contract, which amounted ARS 5,444 million during the first quarter of 2021 as compared to ARS 4,833 million in the first quarter of 2020, mainly due to the new wind farms mentioned above, a 9% increase in steam sales, which totaled ARS 281 million in the first quarter of 2021 compared to ARS 258 million in the first quarter of 2020, as the steam production increased 3% in the quarter.

The gross profit was ARS 4,973 million in the first quarter of 2021 compared to ARS 6,686 million in the first quarter of 2020. This decrease was due to the above-mentioned variation in revenue and a 10% increase in the cost of sales that totaled ARS 5,191 million compared to ARS 4,734 million in the first quarter of 2020. This increase in the cost of sales was primarily driven by a 43% increase in purchases of materials and spare parts, which totaled ARS 1,345 million during the first quarter as compared to ARS 942 million in the first quarter of 2020, and also a 6% increase in cost of production, which totaled ARS 4,052 million in the first quarter of 2021 as compared to ARS 3,806 million in the first quarter of 2020, mainly due to the increase in depreciation of ARS 349 million and increase in maintenance expenses of ARS 173 million.

Given the current scenario of no tariffs adjustment for units under Energía Base Regulatory framework, the company made a strong review on expenses. Therefore, administrative and selling expenses were reduced 11% in real terms, saving more than ARS 100 million during the first quarter of 2021 as compared to the same period of 2020. Gross profit margin was 49% during the first quarter of 2021 as compared to 59% in first quarter of 2020.

Going to Page 6, we can see the changes in our EBITDA, which is ARS 9,679 million in this quarter compared to ARS 10,848 million in the first quarter of 2020. In addition to the variation in gross profit mentioned, this was mainly due to a 17% decrease in foreign exchange difference on operating assets, mainly related to FONI trade receivables that generated ARS 2,862 million gain during the first quarter of 2021 compared to ARS 3,461 million during the first quarter of 2020.

It is worth mentioning that during 2020, CAMMESA have completed all scheduled payments of principal and interest in accordance with the FONI agreements for Termoeléctrica José de San Martín and Termoeléctrica General Manuel Belgrano. This was partially offset by a higher depreciation of the Argentine peso. As a reference, during the first quarter of 2021, the Argentine peso depreciated 9.28% as compared to 7.77% during the first quarter of 2020.

Variation of gross profit was also due to a 44% decrease in interest from clients which total ARS 613 million during the first quarter of 2021 compared to ARS 1,094 million in the first quarter of 2020, mainly related to the total collection of the FONI agreements for San Martín and Belgrano during 2020.

All this was partially offset by an increase in depreciation and amortization that totaled ARS 1,913 million during the first quarter of 2021 as compared to ARS 1,657 million during the first quarter of 2020. During this quarter, no impairment accounted compared to the ARS 1,105 million of the first quarter of 2020.

Going to Page 7, the consolidated net income was ARS 640 million compared to ARS 1,364 million in the same period of 2020. In addition to the factors mentioned before, the net income was positively impacted by a higher financial income, which amounted ARS 422 million during the first quarter of 2021 compared to ARS 185 million in the first quarter of 2020 and to a lower income tax expenses that amounting ARS 450 million in the first quarter of 2021 compared to ARS 2,335 million in the first quarter of 2020.

Also, the net income was negatively affected by higher financial expenses that amounted ARS 7,012 million in the first quarter of 2021 compared to ARS 6,213 million in the first quarter of 2020, mainly due to higher foreign exchange difference on loans, most of which are denominated in U.S. dollars. Additionally, the share of profit of associates was ARS 267 million loss during the first quarter of 2021 compared to ARS 77 million gained during the first quarter of 2020, mainly due to lower results of the operations of Ecogas due to level of tariff adjustments for the natural gas distribution businesses. Finally, the gain on net monetary position totaled ARS 181 million during the first quarter of 2021 as compared to ARS 447 million in the first quarter of 2020.

Going to Page 8, we can see our cash flow for the first quarter ending on March 2021. Net cash provided by the operating activities was ARS 4,021 million. This included 1,109 million in collections from Vuelta de Obligado Plant. Also, net cash provided by investing activities were ARS 303 million. Additionally, on the financing side, ARS 4,439 million were used for banks and investment accounts overdrafts payment for ARS 1,171 million, long-term loan for ARS 2,228 million, and interest and other cost loans for ARS 1,041 million.

Thank you, and now we invite you to ask any questions to our team.

(Operator Instructions) Our first question comes from the line of Frank McGann with Bank of America.

Okay. I wondered in terms of the legacy price adjustment that you said you've been discussing with the Secretary of Energy, and others have suggested that as well. It sounds like you're fairly confident, I guess. I'm just wondering if you have any feel for how material that could be, how it might be structured? Particularly in light of what we saw with the distribution increase that was granted recently. Just wondering if how much risk maybe there is associated with getting it?

And then secondly, just a couple of more mundane things, just in terms of the current hydro situation for Piedra del Águila and the Puerto plant, the issues that you had with it, if you could provide a little bit more detail maybe, and if those are completely resolved at this stage.

Okay. Okay. Thank you, Frank, for your questions. In terms of the tariff increase in Resolution 31, as you mentioned and we talked in the call, we have several meetings last year with the sub Secretary of Energy, [Ferico Osvaldo]. And we have, additionally, meetings with Leo Martinez, which is the Secretary of Energy.

In those meetings we -- as we mentioned, we discussed about the urgency and necessity of this adjustment. They really understand the situation. They agree with our situation. They want to move in the same -- or try to move together the different tariff increases, not taking one by one. They want to solve increases as a whole. And they work on the gas sector, they work on the electricity distribution sector, as you mentioned.

And the last one is the -- is our increase. We talked with them in order to reestablish the Resolution 31, which in fact established a mechanism to adjust -- to make the adjustment, establish a mechanism which is related to the inflation. And we think that they believe that this perhaps is not or perhaps is not the way we have several -- the automatic way that they are not so -- or they not plan to make that automatic, which is establishing the resolution. They are thinking more in an adjustment as in the old days that you receive an adjustment once a year in order to cover the inflation.

And I think this is -- and this is the only thing that is pending is to have the final number and to establish when it's going to apply. We talked with them in order to establish a retroactive effect from February. And I think they are willing to assess that to establish this new tariff adjusting from February, but we don't have the final number yet.

Of course, we are -- in the case of the generation, the interesting thing is that an increase of 30% to say so in the generation in terms of Resolution 31, the impact on the tariff, the final tariff, is very, very small, less than 1.5%. So I think there is no restrictions to do it. They want to, as I mentioned, they want to move in line with first solve the distribution and gas issues, and then start working on the -- or closing the resolutions everyone increased.

We are confident that we're going to move forward and that they're going to move forward in that way to perform an increase would cover at least part of inflation that we suffer, but we don't know yet the final number. We don't have the final number coming from them. We, as perhaps as you, you have different information coming from the news. But we don't have the final number coming from them.

They asked calculations to CAMMESA surrounding 29% increase, making numbers around that, but we don't have the formal confirmation that this will be the number here. So this is the information that we have until now.

And in terms of your other question, which is the situation about Piedra del Águila, the situation is more or less the same as last year. We have a dry period in the inflows, in the water inflow, which have less water inflows than the normal, the median of the last 15, 20 years. We are having very dry years with Piedra del Águila. So this explains why the production or the generation of Piedra del Águila is less than in the past.

We don't know yet its [attendance]. We still think that this is a dry period only. But we are analyzing with the specialists what perhaps the next year will bring in terms of inflows, water inflows for Piedra del Águila. But it's only that. We don't suffer any problem in the turbines. We don't suffer any restraints or constraints in terms of lines. This batch is only about water inflows.

And in the case of Central Puerto as you asked additionally, in the case of Central Puerto, we suffered different small failure in our combined cycle here in Buenos Aires. All of these failures are, as I mentioned, are small problems related to pumps, related to the boiler. Some figures in the boiler, but nothing that are extremely important and takes a few days in order to come back online. That was what we suffered, that reduction in production in part. It's not related to the dispatch. The combined cycle is very efficient.

So every time that is available, the combined cycle is on dispatch. But we suffered, as I mentioned, small failures during the first quarter. Right now the combined cycle is operating normally without any problem. So we don't think that these small failures will happen again in the near future.

Okay. Great. And just a follow-up -- yes, you mentioned that an estimate that a 30% increase in the legacy tariffs would be what percentage to the -- or legacy price would be what percentage of the final tariff? 1.5? Is that what you said?

No, no, no. This is the impact that if they apply. We don't know the number yet, as we mentioned. We have assumed perhaps listen some news on the press. And as I mentioned, the Secretary of Energy asked calculations to CAMMESA regarding the 29% increase, 29%. But I mentioned that this 29%, if they apply this 29%, the impact on the final tariff is very small. It's less than 1.5%, [that's what I mean].

(Operator Instructions) Our next question comes from the line of [Ramon Rosilores] with [Volante Capital].

I would like to ask you about Terminal 6. You mentioned that you have reached 92% completion. So what's the remaining CapEx for this? And then another question, are you planning to tap the market during 2021?

Thank you for your question. Yes, we are in 92%. The remaining CapEx is for Terminal 6. The remaining CapEx is around $15 million. And in the -- regarding to the second question, we are not, right now, we are not thinking to go back to the market in 2021 because we do not have any additional CapEx, big CapEx in this year. And we are restructuring our debt, our short-term debt because the resolution of the central bank. But we are restructuring, in fact.

So we don't think by now, -- of course, perhaps some opportunities may appear, but we are not seeing right now going to the market.

So do you have any updates on the syndicate negotiation?

Yes. We are discussing the extension regarding to the 60% of the last 3 installments. And we are in the process with the banks. We are not -- these projects are not closed, but we have several advances, yes.

Our next question comes from the line of [Alan Ross].

My question is 2 questions, mainly regarding the Resolution 31/20. The first thing is, is there a strategy in discussion? Is it going to be like an increase to the fixed price for another term? Or can it be like a variable price?

And then the second thing is, is there any deadline? Because you said we don't have any information from the parties. Is there like a time frame that they have to provide us either yes or no? There could be an increase in the price or definitely no for a deadline? And then if there is any update? Do I see -- or where would we see that? Would it be on the news, on the website as a news posting? And that's it.

Okay, thank you for your question. As we have been talking with them and as we see the things going on, we don't see a new scheme. We see an increase on that fixed price at least for this next month. I think that will be the new opening of discussion about the new increase will depend on the inflation. But I see as I mentioned, a new fixed price for a period of time. I don't know for how many months, but that will be depending on the inflation, how it's going on. If we have a higher inflation, I think we need to discuss a new increase, but we need a new resolution.

This was, as in the past, all this increase in the resolution are in spot scheme came by a resolution of Secretary of Energy. It's not like an automatic increase.

So as we see the situation right now, this increase will be for a period. I don't know for how many months, but that will be depending on the inflation, how it's going on. If inflation gets smooth, smoother than now, which is higher, perhaps we maintain this increase for perhaps until the elections. And then if inflation goes up, we need to discuss new adjustments, or we'll request that at least.

And I think the other question was how we're going to present that increase? I think it will be public because it's a resolution. But we can also express something on our website also, yes, or this and perhaps on a relevant release or press release, yes, when it happens.

This concludes our question-and-answer session. I would like to turn this conference back over to Mr. Bonnet for closing remarks.

Well, 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. Thank you.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.