Central Puerto S.A.

Morning and welcome to the Central Puerto conference call following the results announcement for the quarter ended on June 30th, 2020. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. 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 the IFRS and stated in Argentinian pesos unless otherwise noted. It's worth noting that the financial statements for the quarter ended on June 30, 2020, include the effects of the inflation adjustment. Accordingly, the financial figures mentioned during the call, including the data from previous periods and growth comparisons, have been stated in terms of Argentinian pesos of the end of the reporting period. Also, please note that certain statements made by the company during the conference calls our forward-looking statement, and we refer you to the forward-looking statement section of our earnings release recent filings with SEC. Central Puerto assumes no obligation to update forward-looking statements except as required under applicable securities laws. For the following 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 in order to simplify the discussion. On the call from Central Puerto is Jorge Rauber, Chief Executive Officer, Fernando Bonet, Chief Operating Officer, Milagros Grande, Financial Manager, and Tomas Daglian, Investor Relations Officer. And now I will turn the call over to Jorge Rauber. Mr. Rauber, you may begin.

Thank you very much. Good morning. I would like to begin today's call analyzing the developments of the second quarter Comment on the advances of our extension projects and analyze the operating figures of the quarter. Fernando will then analyze the financial results of the quarter and will answer any questions that you may have. As you know, the COVID-19 crisis has affected almost all the world, including Argentina. The mitigation measures issued by the federal government, such as the stay-at-home order, quarantine have remained in place. although some degree of flexibilization and exception have recently been approved. As a consequence, as you can see on page three, electric energy demand decreased 11% in April and 7.6% in May 2020, as compared to the same month of the prior year. However, demand increased 1.2 in June due to higher economic activity and lower average temperatures. Therefore, during the second quarter of 2020, Electricity demand decreased 5.5% as compared to the same period of the prior year. Additionally, in July, demand increased 1.5%. However, it's worth noting that the decrease has a less than proportional impact in the income of the generation companies. In the case of renewable energy units, they have unaffected since they have dispatched priority, so they can sell all the generated electricity. In the case of thermal units, they have a high proportion of their income associated to fixed power remuneration, which is not related to the energy generation of the units. Additionally, when demand decreases, the units that stop generating electricity first tend to be the older, inefficient ones. These units receive a lower remuneration under the Energía Base framework as compared to the new, efficient ones that have a higher remuneration through contracts also known as Power Purchase Agreements of PPA. Going now to page four, as you may recall, the measures adopted to prevent the spread of the COVID-19 virus had an impact on the progress of our projects under construction, like the November 1 wind farm and Terminal 6 nuclear generation unit. In the quarter, we continue with advances in the project and restrict health and safety protocols to protect our personnel and the community. Taking into account the consequences of the quarantine, the Energy Secretariat instructed Camisa to extend the due date for the commercial operation date, or COD, of the project's 185 days. Regarding the regulatory framework for the energy of asset units, as we mentioned in our prior calls, on February 27, 2002, the Secretariat of Energy issued Resolution 31, which changed the prices for the units. which were set in pesos with a monthly adjustment using a mix between the consumer price index and wholesale price index. However, in April 8, 2020, the Secretary of Energy, in the context of the COVID-19 crisis, instructed Kamesa to postpone until further notice such adjustment. As of today, the mechanism remains suspended. Finally, regarding our Renewable Energy Division, on June 24, 2020, the Board of Directors of Central Puerto, with the aim of increasing the exposure of the company to this segment, authorized the purchase of the minority shareholder stake of CP Renovables, holding Central Puerto now a 100% stake in the company. CP Renovables owns, through a special purpose vehicle subsidiary, five wind farms, with a total installed capacity of 244 MW. All of them are fully operational, performing above the expected low factor and have long-term power purchase agreement under which they sell their electricity production. Following the same trend of the rest of the world, renewable energy is rapidly gaining ground in the Argentina matrix in 2018, Renewable generation in Argentina represented 5.8% of total production and is expected to increase significantly in 2020, in which Central Puerto is one of the leading companies. Going now to our key performance indicators for the quarter, as you can see on page five, energy generation during the second quarter was 2.7 terawatt hours of electricity, 18% lower than the same period of 2019. This was to a large extent due to the Lujan de Cuyo combine cycle, which became unavailable in mid-April due to a significant failure in its main transformer. On July 16, 2020, after replacing the damaged equipment with a backup transformer stored in our Buenos Aires plant, the unit became online again. The downtime implied a reduction of the energy generation and power availability, which had a significant economic impact during the second quarter, but will be mitigated by a comprehensive operation of risk and loss of profit insurance. Due to this effect, energy generation decreased 0.5 terawatt hours in the second quarter 2020 as compared to the same period of the previous year. Additionally, due to the effect of the quarantine, the rest of the thermal units reduced their energy generation to 146 terawatt hours. On the other hand, renewable energy increased 158 MWh due to the positive impact of La Castellana II, La Genoveva II, Manche and Los Olivos wind farms. Regarding our thermal units, the availability dropped to 82% as a consequence of the damage in the Luján de Cuyo common cycle. Now I will turn the call over to Fernando, who will comment on the financial highlights. Thank you, Jorge. I will first refer to the result of the second quarter of 2020 as compared to the second quarter of 2019. As you can see on page six, our revenues were 7.2 billion in the quarter, a 14% decrease compared to 8.3 billion during the second quarter of 2019. This decrease was driven by the discontinuation of the fuel purchases operation that we did during the 2019. due to the new regulation that centralized the fuel purchase for all generators in CAMESA. This effect represented a 2.3 billion variation during the second quarter. Excluding this effect, revenues for the second quarter of 2020 were 7.2 billion compared to 6 billion in the second quarter of 2019. This increase was mainly driven by an increase in sales under contracts which amounted to 3 billion during the second quarter of 2020, as compared to 0.8 billion in the same period of the previous year, mainly due to the revenues related to Brigadel López Power Plant, which was acquired in June 2019, the new Luján de Cuyo Congeneración Unit, which started operations in October 2019, and the wind farms La Castellana II, La Generala II, Manje and Olivos, which started operations during June, September and December 2019. and February 2020 respectively. This increase was partially offset by a decrease in sales under the Energía Base Framework of 1.9 billion due to a decrease in prices for units under the Energía Base Regulatory Framework established by Resolution 31-2020 enforced since February 1, 2020. And the decrease in energy generation and thermal units availability mainly due to the failure in the main transformer of Mendoza combined cycle, as Jorge mentioned before. Going to page 7, we can see the changes in our EBITDA, which was around 7.6 billion in the second quarter of 2020, compared to 4.4 billion in the second quarter of 2019. This was due to, first, a 5% increase in our gross profit, as compared to the same period of 2019. This was due to the variation in revenues mentioned before and was partially improved by a 28% decrease in the cost of cells that total 3.4 billion compared to 4.7 billion pesos in the same period of 2019. The decrease in the cost of cell was primarily driven by a 79% decrease in the purchase of fuel and related costs to the continuation of these operations in this quarter according to the new regulation. This was partially offset by a 36% increase in non-fuel-related cost of production, mainly due to an increase in our installed capacity following the acquisition of the Aguilera-López plant and the COD of the new thermal and renewable energy plants. Gross profit margin totaled 53% during the second quarter as compared to 44% in the same period of 2019. This change was mainly a consequence of operation of purchase of self-supply fuel, which was enforced during 2019. Finally, other operating results net was 2.2 billion higher in the quarter, mainly due to the foreign exchange difference on operating assets, mainly driven by the central wealth obligato trade receivables due to a 9.3% percent depreciation of the Argentine pesos during the period as compared to a 2% appreciation during the same period of 2019, which was partially offset by an impairment in property, plants, and equipment due to evaluation of fair value of certain gas turbines that we held in storage. And going to page eight, the conservation income was 2.2 billion pesos, compared to 1.9 billion in the same period of 2019. In addition to the factors mentioned before, the net income was mainly affected by a higher financial expenses, which increased 4.3 billion due to the loans obtained for the thermal and renewable energy expansion project and the acquisition of the Brigadier López power plant. and the lower share of profit as associates mainly due to a weaker result from Ecogas. These effects were partially compensated by a favorable net monetary position during the quarter resulting in a gain in real terms while the situation was the opposite during the second quarter of 2019 and a 0.6 billion increase in financial income. Going to page 9, you can see our cash flow for the second quarter of 2020. Net cash provided by operating activities was 8.2 billion. This includes 1.3 billion in collection from CBO installments, which is not contained in the EBITDA. The cash flow from operations was partially offset by 3 billion capex invested in the expansion project and 4.2 billion used in financing activities. From recent news, on August 2020, CMB, the Argentine Security Regulator, approved a joint program for a domestic bond issuance, the commissions, by C.P. Manque and C.P. Olivos, two wholly owned subsidiaries of C.P. Renewal. for up to $80 million. This is the first step for the clinicians to get long-term financing for these projects. Thank you, and now we invite you to ask any questions to our team.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. The first question today comes from Frank McGann of Bank of America. Please go ahead.

Yes, thank you very much. Just two questions if I could. One, I was just wondering in terms of as you're looking forward, demand seems to be recovering. Are you seeing any kind of mixed change that might have an effect on profitability perhaps in terms of where you're generating or how you're seeing the mix amongst your clients? And then in terms of payments, how are you seeing payments from Kamesa, payments from your customers in general? Are you seeing more delays given the weakness in the economy that potentially affects customer cash flows.

Thanks. Okay, I will answer this question. Thanks, Frank, for it. The first thing I have to say is that, as you mentioned, the demand of electricity has been recovering. In fact, in July, we had 1.5% above the level we had in the same month in the last year. So the demand started recovering. Obviously, the industrial demand is below the level it had the last year. The increase is mostly driven by the presidential demand. But we see, I mean, basically what we are operating today is our renewable plants, which have a priority in terms of dispatch. So they are unaffected. And we are operating basically our combined cycles and our cogeneration plant in Mendoza. So operation has not mainly been affected by the decrease of demand we had in the previous two or three months. Now the demand is recovering. And probably the most important thing to mention is that our remuneration is not based on dispatch, but mostly on availability. So we don't expect any kind of impact because of any kind of affectation in terms of demand. So it's recovering, and if it didn't, we wouldn't have any kind of impact. And the second question you mentioned, payment. Basically what happened in the market is that the government has intervened, increasing subsidies. So even though the distribution companies are paying below 100%, They are paying more or less in average 17% of the total bill they are receiving month after month. The government has intervened in order to keep the payment normal. So we have not been affected by the current time since it started. In fact, today we have a payment which is even a little better than the one we have in March, for example.

Okay, great. Thank you very much. You're welcome.

The next question is from Ezequiel Fernandez of Balance. Please go ahead.

Good morning, everybody. Thank you for the time and the material. I have four questions. If you don't mind, I would like to go one by one. The first one is related to Dujan de Cucho. Incident, I wanted to know if you have any idea about what could be the recovery that you might get from insurance on that in terms of equipment and income loss.

To answer? Yes. Thank you for asking. In terms of the insurance, we have an insurance that covers the property loss and the benefits Beneficial loss. So we are thinking that it's preliminary because we don't have the closing, but we think that we can cover the new, we are buying a new transformer, we are acquiring a new transformer, so we think that we can receive almost, I think, all of the amount. We have some deductions on the insurance, but we think that we can have cover at least 80% between 75 and 80% of the cost. In terms of beneficial loss, we have a deductible there of 30 days and the total time that the unit was out was around two months and a half or three months. we recover this additional one and a half month or two months of loss of profit. That is the situation with insurance. Right now, of course, we need to close the incident with them. We have a report that say that it was an incident by the insurance, but we need to close the incident I think we're going to do that in the next two months. And after that, you have some delay on the payment around three months. I think we recover the money perhaps at the end of the year or the beginning of the next one.

Okay, perfect. I don't know if you can comment on a monetary value for all that or if it's too early.

It's too early. Talking about the NFB, We can do some numbers together. The loss of profit was around $6 million or less. And the total loss of profit and the cost of the new equipment is around $1.6 million. So these are the costs.

Okay, perfect. And, well, I wanted to know if you have an updated guidance on how much capex is left for La Genoveva and San Lorenzo.

Okay, for La Genoveva, we are almost finished. Perhaps it's around, I don't know, something like between 15 and 18 million dollars. And we are very, very close to finish. And in Terminal 6 in San Lorenzo is more open because any issue also we have an additional cost that every day I don't know, problems with terms of COVID and new regulations, so it's very difficult to say a fine number or an exact number, but it will be around, I think, in a range of $50, $55 million.

Okay, that's very helpful. My third question is related to Brigadier Lopez. I don't know if... you're still committed after everything that's been going on? And if so, when could work start for the closing?

I don't know, Jorge, if you want to... Okay, we are in the first time. We are going to... Our plan is to finish first the project we have in Terminal 6, which is our priority. Okay. And we are primarily evaluating the moment to go ahead with the closing of that cycle. We haven't started. We are doing only the preservation of the existing assets and waiting for the moment to start. I mean, obviously, the situation is not the best one, and we are giving priority to closing the plants we are currently in construction.

Okay, thank you. My final question is related to the . Is it fair to say that at the end of the second quarter, the outstanding was 440 million, so to speak?

Sorry, could you repeat?

Yeah, the outstanding amount of the . at the end of the second quarter. Was it 450 million? Is that correct?

Yeah.

Million dollars, you said. Yes. That's all from my side. Thank you very much. You're welcome.

Again, if you have a question, please press star then 1. The next question comes from Matias Wesnak of AR Partners. Please go ahead.

Hey, good morning. I want to thank you first for the call. I have three questions. If you don't mind, I'll say them now. First, was the purchase of the 30% of CBR reflected in the second quarter's cash flow? Then if we have any news related with the progress in La Genovea particularly, I want to know if it will start operating this quarter or in the last quarter of this year. And lastly, if you could repeat what you're expecting to receive from the beneficial loss due to the unavailability of the unit in Lujan de Cuyo.

Okay, I go for the last one. I start with the last one. The beneficial loss was around $6 million, $6.2 million in the total beneficial loss. But we have an deductible for the insurance of one month, so the recovery will be less than that, of course. The other one was about the Genova 1.

Yes, about that Genova 1. I want to know if it will be starting operations in the third quarter of 2020 or in the last quarter.

No, we are thinking to have the operation on October this year. And the other one was about... Sorry, could you repeat the first one?

Yes. If the purchase of the 30% was reflected in the second quarter's cash flow, or it would be reflected in the third quarter?

Yes, it was reflected in the second quarter. That, as we pay in our financial asset, we... we don't reflect it in the cash flow itself, that you have a note in the financial statement that express that in the second quarter, yes.

Okay. Thank you very much.

You're welcome.

This concludes our question and answer session. I would like to turn the conference back over to Mr. Rauber 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. Goodbye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.