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Central Puerto S.A. American Depositary Shares (each represents ten Common Shares)
Q3 2022 Earnings Conference Call
11/10/2022
spk01: Good morning and welcome to Centro Puerto conference call following the results announcement for the third quarter ended on September 30, 2022. 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 are stated in Argentinian Besos. unless otherwise noted. It's worth noting that the financial statements for the third quarter ended on September 30, 2022, 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 at 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. Centro 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 Centro Puerto is Fernando Bonet, Chief Executive Officer and Federico Bozzori, Financial Controller. And now I will turn the call over to Federico Bozzori. Mr. Bozzori, you may begin.
spk07: Thank you very much. Good morning and welcome. We are joining you today with our management team from Rosario, Argentina, to report the results for the third quarter of 2022. After the presentation, we will answer any questions you may have. I would like to begin today's call by analyzing the recent events that the industry in general, and finally the operative figures of the third quarter of 2022. I would like to mention the following updates regarding Central Puerto. Central Puerto successfully bid in CAMESA's auction for 10 MW of dispatch priority for our Parque Solar San Carlos project under MADRO framework, located in San Carlos, Salta province. Regarding the air blockage plan, Central Puerto is negotiating with an engineering company expecting to start the works related with the completion of the combined cycle power plant from the first quarter of 2023 on. A fixed rating subsidiary decided to modify the long-term issuer debt rating of the company from category A+, with a stable outlook, high credit quality, to category AA-, with a stable outlook, very high credit quality. On October 13th of 2022, the company's board of directors approved the acquisition of shares issued by the company. The maximum payable price for the shares will be US dollar 5.4 per American depository receipt on the New York Stock Exchange, up to a maximum of pesos 167 per share in Buenos Aires Stock Exchange. On September 30, 2022, the shareholders of Central Puerto decided to amend Section 4 of the company's bylaws regarding its corporate purpose with the aim of not only having as primary line of business the energy generation and to broaden the scope and consider other industries such as mining, forestry, and agriculture. Now, I would like to comment on the main metrics of the industry as you can see on page 3. In terms of installed capacity, the system reached 42,899 megawatts compared to 42,589 megawatts in the third quarter of 2021, resulting in 1% increase mainly based in new renewal projects developed. As of September 30, 2022, the installed capacity continued to be 59% thermal, 25% hydro, 12% renewable, and 4% nuclear. In the third quarter of 2022, energy generation decreased 10% to 33,452 gigawatts compared to 37,059 gigawatts in the third quarter of 2021, mainly due to, first, 21% decrease in thermal, second, a 19% decrease in nuclear, partially offset by an increase of 30% in hydro and 3% in renewable. Thermal decrease was mainly due to a lower dispatch related to an increase of hydro dispatch and minor to a lower availability of certain machines. Regarding the generation from nuclear source, the decrease was related with the shutdown maintenance of Atucha 1, an embalming nuclear power plant, and a technical problem with Atucha 2's turbines. In contrast, the increase in the hydro generation is mainly related with the increase of the rivers Uruguay and Paraná water flows that softened the drought that the region had experienced last year. As for the renewable energy, the increase in generation was created with the increase in the installed capacity and its subsequent energy demand. During the third quarter of 2022, the main sources of energy generation continued to be thermal and hydro, with a share of 57% and 22% respectively, while renewables were 14% and nuclear was 7%. Finally, energy demand increased 1% up to 34,730 gigawatts compared to 34,454 gigawatts in the third quarter of 2021, where commercial demand grew 5% and residential decreased 1%. As of the third quarter of 2022, demand structure was 46% represented by residential users, 27% by commercial activity, and the remaining 27% was related to a great demand, industrial slash commercial. Going now to our key performance indicators for the quarter, as you can see on page five, energy generation during the third quarter of 2022 was 3,932 gigawatts, 14% higher than the same period of 2021. The increase was mainly caused by, first, a 17% increase in energy generation from thermal units, mainly from terminal safe, due to high dispatch related to the combined cycle full operation and higher dispatch of portals steam turbines. Partially upset by the extraordinary maintenance in TG27, of Lujan de Cuyo cogeneration. Second, 21% increase in energy generation from the hydro plant Tierra del Aguila due to higher water flows of Limay River compared with the third quarter of 2021. Third, an 8% decrease in energy generation from the renewable unit due to lesser wine resource and minor failures in some wine turbines. Regarding the availability of our thermal unit during the third quarter of 2022, it reached 81% in line with the strong availability history of the Central Puerto's equipment. As a reference, the market average availability for thermal units for the third quarter of 2022 was 78%, according to data from CAMISA. Steam production increased 90%, totaling 568,557 tons produced during the third quarter of 2022 compared to 298,997 tons during the third quarter of 2021 due to the commissioning of the Terminal 6 cogeneration plant. And now I will comment on the results of the third quarter of 2022. Going now to the results for this quarter, as you can see on page 7, our revenues were pesos 20.3 billion as compared to pesos 24.3 billion during the third quarter of 2021. This 17% decrease was mainly due to, first, a 35% decrease in spot energy about the same, which totaled pesos 7.5 billion in the third quarter of 2022 as compared to 11.5 billion in the third quarter of 2021. due to higher inflation than the price adjustment and scheduled maintenance of certain steam turbines from Cuarto's side. Second, a 2% decrease in sales under contract, which amounted to pesos 11.2 billion during the third quarter of 2022, as compared to pesos 11.4 billion in the third quarter of 2021, due to a higher inflation adjustment over the peso depreciation in the previous. Also, it was impacted by the termination of the Javier Lopez PPA contract in August of 2022, partially offset by increases in sales due to terminal sales combined cycle completion. Partially offset by a 15% increase in the steam sales, which totaled pesos 0.9 billion in the third quarter of 2022, compared to pesos 0.8 billion in the third quarter of 2021. due to a 90% production increase. Going to page seven, we can see the changes in our EBITDA, including impairment and funding effect difference and interest, which was pesos 13.8 billion in the third quarter of the 2022, compared to pesos 11.8 billion in the third quarter of the 2021. This 16% increase was driven by the following changes. First, a 17% decrease in revenues explained before partially offset by a 13% decrease in the cost of sales that totaled pesos 11.1 billion compared to pesos 12.7 billion in the third quarter of 2021, mainly due to a decrease in amortization charge, decrease in maintenance expenses, and decrease in insurance costs. A 26% decrease in administrative and selling expenses that totaled pesos 1.5 billion in the third quarter of 2022, primarily driven by decrease in fees and remuneration for services and decrease in taxes among other expenses. Adjusted EBITDA was pesos 20.7 billion in the third quarter of 2022 compared to pesos 14.6 billion in the third quarter of 2021. This increase was mainly due to The above-mentioned variations and a 5.1 billion increase in foreign exchange difference on operating assets mainly related to funny trade receivables that generated pesos 6.8 billion compared to pesos 1.7 billion gained during the third quarter of the 2022 due to a higher depreciation of the Argentine pesos during the quarter and lower trade receivables balances maintained. Third. a 24% increase in interest from clients which totaled Pesos 2.1 billion during the third quarter of 2022 compared to Pesos 1.7 billion in the third quarter of 2021, mainly related to an increase in the interest rate applied by Gamesa for payment delay. As of September 13, the delay was 20 days. Fourth, an increase in other operating results mainly due to lower non-regained rates recovered in the fourth quarter of 2021, and 0.7 FX differences on account receivables and 0.5 billion increase in commercial interest from account receivables. All these variations were partially offset by a 7% decrease in depreciations and amortizations that totaled pesos 4.0 billion during the third quarter of 2022, as compared to pesos $4.3 billion in the third quarter of 2021. As a result, adjusted EBITDA excluding effect difference and interest related to funding, trade receivables, and impairment on property, plans, and equipment was Pesos $13.8 billion in the third quarter of 2022, compared to Pesos $11.8 billion in the third quarter of 2021. that consolidated net income was pesos 4.5 billion in the third quarter of 2022, compared to a consolidated net income of pesos 4.9 billion in the same period of 2021. In addition to the above-mentioned factors, net income was negatively impacted by, first, an increase in financial expenses, which amounted to pesos 10.3 billion during the third quarter of 2022, compared to pesos 3.8 billion in the third quarter of 2021, mainly due to an increase in foreign and exchange difference, mainly due to a higher depreciation of the accident pesos during the quarter. Second, an increase of net monetary position loss of 8.2 billion, which amounts to pesos 8.5 billion during the third quarter of 2022, due to a higher inflation during the third quarter of 2022, and higher balance of monetary assets partially offset by the share of profit of associates with a Pesos of 0.2 billion gain during the third quarter of 2022 compared to a gain of Pesos 0.3 billion in the third quarter of 2021. Third, an increase on income tax expenses that amounted to Pesos 3.0 billion in the third quarter of 2022 compared to pesos 1.9 billion in the third quarter of 2021, and positively impacted by, first, an increase in financial income that amounted to pesos 9.4 billion in the third quarter of 2022 compared to financial income, pesos 0.5 billion in the third quarter of 2021, mainly due to higher financial asset results in the third quarter of 2022 of pesos 8.6 billion. Second, higher effects difference and interest in FONI receivables in pesos 4.5 billion. FONI collections raised to trade receivables for Huerta Obligado Plant total pesos 2.5 billion in the third quarter of 2022 as compared to 5.8 billion in the third quarter of 2021. The amounts are being collected on time and according to the signed contract. Going to page 13, you can see our cash flow for nine months of the 2022. Net cash provided by operating activities was pesos 35.2 billion during the nine months of the 2022. This cash flow arises from first pesos 21.2 billion from the other operating results, net obtained during the nine months of the 2022. Second, pesos 8.2 billion in collection of interest from clients, including the one from FONI. Third, 2.2 billion in valuations in other non-financial assets and inventories. Fourth, insurance recoveries of pesos 1 billion. And fifth, adjustment to reconcile profits for the year before income tax with net cash flows. It was pesos 11. which was partially offset by pesos 4.6 billion in valuation in trade accounts payable, other accounts payable, other non-financial liabilities and employee benefit liabilities, and income tax expense of pesos 3.8 billion. Net cash used in investment activities was pesos 25.5 billion in nine months of the 2022. This amount was mainly due to, first, pesos, 24.8 billion losses from the investment in short-term financial assets. Second, pesos, 0.5 billion in payment for the purchase of property, plant, and equipment, which was partially offset by pesos, 0.1 billion obtained in the sale of property, plant, and equipment, and pesos 0.1 billion in dividends collected. Net cash used in financial activities was pesos 9.3 billion in the nine months of 2022. This amount was mainly the result positive of pesos 0.6 billion bank and investment accounts overdraft paid, offset by pesos 5.8 billion in loans paid mainly related to the loans received for expansion projects and pesos 3.8 billion in interest and financial expenses paid mainly related to those loans. Thank you and now we invite you to ask any questions you may have.
spk01: Thank you very much. We will now begin the question and answer session. To ask a question, you may press star and then 1 on your touch phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star key and then two. At this time, we will pause momentarily to assemble our roster. Thank you. Your first question is coming from Martin Arenset from Balance Capital. Martin, your line is live.
spk05: Hi. Well, first of all, thank you for the materials as always. I have four questions. Sorry for the extent. I would like to go over them one by one, if that's okay. My first question is that, if I'm not mistaken, there have been some extensions on electrical power plant concessions to 2025. If you could give us any updates on the discussions regarding Piedra del Aguila And if you think that you could see a similar extension.
spk06: Okay. Thank you, Martin, for your questions. Yes, we can go one by one. The first one regarding the concession of Pirela Hila hydro plant. We have been talking with the government, with the new Secretary of Energy about that. They are still getting in place because they assumed a few months ago, so we are analyzing the point. They have a perhaps different approach from the previous Secretary of Energy. So they want to analyze indeed all the consequences to extend the concession or not to extend which is related to the claims that all the owners of the concession have related to the freezing of the prices and the restriction to contract the electricity of those power plants that was allowed in the original concession. So they are analyzing this, and they will come to us with a conclusion perhaps early next year the beginning of the year or early next year, but today we don't have any insight about how they're going to proceed. We assume that, or we can assume that whenever the time of the finalization gets close, perhaps they will use that one year extension that you mentioned as gaining time to finalize the analysis. We don't have any information yet or any concrete information to conclude that.
spk05: Okay, very clear. Well, my second question then is about the Brigadier Lopez project. If you could comment on unexpected COD and the price for energy and capacity payments.
spk06: Okay, in terms of Brigadier Lopez, as Federico mentioned, we are working with an EPC provider, an engineering company, to enter in a contract to close the cycle, and with Siemens also, which is the steam provider. We don't have yet the timing of the closing. We expect to have a close contract with them the end of the year or the beginning, perhaps January next year. So we can expect a timing for the completion in terms of between 22 and 24 months from that, from that when we close the contract. So that could be the timing. So we don't have yet the confirmation because as I mentioned, we don't close the deal, but you can consider that time in 22, 24 months after we signed the contract. And the other part of your question was about the PPA, sorry?
spk03: Yes, the energy and positive payments. The PPA regarding Brigadier Lopez, you mentioned? Yes.
spk06: Okay. Yes, whenever we close the cycle, the combined cycle, we start receiving a PPA for the steam turbine, not the gas turbine. The gas turbine, the PPA related to the gas turbine finished on August this year. so right now the the gt is receiving the the base payments the the energy of asset payments but whenever we close the combined cycle we we start receiving a ppa for 10 years related to the steam turbine the bpa is around 22 000 per megawatt capacity and for energy
spk02: Sorry. Sorry. Sorry. Sorry. Sorry. Sorry. Sorry. Sorry.
spk05: to keep up with maintenance or is still there room to go as we have been going these couple of years?
spk06: Okay, in terms of, well, depending on the units, in terms of steam turbines, we need to do some maintenance in terms of keep them operating, in operation. And we expect to have some maintenance related to the TB6, the steam turbine 6. And we expect to have a maintenance of our combined cycle not next year, the Buenos Aires combined cycle not next year, the next one in 2024. And we are discussing with the government additional remuneration to do those maintenance, especially the combined cycle, which implies a life extension, in fact. So we need to perform maintenance in the boiler and big maintenance in the boiler. And we are talking with the government related to have an additional remuneration to cover that life extension maintenance. It's not only Central Puerto, it's the same of all the combined cycles that were installed in the late 90s to the beginning of 2000. All these combined cycles are reaching the lifetime limit, so they need an extension. And because of that, all the generators are working together so we have a remuneration or additional remuneration to cover those maintainments. But this is more or less what we are talking about in terms of maintenance. The combined cycle of Mendoza, the lifetime extension comes in 2025. So we are not expecting big maintenance on this combined cycle for these two years to come.
spk05: Okay, so if I understand correctly, it's like and additional payments only for maintenance, it's not like that you're expecting like less remuneration to go above inflation. Is that right?
spk06: No, yes. That are two parts of the remuneration. We are, of course, talking with the government in terms of increase or to maintain the remuneration in real terms. But we are talking about additional maintenance. This is for the normal operation, so we are talking with the boron related to additional increase in this year for the resolution 238. That implies the maintenance and the operation, the current maintenance and the current operation, not implies a life extension of the combined cycles. In that sense, we expect – we don't have a confirmation yet, but we expect another increase in the energy of asset prices for this year, and we are talking about what's going to happen in next year, trying to set some increases in advance, not working below the inflation that what's happened this year. We are working towards that. We expect to have a confirmation for a new increase this year and then set a path of increases for the next one.
spk05: Okay, very helpful. And my last question then, if you are considering paying dividends next year,
spk06: Yes, that is under analysis, and we are giving all the information and all the consideration related to that to our shareholders, and it's a possibility. Yes, not closed yet, but we need to discuss that with our shareholders, but it's a possibility. Central Porto has a positive cash flow generation, so it's a possibility, yes.
spk05: Well, thank you very much for your time. That's all on my side. Thank you for your question.
spk00: Ladies and gentlemen, if you do have any questions or comments, please press star 1 on your phone at this time. Okay, there appear to be no further questions in the queue.
spk01: This concludes our question and answer session. I would like to turn the conference back over to Mr. Bonnet for any closing remarks.
spk06: 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.
spk01: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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