Central Puerto S.A. American Depositary Shares (each represents ten Common Shares)

Good morning, ladies and gentlemen. Welcome to Central Puerto's second quarter 2023 earnings webcast. All participants will be in a 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 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 are stated in Argentine pesos unless otherwise noted. It is worth noting that the financial statements for the second quarter ended on June 30, 2023, 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 take into consideration that certain statements made by the company during this conference call and answers 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 expectation 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 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 Bonet, 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 second quarter of 2023. Taking a moment of your attention to review today's agenda, I would like to begin the presentation by addressing the latest development of the company during the period, then move on to analyze the evolution of the Argentine energy sector in the quarter, and finally delve into Central Puerto's operating and financial results. At the close of my presentation, we will be happy to address any question that you may have. To begin with, and in line with our strategy to increase our environmental performance and contribute to the global descarbonization goals, on May 3rd, 2023, PRONER, one of our subsidiaries, acquired 100% of the capital stock and votes of the forestry companies Empresas Verdes Argentina, Las Misiones, and Estancia Felina Sociedades Anónimas, which contribute a total of 88,000 hectares geographically located in the center of the province of Corrientes, of which approximately 36,000 hectares are productive and 36,000 already comes with pine plantations. Following the recent acquisition of Central Costanera and in order to comply with the provision of the Capital Market Law and the CMB rules, on March 17, 2023, PRONER promoted and made a tender offer to all the holders of voting shares of Central Costanera. The tender offer was open from May 30th until June 12th, 2023, and the notice of result was published on the following day, June 13th, 2023. By virtue of which, it was informed that over 65,000 shares of the company participated in the tender offer. Consequently, Bronner's shareholder in the company represents now 75.69% of the company's capital stock. The shares of those holders of Central Costa Nera that did not participate in the tender offer continue to be outstanding and trading in the Buenos Aires Stock Exchange. With this acquisition, Central Puerto reinforces its growth in Argentina, consolidating its position as market leader in the power generation sector. Now, let's use the next two slides to analyze the evolution of the Argentine energy market during this quarter. As we can see in slide 5, the country's installed generation capacity increased by 1%, or 524 megawatts. reaching a total of 43,405 megawatts compared to 42,891 megawatts in the second quarter of 2022. This increasing capacity was mainly due to the incorporation of 349 new megawatts from renewable sources, increasing 7% vis-a-vis the same period of 2022, of which 237 megawatts correspond to solar photovoltaic projects, 95 to wind farms, 12 to renewable hydro projects, 3 MW to biomass, and finally 1 MW of biogas generation units. In turn, thermal capacity sources recorded a net 1% increase, or 175 MW, as a combination of the incorporation to the system of 780 MW of new combined cycles, and the decommissioning of 567 megawatts and 38 megawatts of gas turbines and diesel engines respectively. Now moving to the analysis of the power generation and demand of the period. In the second quarter of the year, energy generation in the local market decreased by 7% to 32,046 gigawatts per hour compared to the same quarter of 2022. with a 12% and 8% reduction in thermal and hydro generation respectively, partially offset by an increase in energy supply from nuclear sources of 3% and from renewables of 1%. In addition, a 13% increase in imports from neighboring countries, mainly from Brazil, contributed to the lower overall local power generation of the period. this lower power generation in second quarter 2023 vis-a-vis the same period of 2022 was a direct consequence of a six percent contraction in energy demand which was essentially driven by a 10 decline in residential demand as a result of middler temperatures recorded during the quarter compared to the same period of last year as an example of this phenomenon the average temperature in may 2023 was 16.4 centigrade, while in the same months of the previous year, it was 13.8 centigrade, while the historical average for the same months stands at approximately 14.5 centigrade. The decrease in demand prompted a lower thermal dispatch, which was also negatively impacted by the lower availability rate of certain power stations, registering an average availability of 74% in the second quarter of 2023, vis-à-vis 77% in the same period of last year. The lower thermal dispatch was compensated with more nuclear and renewable generation, as commented before. The increasing nuclear generation was mainly due to the greater energy production from the nuclear plant Atucha I and, to a lesser extent, from Embalse, while the Atucha II nuclear plant is still under maintenance and is expected to be back in operations in incoming months. Regarding renewable energies, the increase in generation was related to the increase in install capacity. Finally, the lower hydrogen generation was primarily a result of a lower water flow in the Uruguay and Paraná rivers, which was mainly driven by the lack of rainfalls and the consequent drought that hit the center and north of the country during the first half of 2023. Going now to our key performance indicators for the quarter, on slide seven, During the second quarter of 2023, Central Puerto's operated power generation increased by 11% to 4,762 gigawatts per hour, compared to the 4,280 gigawatts per hour in the second quarter of 2022. It should be noted that this increase includes the incorporation of 953 gigawatts generated by Central Costanera, which was acquired during the previous quarter. Thus, when excluding the power generation from Central Costanera, power generation in the second quarter of 2023 decreased by 11%, representing a drop of 4 percentile points beyond the 7% contraction of the market as previously explained. This was mainly due to a 14% lower thermal generation as a consequence of a lower availability of steam turbines at the Central Porto site and lower dispatch of its combined cycle. In turn, during the quarter, Wind generation recorded a 2% increase in a year-over-year comparison due to a higher capacity factor of our wind farms on the back of higher wind rates, while hydro generation at Piedra del Águila increased by 1%, driven by a higher water flow of the Limay and Cochoncura rivers. Regarding thermal availability, for better understanding, let's break it down by technology. The availability of our steam and gas turbines was 57% in the quarter, compared to 73% percent in the same period of 2022. Combined cycle availability reached 84 percent in the quarter compared to 95 percent in the same period of the previous year. It's worth to notice that the 2023 figures are impacted mainly by a lower availability of some steam turbines, especially those of Central Costanera, and the shutdown of the Buenos Aires combined cycle at the same power station. Thus, when excluding Central Costanera from the quarter-over-quarter comparison, The availability of Central Puerto's steam and gas turbines would reach 73%, and the metric for combined cycle would be 96%. It is worth to mention that the Buenos Aires combined cycle is expected to enter in maintenance by the end of this month and to be back in service by the end of the next quarter. Finally, steam production in the quarter decreased by 4%, amounting to 560 million tons, compared to the 586 million tons in the second quarter of 2022. This was mainly due to the lower demand from YPS Lujan de Cuxo Refinery. Before going into a more exhaustive analysis of the evolution of our main financial metrics, let me briefly review the consolidated results of the Central Puerto Group during the second quarter of 2023. Our consolidated revenues in the quarter amounted to 38.7 billion pesos, decreasing 6% compared to the same period of the previous year. Adjusted EBITDA, which excludes foreign exchange differences and interest related to foreign trade receivables and the variation in fair value of biological assets from our forestry segment, total 17.1 billion pesos, being 34% lower to the adjusted EBITDA of the second quarter of 2022. Net income for the period was 5.3 billion pesos, recording a decrease of 14% vis-a-vis the 5.1 billion pesos of the second quarter of 2022. At the same time, during the quarter, we continue the leverage in the company despite the recent acquisitions. As a result, the group's total consolidated debt was reduced by 22% to 87.2 billion pesos, while the net debt position as of June 30 declined to 24.3 billion pesos. Now, zooming in our revenues analysis, as you can see on slide nine, This amounted to 38.7 billion pesos in the quarter as compared to 41.3 billion pesos in the short period of 2002. First, it should be noted that in this quarter, revenues of the Central Porto Group include those corresponding to the recent acquisition of Central Costanera and the forestry companies, which contributed with 4.9 and 1.8 billion pesos respectively. Thus, when excluding these effects, the variation in revenues would be a 23% decrease or 9.3 billion pesos, mainly due to the following factors. A 35% or 8.3 billion pesos reduction in sales on the contract, mainly as a result of the end of the Brigadier López gas service BPA contract in August 2022, and to a lesser extent, to the negative impact of a higher inflation rate compared to the peso depreciation of the period. a 23% or 0.5 billion pesos contraction in steam sales as production level decreased in line with the lower demand from YPF, Luján de Cuyo Refinery, and a 3% or 0.4 billion pesos decrease in spot legacy energy sales, which amounted to 13.3 billion pesos in the second quarter of 2023, compared to the 13.7 billion pesos in the same period of the year. This was mainly driven by a 65% increase in remuneration by means of the Resolution 826 that was below the inflation rate of the period. All of this being partially offset by the implementation of the Resolution 59 on March of this year, which partially dollarized combined cycle remuneration and to a lesser extent the recognition of fuel costs from CAMESA. Moving now to slide 10, for a better understanding of the evolution of our adjusted EBITDA, during the second quarter of 2023, the groups adjusted EBITDA reached 17.1 billion pesos, including the adjusted EBITDA of the recently acquired companies Central Costalera and the forestry companies for 1.3 and 1.2 billion pesos respectively. Thus, on a consolidated basis, the adjusted EBITDA of the quarter recorded a contraction of 34% compared to the 25.8 billion pesos in the second quarter of 2022, as explained before. When analyzing the trusted EBITDA excluding acquisitions, we can observe that the variation is mainly explained by the previously mentioned drop in revenues, a 21% or 3 billion pesos increase in cost of sales, explained primarily by higher consumption of materials and spare parts due to the maintenance performed on the gas turbines at the Lujan de Cuyo plant, an 8% increase or 0.2 billion pesos in SG&A, mainly driven by higher third-party services and personal costs, All of this partially offset by an 85% increase or 1.3 billion pesos in other operating results mainly due to higher interest accrued or residuals from CAMESA. Moving to the next slide, consolidated net income for the quarter amounted to 4.3 billion pesos, decreasing 14% 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 a higher loss on net monetary position of 4.1 billion pesos, partially offset by better results on our associated companies of the Ecogas Group for 0.2 billion pesos. An increase of 2.1 billion pesos in income tax, which is basically the result of higher deferred income tax and adjustment to the provision of the previous period with respect to the amount actually paid in the current period, partially offset by a lower current income tax for this period. One of these was partially upset by a lower loss in net financial results, accounting for a positive variation of 6.2 billion pesos, proven by a gain in the fair value of financial assets, partially upset by higher net interest and negative foreign exchange differences. Higher positive foreign exchange differences and interest related to the foreign receivables for 3.9 billion pesos. And finally, higher positive results from an increase in the variation of the fair value of our biological assets from our forestry segments. Finally, going to slide 12, we can see the evolution of our cash flow during the first half of the year. Operating cash flow total 26.4 billion pesos as a result of the adjusted EBITDA of the period, coupled with 5.9 billion pesos in collection of interest from clients, including funny receivables and 3.8 billion pesos in positive working capital variations, being all partially offset by income tax payments of 8.8 billion pesos. Net cash used in investing activities was 12.2 billion pesos, mainly due to a 16.2 billion pesos deployed in the acquisition of companies made during the first half of the year, coupled with 2.4 billion pesos in investments in property planning equipment and 0.7 billion pesos in inventory partitions, being all partially offset by 6.6 billion pesos from the selling of short-term financial assets and a collection of 0.6 billion pesos in dividends during the period. Finally, net cash used in financing activities was negative in 21.5 billion pesos. It was basically as the result of 12.1 billion pesos in debt service amortizations, primarily related to the Brigadier Lopez syndicated loan, along with 5.9 billion pesos in interest and other financing costs related to our bank long-term loans, And the cancellation of overdrafts in checking accounts for 2.4 billion pesos. And finally, 1.1 billion pesos in dividends paid. As a consequence, our cash position as of June 30, 2023 amounted to 4.5 billion pesos, which if current investment in financial assets are included, our total current liquidity amounts to 24.3 billion pesos. With this, I would like to conclude my presentation and now we invite you to ask any question to our team. Thank you for your attention.

We will now begin the question and answer session. To ask a question, you may press star then one 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 two. At this time, we will pause momentarily to assemble our roster. And the first question comes from Martin Arancet from Balance Capital. Martin, your line is live. Please go ahead.

Hi. Well, first, thank you for the materials, as always, and for checking my questions. I have five questions. Sorry for the extent. I will try to be quick. I would like to run them one by one, if that's okay. My first question is regarding the Piedra del Águila concession. The government gave an extension on the concession of ILO assets, so it could be the next government, the one that determines the future of those assets. Do you think it is a taking decision to move those plans to government control, or could we still see a new auction or an extension of the current concessions? And what is your estimate of EBITDA per year in Piedra de la Vila?

Okay. Hi, Martin. Thank you for your interest and your questions. Regarding Piedra Laila, as you say, this government, the former government, established an extension of the concession. In our case, that extension has two phases, 60 days first and another 60 days coming after. And that will give our or put our end of concession in February or April next year. So, as you mentioned, the government that will analyze the extension or not extension will be a new government. And for what we have been talking with different... Of course, we need to know who will be the new government. Since yesterday, it seems not so clear who will be the new government. But we have been talking with different reference from the candidates, and the perception that we have is that they need to analyze in detail. They don't have an answer yet about what to do with this concession, but they need to analyze that in deeply indeed that not take a decision like the transfer to an ARSA or to move in a statization process without analysis and taking in the consideration of the claims that the actual concession has and the relation with the province and the other thing is the investment that these concessions need to have to extend another 30 years of operation. So in any case that we have been talking with the different reference of the opposition, we talk about taking this extension of one year that the concession has as a possibility, not only two months or three months, the one that this government took. But taking this year of extension to analyze indeed all the aspects, so we are confident that we can have that extension and then start talking how to proceed with this concession in the near future. So we are optimistic that we have we will have the opportunity to discuss that with the next ordinance. And the BTDA that you mentioned, you asked, is around, that's depending because it's in pesos. The new devaluation, we need to recheck, but it's around $30 million per year.

Thank you, yes. My second question then, regarding results this quarter, revenue increase quarter over quarter, probably partially due to the acquisition of Central Costanera. but results were affected by an increase in OPEX that more time compensated the additional revenue. Could you give us some color on the additional OPEX if it was related to costanera and what are your expectations of getting to more normalized levels?

Yeah. No, yes, it's affected by, not only Costanera, it's affected by the big maintenance that we are doing in our combined cycles, especially in our combined cycles of cogeneration, in fact, our cogeneration of Lujan de Cucho, that we perform a big maintenance there We are performing a big maintenance also in September in the Costanera combined cycle, and we are having an extraordinary maintenance in the small combined cycle of Costanera, the Buenos Aires combined cycle, Siemens combined cycle, the small one, that suffered an extraordinary failure in March. So we are having a big maintenance of our units, Costanera and Lujan de Cuxo plants. And that are the reason of the increase that you see in the OPEX.

Okay, so in the maintenance of September we could see increased OPEX also next quarter and probably

Yes, you will see some increases, but we have been paying this big maintenance since, or we and Enel previously, since September or October last year, so we are paying in advance, so you will see an increase on CapEx, but not the cash flow. because we have been paying most of the capex in advance.

Okay, perfect, thanks. My third question then. The government just devalued the official effects by more than 20% as you just mentioned. Do you expect CAMESA payments days to be the main tool that government could use to cushion the blow on the increased subsidy bill?

I don't know, really. I don't know. In fact, CAMESA was reducing the delays that we suffer in May and June. For example, we have a delay there of 60 days Right now, we are in around 30 days of delay in payments of Franca Mesa. And also, the government, as you say, the valuation impacts, of course, because of the cost of fuel and some contracts that are set in dollars. But on the other hand, the government increased the tariff or applied the full increase in the segmentation itself. in tariff that implies an impact of an increase of higher segments of the population. So I don't know really if we can suffer. The good news is that we are ending the winter period in which the fuel and the gas oil that we use increase and that implies a huge quantity of money for Kamesa and we are ending that call periods and the reduction of the bill, the Kamesa bills are unimportant. So, I don't know. I don't know. We are not expecting for sure increase in delays more than 60 days that was the higher that we see on May and June. But we don't know if we can go something like 40 or 45 days, but not more than that.

Very clear, thank you. And you were just talking about this big maintenance. So I want to ask about thermal availability. It came at 71% lower than in the previous quarter. Where do you see availability after these big maintenance works in 2034?

Well, the 71% is an average, so you have there a different combination of equipment and places. If you see only the combined cycles of Central Puerto, including Costanera, you reach 95% or 96%, which is our normal availability. When you combine with the Costanera combined cycles, the one that I mentioned, the Central Buenos Aires combined cycle was affected, so the percentage will reduce to 84%. So whenever we can solve the problem of Buenos Aires, I think that Buenos Aires is an old combined cycle, so we are suffering some problems of the end of life of this combined cycle. But in the other hand, the Mitsubishi combined cycle is very reliable, so if you exclude The Central Buenos Aires combined cycle, the availability of the combined cycles and relatively new units are very, very good. With Buenos Aires, well, we are working to get online, but it's an old combined cycle, so for sure we'll see some ups and downs with this unit. but not the big ones and Mitsubishi and GE and Siemens combined cycles are very, very reliable. On the other hand, the steam turbines, especially the Costanera ones, have a very low availability this quarter related to long periods of maintenance related to some problems with the boilers, that we are hoping that we can reduce the frame, the timing of these interventions, of these maintenance in the boilers to replace the tubes that get broken. And we expect to see better timings or better performance on that maintenance and reduce the unavailability for the next quarters of course they are all units as you know and the same as the steam turbines of puerto so the availability is not so high like a combined cycles but we we expect to to reach similar levels or close to similar levels to to steam turbines of central puerto which are around 70 70 5% of availability in terms of steam turbines. So we are confident that we can increase that availability in the next quarters.

Okay, so probably closer to standard port or all normalized levels of around 80, 85, something like that?

Yes, yes, in average, yes. But you need to, if you separate this better, because excluding Buenos Aires combined cycle, the one that cost, a small one that I mentioned that is unavailable right now, you will see availability around 90% in combined cycles, and between 88 and 90 for the combined cycles, and for the steam turbines, we are expecting to see something related to 68 to 70, something, that are the numbers that we expect. The Central Buenos Aires is more unpredictable, as I mentioned, because it's at the end of its life, and we don't have a full maintenance with Siemens. It's only a reduced package of maintenance because there are not they're not produced in all the parts of this combined cycle. So excluding that combined cycle, we are confident that we can reach good levels of availability.

Very clear. Thank you. And my last question then, you wrote additional land for a forest. How much BDA per year do you expect for that line of business, all the forests together, the one that you already got and this new one?

Well, as I mentioned last quarter, these forest lands are almost cutting the same that they are planting. So the BTDA right now is close to zero. It's around $2 or $3 million per year because we are increasing our hectares planted. So we are investing on new hectares planted. But right now, as I mentioned, it's $2 or $3 million. We expect, when we finish this process of planting new hectares, a BTDA around $10 million, around $10 and $15, between $10 and $15 million.

Thank you. That's all on my side.

Yeah.

Thank you. Again, if you have a question, please press star then 1 on your touch-tone phone at this time. And there are no further questions in queue at this time. This does conclude our question and answer session. I would now like to turn the conference back over to Mr. Fernando Sonet for any closing remarks.

Okay. Thank you for your interest on Central Puerto. Have a good day.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.