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

Good morning, ladies and gentlemen. Welcome to Central Porto's third 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 assessed by assessing 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 pesos 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 amounts 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 30th, 2023, include the effects of the inflation adjustment. Also, please take into consideration that certain statements made by the company during this conference call in 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 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 Pareto 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 Suento Puerto is Fernando Bonet, Chief Executive Officer, Enrique Taranio, 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 exhaustive 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 system capacity has increased by 48% year over year to 7,113 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 the more recent acquisition of the solar farm Juan Isul II-A, the group has become the largest energy generation company in Argentina, both in terms of system capacity and energy generation, with a diversified portfolio of assets across all power generation technologies. With regards our financials of the quarter, Revenues amounted to $166 million, increasing 21% compared to the same period of the previous year, while adjusted EBITDA total $89 million, being 5% below the one of 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 the leveraging the company, during the quarter and net debt has been substantially reduced, the last November 2, the board as a director of the company approved a dividend distribution of 29.7 pesos 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 6th of 2023, the Secretariat of Energy issued resolution number 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 2nd, the Secretary of Energy issued Resolution 869, which updates remuneration prices for the same generation units, which are not committed to PPAs, and the resolution increased remuneration values by 28% since November 2023. On July 26th, the National Secretary of Energy, through Resolution 621, announced a national and international open call, called TARCONF, 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 standard will enter into a PPA with CAMESA. Submissions of BID took place on September 26th, while the technical qualification was carried on October 25th. and the opening of economic bids on October 27th. CAMESA will evaluate the economic offers based on different factors, such as efficiency of the plan, price offered, node where to be connected, and age of the machine. The combination of these different factors will define the final price with which the project will compete. To date, CAMESA has not issued a decision on the awarding of projects. As part of this bidding process, the group presented projects in Central Puerto for 312 megawatts, and in Central Costanera for 516 megawatts. Continuing with our strategy to diversify our energy matrix and consolidate in the renewable energy market, on October 18th, 2023, PRONER, one of our subsidiaries, directly acquired 100% of the capital votes and stock of Cordillera Solar and Escatet Equinor Solutions. Owners and operator respectively of the solar power plant 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 CAMESA of around 20 years maturity under the program RENOVAR With this acquisition, Santrampuerto will generate approximately 10% of the country's 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 two slides to analyze the evolution of the Argentine energy market during this quarter. As we can see in slide seven, 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 for 2023, 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, and the decommissioning 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, which decreases of 12% and 6%. The higher power generation in third quarter 2023 vis-a-vis the same period of last year was a direct 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 upset by a 6% contraction in industrial demand due to a drop in measures user 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 of 23 with Q3 2022, flow rates of the rivers Colón-Curá, Futaleufú, Limay and Neuquén rose by 86, 83, 64 and 167 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 third quarter of 2023, the flow rate of the Colón-Curá river was higher than the historical rate 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, especially 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 Embalse and Atucha I power plants since Atucha II was under maintenance works. Going now to our key performance indicators for the quarter. On slide nine, we can see that power generated by Central Puerto rose by 46% to 5721 gigawatts per hour, compared to 3932 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 Costa Nera, in the quarter-over-quarter comparison, the increase reached to 26% to 4,953 gigawatts per hour. Hydrogeneration explained most of the 46% increase in gigawatts per hour production in the quarter. Piedra del Aguila hydropower plant increased 248% its energy production, which was a direct result of the rise in the flows of the rivers Colón-Curá and Limay compared to the same period of 2022, as previously mentioned. The flow rate of the Colón-Curá River was higher than the historical average for the period, with peaks even higher than the historical maximum flow rate recorded for September, as previously mentioned as well. Renewable energy as a whole increased 1% between third quarter of 2022 and third quarter of 2023, mainly explained by La Castellana 2 and Genoveva 1, and to a lesser extent Manquerar Olivos, which recorded high wind resources and availability of wind turbines. Regarding thermal generation, it rose 9% between Q3 2022 and Q3 2023, 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 previously mentioned, which prompted lower thermal dispatch, particularly in the Puerto side. 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 the one of Ricardo Lopez plant increased substantially their energy generation during the period. The generation from San Lorenzo plant shank in this period because of gas scarcity. In terms of availability, Central Port of Performance continued to be better than the market when we exclude Central Costanera, since this power plant has been carrying out several maintenance programs. steam production declined 12% during the third quarter of 2023, which is explained by a 28% contraction in the salary and increase of 16% in the Mendoza Coaching Generation Plan. Now, summing in our revenue analysis, as you can see on a slant term, 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 Porto Group include those corresponding to the acquisitions of Central Costanera and the forestry companies, which contributed with 21.2 and 8.2 million dollars respectively. Thus, when excluding these effects, the variation in revenues would be a slight decrease of 0.4% or 0.6 million dollars as a combination of the following factors. First, a 23% or $11.5 million increase in spot legacy energy cells, which amounted to $62.2 million in the third quarter of 2020, compared to $50.7 million in the third quarter of 2022. This was driven by a higher energy dispatch from Piedra del Águila Hydropower Plant, a higher thermal availability from Central Portos Combined Cycle, and the end of the Brigadier López gas turbine PPA contract in August 2022, it began to be remunerated in the sport market. All of this being partially upset by a lower generation from thermal units on the back of a higher hydro resource and a lower remuneration in dollars. A 28% or $1.9 million increase in steam sales, which total $8.5 million in the quarter compared to $6.6 million in the same period, 2022. This was due to a combination of better prices in dollars, a 12% decline in volumes produced, as previously mentioned, and a revenue adjustment with a negative impact in the revenues of the third quarter of last year. Finally, a 16% 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 of 2022. This was mainly the result of the end of the Brigadier López 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 and $4 million, respectively. Then, on a consolidated basis, the adjusted EBITDA of the quarter recorded a contraction of 5% compared to the $93.8 million in the third quarter of 2022. When analyzing the adjusted EBITDA excluding acquisition, we can observe that the variation is mainly explained by the previously mentioned drop in revenues, a $21 or $10.3 million increase in cost of sales, explained primarily by a higher consumption of materials and spare parts due to the continued maintenance performed on the gas turbines at the Lujan de Cuyo plant. A 15% increase, or $1.3 million in SG&A, mainly driven by higher personal costs, maintenance activities, and taxes on bank accounts. And finally, a 22% increase, or $3.3 million in other operating results, mainly due to higher interest from operating activities. Moving to the next slide, Consolidating 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 differences partially offset by a gain in financial assets measured at set value. All of this being partially offset by a higher positive foreign exchange differences and interest related to the FONI receivables for $25 million and Higher positive results from an increase in the variation of the fair value of the biological assets from our forestry segment for $16 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 nine 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 a $42.1 million in collection of interest from clients, including those of the FONI program, being all this partially upset by income tax payments of $54.3 million and $6.2 million in negative working capital variations. Nest cash used by investing activities totaled $78 million. It was mainly due to the acquisition of the companies made along the year, capital, with $11.5 million in invested property plan and equipment, $1.8 million from the selling of short-term financial assets, and $1.7 million from the shared 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 majority of the Manque and Olivos dollar link bond in last September. Along with $28.3 million in interest and other financial costs related to the loan to 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 schedule, but in particular, I would like to highlight the successful liability management carried out during September and October, and that will considerably alleviate our debt maturities for the year 2024. In that connection, on October 17th, the company issued its first international bond for a total amount of $50 million, with a two-year tenor at a rate of 10%. This allowed us to partially repay, only two days later, $49 million of the outstanding $55 million of the syndicated loan signed with Citibank, Shipping Morgan 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 the syndicated loan. In that connection, and as previously explained, the company has announced that it will be distributing dividends to our shareholders with a combination of Argentine pesos and securities on November 16th. 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 US dollars for a total amount of 37.2 at a rate of 7% and matured in 2025. These classes notes were reopened on October 20th 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 question to our management team. Thank you for your attention.

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. Press star 2. to remove your question from the queue. At this time, we will pause momentarily to assemble our roster. Your first question is coming from Rodrigo, mister with Latin Securities. Please pose your question. Your line is live.

Good morning, everyone. Thank you for the opportunity. So given the change in government in 2024, how you're modeling the impact on legacy energy regeneration, what scenarios are really concerned in terms of regulatory changes and how this might affect your strategy for your thermal projects. Thank you.

Rodrigo, thank you for your question. I can hear you very well. I assume that you're asking for energy ambassador remodeling framework for 2024. Is that correct?

Yes. Can you hear me better now?

Okay. Yes, well, as you know, this, the energía basa remuneration framework is a framework in which we receive the amounts in pesos and the Secretary of Energy established the tariff and made 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 percent 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 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 three months the adjustment is which we have right now. So we are confident to try to set a scheme of adjustment automatically established trying to catch the inflation as I mentioned automatically. We talked with the possible ministry or Secretary of Energy and they are aware about that. They know that we need to have that. We talked with the actual Secretary of Energy and she knows the same that we need to have an adjustment more automatically that we have now and I think this will be the challenge for the next quarter. Of course, first they need to adjust the end-user tariff and we need to have the same scheme which is in order with that. So first they need to solve the problems to establish a new end-user tariff scheme and we can discuss how we can enter in that scheme and having an automatic adjustment. So that's our idea about how we can discuss the future in terms of legacy energy.

Okay. And I have a second question, if I may. If you could outline Central Puerto's investment plans for 2024, potential acquisition targets, processing, transitioning to combined cycles, and your expectations for the upcoming energy options and their impact on the company's position and performance.

Thank you. Okay. The first thing that we have ready to start is the Villalobos closing combined cycle. which is in the finish. We are finishing the discussion with the EPC constructor 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 and $150 million. and around 20 months of construction, we will reach an 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 the heating process, the thermal process, thermal auction, and we are confident that we can at least reached two 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 the ending of the results of the election. And in terms of acquisitions, we are still looking at new capacity 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 at possibilities in mining, but also in early stages, so we don't have another close possibilities right now, so I think that we are more clear one, and second, the thermal options coming is another clear possibility.

That was really helpful. Thank you.

Your next question is coming from Martin Arenta with Balance Capital. Please pose your question. Your line is live.

Hi. Thank you. Thank you very much for the materials and for taking my questions. I have three 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 shared repurchases for next year?

Well, as you mentioned, 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 MARWATs we get award in the term of adoption, 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 thanks 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 Central Protocol could 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't get it closing, but we want to put focus and see alternatives in that sector, yes.

Okay, thanks. And my last question. Well, you were one of the main bidders in the recent formal auction, and of course we are still waiting for the results.

what IRR were 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 IRR 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 of 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.

Okay, very helpful. Thank you. Thank you for your interest.

Once again, if you do have any questions or comments, please press star then 1 to enter the queue.

Please hold a moment while we poll for any additional questions. This concludes our question and answer session. I would like to turn the conference back over to Mr. Fernando Bana 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.

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