Central Puerto S.A.

Good morning, ladies and gentlemen, and welcome to Central Puerto's fourth quarter 2023 earnings webcast. All participants will be in a listen-only mode, and 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 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 US dollars for comparison purposes only. The exchange rate used to convert Argentine pesos to US 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 represents these U.S. dollars amounts, or could be converted into U.S. dollars at the rate indicated. Finally, it is worth noting that the financial statements for the fourth quarter ended December 31st, 2023 include the effects of the inflation adjustment. Also, please take into consideration that certain statements made by the company during this conference call and 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 statement section of our earnings release and recent filings with the SEC. Central Correcto 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 Central 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. 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 for the full year 2023 and the fourth 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 year 2023 and the fourth quarter of 2023, followed by a quick update of the regulatory framework and an overview of the Argentine energy sector, and then move on to analyze the evolution of our operational and financial results. Finally, at the end of the 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 financial and operational results, let me briefly review the main figures of the Central Puerto group for the year 2023 and the four quarters 2023. As you may know, with the acquisition of Central Costanera performed at the beginning of the year, the one in Sur Solar Fund on October 2023, the group's capital capacity has jumped by 49% year over year, to 7.2 gigawatts of installed capacity. Furthermore, energy generation amounted to almost 21 terawatts per hour in 2023 and 5.2 terawatts per hour in the quarter, increasing by 19% and 10% respectively with regards to the same period of last year. Thus, during 2023, the Central Puerto Group has become the largest private energy generation company in Argentina, both in terms of its net capacity and energy generation, completing a diversified portfolio of assets across all power generation technologies. With regards to our financial results, it should be noted that the short devaluation that occurred at the end of 2023 caused the depreciation of the local currency to be much higher than the inflation of the period. Given Central Puerto's accounting methodology, all items in pesos might be adjusted for inflation to the year-end currency. While the company reports, it results in dollars by converting them at the end of period of official exchange rate. Thus, casting a non-cash impact that affects the comparability of our financial results and being more significant in the analysis of the four Q23 figures. In that connection, revenue for the year amounted to $537 million decreasing 5% compared to 2022, and to $98 million in the quarter, contracting 19% compared to the same period of the previous year, while adjusted EBITDA reached $277 million, showing a 35% decrease versus 2022, and $45 million in the quarter, being 34% lower to the last quarter of 2022. Net income. was positive in $193 million and $155.8 million in 2023 and fourth quarter 2023 respectively, affected by one-time effects that impacted positively in the last quarter of the year, as we will see in detail in the later of the presentation. Finally, after a satisfactory year in terms of our management of our debt profile and dividend distribution, net debt as of December 31 amounted to $244 million, showcasing a net debt leverage ratio of only one time. Now, moving to the most recent regulatory update, it is worth mentioning the following resolutions. On September 6th of 2023, the Secretary of Energy issued Resolution No. 750 of 2023, which updated remuneration prices for energy generation and power capacity for units not committed in a Power Purchase Agreement, or PPA, increasing remuneration values by 23% since September 2023. Furthermore, on November 2nd, the Secretariat of Energy issued Resolution 869, which updated remuneration prices for the same units by 28% since November 2023. Finally, and more recently, in February 2024, the Secretariat of Energy issued Resolution 9, updating remuneration by 74% since February 2024. It should be noted that combined cycles that operate in the spot market are not committed in the PPA and are remunerated with the special regime introduced by means of Resolution 59-2023, issued in February of that year. And that this scheme, the power capacity of these generation units, is partially paid in US dollars while the energy generation is fully dollarized. Finally, with regards to the TURC-CONF bidding process, although the company was awarded with project for 516 megawatts of power capacity at its unit, Central Costanera. As of today, the contract has not been signed and the process is under review of the new administration. 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 six, the country's instant generation capacity increased by 2%, or 847 megawatts, reaching 43.8 gigawatts compared to 42.9 gigawatts in the last quarter of 2022. This increase in capacity was mainly due to the incorporation of 396 new megawatts of wind technology and 280 new megawatts of solar photovoltaic projects. Biogas and biomass slightly increased during the quarter, adding 6 megawatts and 3 megawatts respectively. Finally, thermal capacity sources recorded a net increase of 162 megawatts as a combination of an addition of 735 megawatts of new combined cycles and the decommissioning of 537 megawatts and 36 megawatts in gas and diesel engines, respectively. Regarding energy generation in the last quarter of the year, this dropped 4% to 34.8 TWh compared to 35.1 TWh in the last quarter of 2022. in line with the 4% decrease in energy demand. The lower demand of the period was mainly covered with more generation of nuclear, hydro, and renewable sources, resulting in a lower thermal requirement. The increase in nuclear power generation was mainly explained by the Atusha-Dosk power plant, which was unavailable during the last quarter of 2022 due to the maintenance program that lasts until mid-2023. In addition, The Embalse power plant also supplied significant more generation during the last quarter of 2023, vis-a-vis the last quarter of 2022. The increase in hydro generation is a phenomenon that started by mid 2023 due to higher rainfall in comparison to the year 2022, year that was particularly affected by a severe drought. As a result, littoral and common water hydro plants had been generating significantly more in 2023, vis-a-vis 2022. And speaking specifically of the last quarter of this year, the Uruguay River recorded an increase of 484% in its flow rate, while the Neuquén and Limón rivers rose their flows rates by 49% and 37% year over year respectively. Focusing now on demand, as you can see, electricity consumption decreased 4% during the last quarter of the year compared to the last quarter of 2022. It was essentially driven by a 5% decline in residential consumption on the back of middle temperatures during the period, especially in December, when consumption fell by 10% with respect to 2022. With regards to industrial demand, this contracted by 5% as a consequence of a lower economic activity in the period. It is worth noting that the local demand was covered with local energy generation, substantially decreasing imports by 97%. Going now to our key performance indicators for the quarter. On slide eight, we can see that energy generated by Central Puerto rose by 10% to 5.2 terawatt hours, compared to 4.7 terawatt hours in Q4-22. It should be noted that this increase includes the incorporation of 856 gigawatt hour generated by Central Costanera, which was acquired in February 2023, as well as the 73 gigawatt hour produced by Wainisul Second Aid Solar Fund acquired last October. which were not part of the growth of the fourth quarter of 2022. In the fourth quarter of 2023, the increase in hydro energy generation from Piedra and Águila was once again noteworthy, reaching 1.7 terawatt hours and standing 21% above the last quarter of 2022 levels, as a direct result of the increase in the flows of Limay and Coyoncura rivers, 37% and 13% respectively, compared to the fourth quarter of 2022, when river flows were still affected by the draft that impacted the country in 2022. Finally, renewable energy generation increased by 12% in 4Q23 vis-a-vis 4Q22, being fully explained by the 73 gigawatt-hours generated by the Wenishu 2A solar plant, which was partially upset by a 5% contraction in wind generation as a result of lower wind resource during the period. As previously stated, higher availability of hydro and nuclear generation, and as well as the lower energy demand during the period, prompted lower thermal dispatch. However, as you can see, central board of thermal availability remains high when compared to market average, reflecting our high quality standards and operation policies, as well as equipment efficiency. Now, assuming our revenue analysis, as you can see on slide nine, This amounted to $98 million in the quarter as compared to $121 million in the same period, 2022. It should be noted that the gap between inflation and devaluation in the period has negatively affected the four Q23 figures at a non-cash level due to the company's accounting methodology and the conversion into dollars using the end-of-period official exchange rate, making the comparison with the previous year more complex to analyze. Thus, Having in mind this effect, the variation in revenues results from a combination of a $2 million sales contribution for the forestry companies that were acquired in December 22 and in May 2023, a 11% or $11.6 million decrease in sales under contract, which totaled $42.7 million in the quarter compared to $54.3 million in the last quarter of 2022, mainly as explained by the previously mentioned effect between inflation and currency devaluation, and to a lesser extent, to a lower generation from our wind farms, on the back of lower wind results. All this being partially offset by the consolidation of the one in Seoul, Saigon A Solar Farm, which contributed with revenues of $2.7 million. Then, a 19% or $11.3 million contraction in spot legacy sales, which amounted to $48.1 million, in the last quarter of 2023, compared to $59.4 million a year ago, driven by a combination of the consolidation of central cost figures, which contributed with sales of $13.4 million, and higher energy dispatch from Piedra del Aguila hydro plant. All this being fully offset by the effect between inflation and currency devaluation that was mentioned before, and a lower remuneration in dollars, Capital will lower generation from thermal units on the back of the lower demand of the period and the higher availability of hydro and renewable resources. Finally, a 15% or $0.7 million decrease in steam cells, which total $3.8 million in the quarter compared to $4.5 million in the last quarter of 2022, despite a 25% increase in volumes being fully explained by the non-cash effect between inflation and currency devaluation. Moving now to a slide done, for a better understanding of the evolution of our adjusted EBITDA, during the fourth quarter of 23, the growth of adjusted EBITDA amounted to $45.2 million, including results of the Tracos Tanera and the forestry companies. Thus, on a consolidated basis, the adjusted EBITDA of the quarter recorded a contraction of 34% compared to the $68.1 million in the fourth quarter of 22. When analyzing the adjusted EBITDA variations, we can observe that this is mainly explained by, first, the previously mentioned drop in revenues and 13% of $5.8 million reduction in cost of sale, explained basically by the previously mentioned effect between inflation and currency devaluation, the reclassification of consumption of certain materials and spare parts allocated to the maintenance works carried out on the cogeneration units of Luján de Cuyo. Both were partially offset by higher employee compensation, energy purchases, and materials consumption and spare parts due to the acquisitions. Then a $4.8 million increase in other operating results, excluding interest and effects differences from the funding program receivables and the variation in fair value of biological assets from our forestry segment. This was mainly due to legal and other acquisition related expenses. Finally, a 9% or $1.1 million increase in SG&A, excluding depreciations and amortizations due to an increase in compensation to employees related to acquisitions, and taxes on bank account transactions. Moving on to the next slide, consolidating net income for the quarter amounted to $155.8 million, increasing by almost 10 times on a year-over-year basis, despite of the lower adjusted EBITDA of the period. The net income was positively impacted by a $144 million increase related to non-cash effects, being the most notorious, the recovery of impairment of property, planning, equipment, and intangible assets, of $54.4 million, as opposed to the negative charge of $79.2 million recorded in the last quarter of 2022, and the $5 million increase in the fair value of our biological assets. Then, higher positive foreign exchange differences and interest related to the foreign receivables for $72 million, and a $21 million increase due to the gain recorded as a result of the valuation at fair value of the companies that were acquired during the period for almost $90 million in comparison with the also positive gain that was recorded in the fourth quarter of 22 of around $69 million. This was all being partially offset by a $69.8 million increase in net negative financial results, mainly driven by higher negative foreign exchange differences on financial liabilities, partially offset by better results from holding financial assets at fair value and better results on Azure Sheets. Now, going to slide 12, we can see the evolution of our Gaflow during the year 2023. This way, operating Gaflow was positive in $222 million due to the adjusted EBITDA generated in the period, a $52.5 billion in collection of interest from clients, including those related to FONI program, and almost $10 million in positive working capital variations, partially offset by a $65 million payment of income tax. Net cash flow in financial activities was negative in $135 million as a result of $156 million in debt service amortization, primarily related to the pre-cancellation of the Brigadier Lopez Indicative Loan, and the principal maturities of Mancare and Olivos dollar-linked bonds, and some overdraft cancellations. $41 million paid in interest and other financing costs, and the $29 million paid in dividends during the quarter, being all partially offset by $103 million in financings obtained in the period, mainly from the issuance of the senior notes Series A for $47.2 million and Series B for $50 million. Finally, investing activities amounted to $109 million during 2023, mainly explained by a $71 million expense for the acquisition of companies per fund during the period, $26.5 million in net investment in short-term financial assets, and $18 million in investment in PP&E. Consequently, our cash position as of December 31st amounted to $16.7 million, which if current investment in financial assets are included, our total current liquidity amounts to $127.8 million. To conclude with the presentation, in this slide, I would like to bring to you our debt maturity scale, but in particular, I would like to highlight the successful liability management carried out during October that considerably elevated 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, allowing us to partially prepay only two days later, $49 million of the standing $55 million of the syndicated loan signed with Citibank, Shipping Morgan and Morgan Stanley, which after that was fully paid later on early January this year. This not only permitted us to refinance short-term debt maturities, extending its life and reducing financial costs, but also helped us to lift dividend payment restrictions that were imposed as covenants of the syndicated loan. In light with that strategy, we made four dividend distributions between November 2023 and January 2024 for a total of $220 million. Finally, the year 2024 looks clear of major debt majorities. This amounting to only $59 million and being beneficial for the size of the company. As you can see, the company has actively worked on this relief and to improve its balance sheet that despite dividend distribution, our net debt leverage ratio remains at a low of one times net debt EBITDA. With this, I would like to conclude the presentation and now we invite you to ask any question to our team. Thank you for your attention.

Thank you. We will now begin our question and answer session. To ask a question, you may press the star key, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the star keys. And to withdraw your question, please press the star key followed by 2. At this time, we will pause momentarily to assemble our roster. Thank you. Our first question is coming from Martin Aronset with Balance Capital. Your line is live.