Central Puerto S.A. Q2 FY2021 Earnings Call

Good morning, and welcome to the Central Puerto conference call, following the results announcement for the second quarter ended on June 30th, 2021. 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 for 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 IFRS and are stated in Argentinian pesos, unless otherwise noted. It is worth noting that, the financial statements for the quarter ended on June 30th 2021, 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 of 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. 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 website. Please be aware that some of the numbers mentioned during the call may be rounded to simplify the discussion. On the call today for Central Puerto is Fernando Bonnet, Chief Executive Officer, Enrique Terraneo, Chief Financial Officer; Milagros Grande, Chief Financial Manager and Nicolas Macchi, Investor Relations Officer. And now, I will turn the call over to Fernando Bonnet. Mr. Bonnet, thank you. You may begin your presentation.

Thank you very much. Good morning and welcome. We are joining you today with our management team from Buenos Aires, Argentina to report on the results of the second quarter 2021 and then answer any questions you may have. I would like to begin today's call by analyzing the recent developments, commenting on the progress of our expansion projects, and analyzing the operating figures of the quarter. Milagros will present the latest financial news and results. First of all, I want to focus on the new Resolution 440 published by the Secretary of Energy on May 21, which established a price adjustment of the spot market remuneration scheme. In general terms, the Resolution updates the values to be collected by the generation agents, with a 29% increase compared to the existing values. It's worth remarking that this tariff increase was below the inflation of 40.7%, reached between the last tariff review in February 2020 and February 2021, when this new remuneration becomes applicable. Additionally, this new resolution repealed Article 2 of Resolution 31, which established an automatic inflation adjustment for the spot market remuneration. In that sense, new tariff increases will require a new resolution from the Secretary of Energy. Going now to page 3, during the quarter, we continued with the construction of the new Terminal 6 San Lorenzo co-generation plant. The expected progress was affected by the restrictions imposed due to the second wave of COVID-19 that strongly impacted Argentina and especially Santa Fe province since April. In this context, we suffered a higher level of positive cases among our strategic, on-site staff. Additionally, we faced several delays and rescheduling on the incoming flights of the main construction specialists. Despite all of these difficulties, we expect to reach commercial operation of the full project during the third quarter of 2021. It's important to remark that since November 2020, the plant obtained partial commissioning of its gas turbine, 269 megawatts, selling energy under the spot market regulation. Once the commercial operation for the full process is achieved, the plant will be remunerated under a 15-year PPA on the energy side and sell this team to a private off-taker also under a 15-year contract. Going now to our key performance indicators for the quarter. As you can see on page four, energy generation during the second quarter of 2021 was 3.74 gigawatt hours of electricity, 40% higher than the same period of 2020. This increase was mainly due to a 739 gigawatt increase in thermal unit production due to a higher generation from the recovery to average production of our Luján de Cuyo Siemens-branded combined cycle, due to a failure of its main transformer in the second quarter of 2020, and due to a higher production of the steam turbines and Terminal 6 gas turbine. Second, there was a 238 gigawatt increase in generation from our Piedra del Águila hydro plant related to exceptional high dispatch during May 2021 because of the lack of natural gas. And third, there was an 89 gigawatt rise in renewable generation from the new wind farms Manque Olivos and La Genoveva I. The steam production during the second quarter of 2021 increased 5% due to the good performance of the Luján de Cuyo cogeneration plant. Regarding the availability of our thermal units during the second quarter 2021, it reached 90%, in line with the strong availability history of Central Puerto equipment. The comparison with the 82% reached during the same quarter of 2020 shows the improved availability of Luján de Cuyo Siemens combined cycle related to the failure of its main transformer. As a reference, the market average availability for the thermal units for the second quarter 2021 was 82%, according to data from CAMMESA. And now, I will turn the call over to Milagros who will comment on the financial highlights.

Thank you, Fernando. I will start by referring to some recent financial views for the company and then comment on the results of the second quarter of 2021. On February 25, the Central Bank extended until December 31, 2021 the FX regulatory restrictions established by Communication A 7106 through the issuance of Communication A 7230. The installments under the syndicated loan signed with Citibank, JPMorgan, and Morgan Stanley, maturing on June, September, and December 2021, were under the scope of such regulation. On June 15, the company signed a new amendment which provides for the modification of the amortization schedule, rescheduling 60% of the installment maturing in June, September, and December 2021 and extending the final term of the loan to January 2024. The current schedule, including this amendment and the one dated in December 2020, contemplates monthly repayments until January 2022, an amortization in June 2023 for $34 million, and a last installment in January 2024 of $55 million. Dividend restrictions for 2021 remain a limitation of a maximum of $25 million, and for 2022, it's $20 million. Another important point to mention is that the company has identified a sign of potential impairment of its property, plant, and equipment; the change in tariffs established for the spot market by Resolution 440 explains this. The company has estimated that the book value of Brigadier López Thermal Plant and the combined cycle plant located in Luján de Cuyo exceeds its recoverable asset value. Therefore, an impairment charge was determined and recorded in the consolidated income statement for the six-month period ending June 30, 2021, for an amount of ARS 3.9 billion. Lastly, on June 16, 2021, the Argentine government issued law number 27630, which established changes in the corporate income tax rate effective for the fiscal year beginning on January 1, 2021, which affected our consolidated net income. Going now to our results for this quarter. As you can see on Page 5, our revenues were ARS 12.3 billion as compared to ARS 10.8 billion during the second quarter of 2020. This 14% increase was mainly due to a 29% increase in the spot price and the assets which totaled ARS 6.2 billion in the second quarter of 2021 as compared to ARS 4.5 billion in the second quarter of 2020 due to higher power generation from the hydro plant Piedra del Águila, the recovery to average production of the Siemens-branded combined cycle of the Luján de Cuyo plant, the steam turbines, and Terminal 6. It is important to highlight that the average adjustment approved by the issuance of Resolution 440 mentioned before was 29% compared to inflation of 36.1% for the full year of 2020. Also, this was due to a 30% increase in steam sales, which totaled ARS 0.4 billion in the second quarter of 2021 compared to ARS 0.3 billion in the second quarter of 2020, as steam production increased 5% in the quarter. This was partially offset by a 5% decrease in sales under contract, which amounted to ARS 5.4 billion during the second quarter of 2021, as compared to ARS 5.7 billion in the second quarter of 2020. Going to Page 6, we can see the changes in our EBITDA excluding impairment and for new FX difference and interest, which was ARS 6.9 billion in the second quarter of 2021 compared to ARS 7.2 billion in the second quarter of 2020. This decrease was due to a 33% increase in the cost of sales that totaled ARS 6.7 billion, compared to ARS 5.1 billion in the second quarter of 2020, which was partially offset by the mentioned variations in revenue. The rise in the cost of sales was primarily driven by a 31% increase in cost of production, which totaled ARS 5.6 billion in the second quarter of 2021, as compared to ARS 4.2 billion in the second quarter of 2020, mainly due to an increase in maintenance expenses of ARS 0.6 billion. Administrative and selling expenses were reduced by 10% in real terms, saving more than ARS 80 million during the second quarter of 2021, as compared to the same period of 2020. Going to Page 7, the consolidated net loss was ARS 4.4 billion, compared to consolidated net income of ARS 3.3 billion in the same period of 2020. In addition to the factors mentioned before, the net income was affected by a ARS 3.2 billion or 496% increase in impairment of property, plant, and equipment and intangible assets related to Brigadier López and Luján de Cuyo plant; a 76% decrease in foreign exchange difference on operating assets mainly related to trade receivables that generated ARS 1.1 billion gain during the second quarter of 2021, compared to ARS 4.6 billion during the second quarter of 2020, due to a lower depreciation of the Argentine peso during the quarter and a lower trade receivables balance maintained. As a reference, in the second quarter of 2021, the Argentine peso represented 3.77% compared to 9.19% during the second quarter of 2020. A 6% decrease in interest from clients, which totaled ARS 0.91 billion during the second quarter of 2021 compared to ARS 0.96 billion of the second quarter of 2020, was also observed, mainly related to lower receivable balances and lower LIBOR rate. Additionally, there was a ARS 2.4 billion or 266% increase in income tax expenses that amounted to ARS 3.4 billion in the second quarter of 2021, compared to ARS 0.9 billion in the second quarter of 2020, mainly due to the recent changes in the corporate income tax rate explained before. Lower financial income amounted to ARS 0.2 billion loss in the second quarter of 2021 compared to ARS 2.1 billion gain in the second quarter of 2020, mainly due to interest rate losses and the net income on financial assets at fair value in the second quarter of 2020. Lastly, there was a decrease in financial expenses amounting to ARS 2.9 billion during the second quarter of 2021 compared to ARS 7.5 billion in the second quarter of 2020 as there were fewer foreign exchange differences, which decreased from ARS 6.2 billion in the second quarter of 2020 to ARS 2.1 billion for second quarter of 2021, mainly due to a lower depreciation of the Argentine peso during the quarter and a lower debt balance denominated in dollars. Additionally, the share of profit associated was a loss of ARS 0.4 billion during the second quarter of 2021 compared to a loss of ARS 0.1 billion in the second quarter of 2020, mainly due to lower results from the operation of Ecogas due to a lack of tariff adjustment for the natural gas distribution business. Finally, the gain on net monetary position totaled ARS 0.02 billion during the second quarter of 2021 as compared to ARS 0.2 billion in the second quarter of 2020. FONI collections totaled ARS 2.4 billion in the second quarter of 2021 associated with the FONI trade receivables for Vuelta de Obligado Plant compared to ARS 2.0 billion for the second quarter of 2020. The amounts are being collected on time and according to the signed contract. Going to Page 8, you can see our cash flow for the first half of 2021. Net cash provided by operating activities was ARS 6.6 billion. This included ARS 3.6 billion in collections from Vuelta de Obligado Plant. Net cash used by investing activities was ARS 0.6 billion mainly due to the construction of Terminal 6. Additionally, on the financing side, ARS 6 billion were used for payment of long-term loans for ARS 4.7 million and interest and other loan costs for ARS 2.3 million, which was partially offset by ARS 1 billion bank and investment account overdrafts obtained. Thank you. And now we invite you to ask any questions for our team.

Okay. 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 conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.