Central Puerto S.A. Q4 FY2024 Earnings Call

Good morning, ladies and gentlemen. Welcome to Central Puerto's Fourth Quarter of 2024 and Fiscal Year 2024 Earnings Conference Call. A slide presentation is accompanying today's webcast and is also available on the Investors section of the company's website, www.centralpuerto.com/en/investors. 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. 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 U.S. dollars for comparison purposes only. Finally, it is worth noting that the financial statements for the fourth quarter ended on December 31, 2024 include the effects of the inflation adjustment. 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. 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 from Central Puerto is Fernando Bonnet; Chief Financial Officer, Enrique Terraneo; and Alejandro Diaz Lopez, Head of Corporate Finance and Investor Relations Officer. And now, I will turn the call over to Alejandro Diaz Lopez. Please, Alejandro, you may begin.

Thank you very much, and good morning, everybody. Thank you for joining us today on a new session of earnings presentation where we are going to discuss our financial results for the fourth quarter of 2024 and the fiscal year of 2024. As usual, I will begin the presentation by briefly addressing the main figures of the quarter and the whole fiscal year, followed by a quick update of the regulatory framework and relevant news. Then, I will show an overview of the Argentine electricity industry, moving afterwards to our operational and financial results. Finally, at the end of the presentation, we will be happy to address any questions you may have. Before going into a more exhaustive analysis of our financial and operational results, let me briefly review Central Puerto's main figures for the fourth quarter of 2024 and the whole fiscal year. The group's installed capacity remains at 6,703 megawatts, and energy generation amounted to 5.4 terawatt hours during the fourth quarter of 2024, increasing 5% year-over-year. Annual generation rose 4% to 21.6 terawatt hours. Regarding our financial results, it should be noted that due to Central Puerto's accounting methodology, items in pesos must be inflation-adjusted to the end of the quarter local currency, while the company reports its results in dollars by converting them at the end-of-the-period official exchange rate. This causes a non-cash impact that affects positively or negatively as appropriate our financial metrics. Also, the sharp devaluation in December of 2023 created a distorted base for comparison. Revenues for the fourth quarter of 2024 amounted to $168 million, increasing 71% year-over-year compared to the fourth quarter of 2023. While the annual figure reached $671 million, rising 25%. Adjusted EBITDA rose 44% year-over-year for the fourth quarter of 2024 to $65 million, whereas the annual metric increased 4% to $288 million. Net income for the fourth quarter of 2024 was negative at $28 million, and the result for the fiscal year of 2024 was positive at $52 million. Finally, net debt as of December 31st, 2024, amounted to $132 million, a reduction of $154 million compared to December of 2023, showcasing a net debt to adjusted EBITDA ratio of about 0.5 times. Now, let's move to the most recent regulatory updates and news. Spot prices have been adjusting once a month since June of 2024. For the fourth quarter of 2024, we had a 3% increase in October, 6% in November, and 5% in December. For the upcoming first quarter of 2025, we will have a compound 10% increase compared to December of 2024 figures. As we anticipated in our last earnings session by means of Resolution 294 issued last year, a contingency plan was established for the electricity industry with the aim of mitigating possible critical situations during the period of December 2024 and March 2026 with action plans for generation, transmission, and distribution, as well as major demand. Central Puerto's eligible units to adhere to this resolution include steam turbines located in Buenos Aires and Luján de Cuyo, gas turbines located in Luján de Cuyo, as well as the Brigadier López thermal power plant. For Central Puerto, the additional remuneration for power varies from $2,000 to $2,500, depending on the month, hours, and units considered. Continuing with news and regulatory updates, as you may know, the Secretary of Energy aims to deregulate the industry and normalize the wholesale market. The first step was the issuance of Resolution 21 last January that eliminated some restrictions and set the path for future administrative decisions. We should highlight that thermal power plants installed after January 1st, 2025, are able to celebrate Power Purchase Agreements with private agents. Since March 1, 2025, thermal generators are allowed to manage fuel. Finally, an ending is set for the Energía Plus framework. Current contracts will remain in place until their end date, but new agreements and extensions will have a deadline of October 31, 2025. Following this, in January, the Secretary of Energy through CAMMESA issued a document with a new regulatory framework for the industry with the objective to put it into operation by November 2025. The basic idea is to rebuild the spot market, reinstating a marginal cost system with some adjustments. Generators will declare again a variable cost of production, including the cost of fuel. There will be three sources of remuneration: power, energy, and fuel, with spot prices determined by the market. The new scheme will focus on energy remuneration, aiming to reinstate the market signal to boost investments and efficiency while properly reflecting costs and scarcity. The last concluding remark concerning the industry situation is the issuance of Resolution 67, which calls for a storage capacity tender process. We are carefully analyzing the terms and conditions of this process since we are interested in this project. Moving now to Central Puerto's corporate news and updates, we recall the dividend payments of last November with the distribution of $39.47 per share. Moving to Slide 7, we also announced in December our high-voltage transmission line project with the goal of supplying efficient, reliable, and competitive energy to mining companies located in the Puna region, which is in Northwestern Argentina. In December, we signed an agreement with the IFC to finance the feasibility studies and project analysis, and in January 2025, we set an agreement with YPF Luz to jointly carry on the development of this remarkable project. Regarding our mining activity, we have recently executed two investments. We have acquired a 27.5% stake in Tres Cruces, which is a lithium project, and we have increased our equity participation in AbraSilver to 9.9%. Finally, a concluding remark regarding our investment projects currently in execution. The San Carlos Solar plant and the Brigadier Lopez combined cycle are on schedule, moving at a good pace, while the contractor of San Carlos has presented some delays in its workflow. We are currently working together to resolve issues and keep the project on track. Now, let's skip to the Argentine electricity market picture of this quarter that will be shown on Slides 8 and 9. By the end of the fourth quarter of 2024, the country's installed capacity reached 43,350 megawatts, which means a decrease of 1% or 423 megawatts compared to the 43,773 megawatts recorded as of December 31, 2023. The variation results from the installation of new power facilities and reduction in installed capacity with adjustments on repowering two power plants already in operation. The contraction of 423 megawatts is composed as follows: the addition of 925 megawatts from renewable sources, of which 614 megawatts correspond to wind farms, 307 megawatts to solar plants, and 4 megawatts to biogas power plants; a reduction of 1,195 megawatts in hydraulic sources; and a decrease of 153 megawatts in thermal sources, where a contraction was recorded in gas turbines, steam turbines, and diesel engines, being all partially offset by an addition of combined cycles. It is worth highlighting that the decline of 1,195 megawatts in hydro capacity is explained by a reassessment of Yacyretá's power allocation between Argentina and Paraguay. Since August 2024, 50% of Yacyretá's installed capacity is allocated to Argentina, whereas it used to be approximately 88% before then. Generation decreased 2% during the quarter on a year-over-year basis. This decrease was driven by nuclear and hydro generation declines of 48% and 30%, respectively. Nuclear generation reduced basically due to the two-year maintenance shutdown of Atucha I, which started in November, and a seasonal maintenance program of Atucha II carried out between the end of September and the beginning of December. Hydro generation shrunk due to a combination of two factors: the aforementioned change in the allocation of Yacyretá's installed capacity and a reduction of river flows, mostly in the Uruguay and Paraná Rivers. Finally, renewable and thermal generation rose by 13% and 24%, respectively. The growth in thermal generation led to higher fuel consumption: a 65% rise in gas oil, 9% in natural gas, and 3% in fuel oil. Focusing now on demand, electricity demand remained almost flat during the fourth quarter of 2024 compared to the fourth quarter of 2023. There was a slight contraction in residential consumption almost offset by commercial and major demand. Higher temperatures recorded during October 2024, in comparison to the same month in 2023, prompted higher retail consumption, which then shrunk in November and December due to milder temperatures compared to those months in 2023. For the whole of 2024, residential demand barely grew by 0.4%. Major and commercial demands both ended 2024 with a 1% decrease in their consumption, though some positive interannual growth rates were observed during the second half of the year, especially for food and beverage, oil and gas, and mining. Finally, the electricity trade balance resulted in a net import situation throughout the quarter, peaking in November. Aligned with the demand trend showcased above, net imports were recorded in October and November, being substantially lower in December. We now move to Slide 10 to our key operating indicators for the quarter. Electricity generated by Central Puerto rose 5% to 5,416 gigawatt hours compared to 5,168 gigawatt hours during the fourth quarter of 2023. Hydro energy generation from Piedra del Aguila dropped 31%, reaching 1,164 gigawatt hours from 1,678 gigawatt hours during the fourth quarter of 2023. This decline was primarily due to a 7% reduction in water levels of the Collón Curá River and 22% in the Limay River, which both resulted in lower availability of water for generation. Wind generation decreased by 3%, reaching 396 gigawatt hours during the fourth quarter of 2024 compared to 410 gigawatt hours during the same period of 2023. This decline was mainly due to lower wind reserves and some maintenance works. On the other hand, solar energy generation reached 88 gigawatt hours during the period under analysis compared to 73 gigawatt hours during the fourth quarter of 2023, basically as a result of higher results availability. Thermal generation increased by 25% during the fourth quarter of 2024 compared to the fourth quarter of 2023, reaching 3,767 gigawatt hours from 3,007 gigawatt hours. This growth was mainly due to higher dispatching of some steam turbines in Puerto site and some steam and gas turbines in Luján de Cuyo, as well as higher generation from the Brigadier Lopez open cycle and the combined cycle of Santa Fe. Also, higher availability and dispatch were recorded for the Mitsubishi combined cycle located in Costanera side. During the quarter, some important maintenance programs were carried out in steam turbines and combined cycles, especially that executed in the combined cycle located in Nuevo Puerto. That maintenance lasted more than expected due to some findings recorded in the steam turbine and the generator, while performing the overhaul. These findings were partially resolved and are expected to be completely settled during the next maintenance program scheduled for September. Notwithstanding this, the combined cycle is 100% operational. Now, let's move to our revenue breakdown. During the fourth quarter of 2024, revenues amounted to $168 million compared to $98 million in the same period of 2023. The variation in revenues is a consequence mainly of: a 61% or $29 million increase in spot market revenues, driven by a cash effect on the gap between currency devaluation and spot remuneration increases; higher thermal generation, primarily from steam turbines, the Brigadier Lopez open cycle plant, and the Costanera Mitsubishi combined cycle; and finally, a non-cash effect on the gap between currency devaluation and inflation, primarily attributed to the one-time devaluation of December 2023. Then, we have a 62% or $27 million increase in sales under contract, driven by higher solar generation from the Guañizuil farm; higher energy sales from cogeneration units, especially in the San Lorenzo plant; and also, a non-cash effect on the gap between currency devaluation and inflation. Those were all partially offset by lower wind generation, mainly due to reduced wind resources and extraordinary maintenance. Then, we have a 109% or $4 million increase in steam sales, driven by higher steam production in both Luján de Cuyo and San Lorenzo facilities, but substantially in the latter due to higher demand from clients. As we mentioned in our last earnings session, we expect that steam demand will continue to be higher in the future, showing a new trend due to new economic activity levels in some industries, remarkably in oil and gas. On Slide 12, we can see the dynamics of our adjusted EBITDA. During the fourth quarter of 2024, the group's adjusted EBITDA amounted to $65 million, increasing 44% or $20 million compared to the fourth quarter of 2023. The variation is mainly explained by higher aggregate sales driven by spot sales and sales under contracts, spot remuneration increases outpacing currency devaluation, and a positive non-cash effect on the gap between currency devaluation and inflation. Then, we observed a $43 million increase in cost of sales, explained basically by a rise in maintenance expenses and real appreciation of the Argentine peso. On the other hand, production costs were also negatively impacted by a non-cash effect on the gap between currency devaluation and inflation. SG&A rose $11 million, mainly due to higher fees and compensation for services related to one-time projects and real appreciation of the Argentine peso. Similar to production costs, SG&A were also negatively impacted by the non-cash effect attributed to the gap between currency devaluation and inflation. Finally, other operating results were positive and higher than the fourth quarter of 2023 figures by $4 million, primarily due to insurance recovery, which was partially offset by lower interest from clients due to lower delays from CAMMESA, the effects of Resolution 58, and the negative non-cash effect on the gap between currency devaluation and inflation. Moving to the next slide, the consolidated net income. During the fourth quarter of 2024, Central Puerto's net income amounted to a loss of $28 million. This resulted primarily from the negative impacts driven by non-cash effects. We should highlight an impairment of almost $100 million, higher depreciation and amortization, and some one-time gains from M&A transactions registered in 2023. These effects were partially offset by better results driven by the change in purchasing power of the currency due to lower inflation and higher variation in biological assets. Then, we have lower funding FX differences and interest due to reduced FX variation, along with some positive effects recorded by the aforementioned adjusted EBITDA dynamic and net financial results, which were driven by lower FX differences on financial liabilities and lower bank commissions. Finally, income tax was higher due to increased income before tax. Lastly, we have the cash flow dynamics during the 12 months of 2024. Net cash provided by operating activities was $250 million during 2024, arising mainly from net income for the period before income tax, collection from interest from clients, and insurance recovery, being partially offset by income tax and other tax payments. Net cash used by investing activities was $160 million during 2024, mainly explained by acquisitions of property, plant, and equipment, inventory, and other financial assets, being all partially offset by dividends collected and the sale of property, plant, and equipment. Net cash used by financing activities was $106 million during 2024, primarily resulting from long-term debt repayments, interests, and other long-term debt costs, being partially offset by long-term loans received and net overdrafts received. Consequently, our cash position as of December 31, 2024, amounted to $4 million. If financial assets are included, our total current liquidity amounts to $233 million. With this, I conclude the presentation. Now, we invite you to ask any questions to our team.

Our first question comes from Tomas Francisco with Balanz.

Hello? You can hear me correctly?

Yes, Tomas.

Okay. Good morning to all. I'm Tomas from Balanz Capital. I want to ask three questions. The first one is, what impact do you expect from Central Puerto from the new regulations that aim to legalize the power sector? What is your view on this topic and the future interest of generators to invest?

Okay. Thank you for the question, Tomas. We are observing different phases of the deregulation the government is trying to establish, and we are conversing with them. The first one was the Resolution 21 that we explained in the script. This is a minimum deregulation that allowed us to start buying some fuels and gas, which is very important for us because, as you know, all the fuel and gas are currently provided by CAMMESA. We expect to start buying our own fuel this month - a minimal amount because CAMMESA has already set contracts with the gas providers. The volumes outside of those are currently small. However, we are starting this process. In terms of new capacity, Resolution 21 established that we can sell power through private PPAs with new capacity. This is a good start, though it may not lead to much new power plants being built immediately since the demand is currently covered by renewables. Another change being discussed by the government includes certain conditions of marginality for pricing in the future. We are hopeful about this upcoming regulation taking place in October, as it could provide some advantages to our combined cycle units that are selling in the spot market. We are witnessing some improvements in our remuneration since November of this year, which we believe will be beneficial. The government appears committed to establishing more competition in the sector regarding energy generation and gas. While it is challenging to undo decades of strict regulation in just one year, we perceive opportunities to start marketing new capacity and to secure better prices for our efficient units that are crucial for maintenance.

Great. Thank you. The second one is, you may have some small investment in mining, and you also have the transmission project with YPF Luz, probably some generation products in the portfolio. Will we see more aggressive investment this year?

Well, we have the option for battery supply from CAMMESA, which we are looking to participate in actively. This is a technology that we are entering and is not something we have extensive experience with, but we are eager to engage in that auction scheduled for May. Additionally, we are working closely with YPF to develop the transmission line in the Puna, which is another significant project for us. Regarding cogeneration, it depends on the regulation. As I mentioned, the regulation allows private contracts for new capacity. However, establishing the complete business package requires having the demand in place. We are evaluating one or two projects, but it may take longer than others we are considering. In terms of mining investments, we are fully funded for the current phase and do not foresee additional CapEx for this year.

Okay. Thank you. And last one is, any news on the hydro auctions?

Well, we are in discussions with the government, and they are making progress, though not as quickly as originally planned. They expected to hold the auction in February; however, it may take a bit longer. They are confident that the auction will take place between April and May this year. We do not have specific information about how they plan to structure it or whether they are considering a PPA with CAMMESA or contracts directly with demand or distribution companies. We are not clear on those details yet, but we understand they aim to proceed by April or May.

Okay. Thank you.

This concludes our Q&A session. I would like to turn the conference back over to Mr. Fernando Bonnet for any closing remarks.

Thank you, everyone, for your interest in Central Puerto. We encourage you to call us for any information that you may need. Have a great day.

This does conclude today's presentation. We wish you a good day.