Earnings Call Transcript - CEPU Q1 2023

Operator, Operator

Good morning, and welcome to the Central Puerto Conference Call following the results announcement for the First Quarter ended on March 31, 2023. All participants will be in listen-only mode. 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 of today's call may be accessed by accessing the website 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. 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 from Central Puerto is Fernando Bonnet, Chief Executive Officer; and Enrique Terraneo, Chief Financial Officer; and Federico Bozhori, Financial Controller. And now, I will turn the call over to Federico Bozhori. Mr. Bozhori, you may begin.

Federico Bozhori, Financial Controller

Thank you very much. Good morning. We are joining you today with our management team from Buenos Aires, Argentina to report on the results of the first quarter of 2023 and then answer any questions you may have. I will start today's call by analyzing the recent events, the industry in general, and finally the operating figures of the first quarter and the most recent financial news and results. I would like to mention the following updates regarding Central Puerto. On December 12 of 2022, through resolution 826/2022, the Secretariat of Energy authorized generators a tariff increase of 25% in February of 2023 and 28% in August of 2023 to spot energy. On February 7, 2023, through resolution 59/2023, the Secretariat of Energy authorized generators that have combined cycle units to enter into an agreement on availability of power and improvement of efficiency with the aim of encouraging the necessary investments of major and minor maintenance of the machines. Through this agreement, the generators undertake to achieve at least 85% availability of average monthly power in exchange for a new power and generation price. In the case of power, an amount of $2,000 per megawatt month is established, plus the amount in pesos corresponding to 85% and 65% of the power established in resolution 826/2022 for the periods of spring, autumn, and summer, and winter respectively. Additionally, the price for generated energy is set at $3.5 per megawatt in the case of using gas and at $6.1 per megawatt for alternative fuel, like this, new investments and acquisitions. In line with our growth strategy, focused on new opportunities in the energy sector and other businesses in which Argentina shows strong competitive advantages, we performed the following transactions: On February 17, 2023, Proener S.A.U. acquired from Argentina S.A. 75.68% of the capital and voting stocks of Enel Argentina S.A., called Central Costanera. The transaction price amounted to $48 million. By taking possession of Central Costanera, Central Puerto reinforces its growth in Argentina, consolidating its position as a market leader in the generating sector. The value of Central Costanera represents a unique opportunity as a strategic asset. The growth potential of each acquisition is based on the operational and corporate synergies, experienced management and knowledge in the technical and operational field. On May 3 of 2023, Proener S.A.U. acquired 100% of the capital stock and votes of Empresas Verdes Argentina S.A., Las Misiones S.A., and Estancia Celina S.A., consisting of 88,063 hectares geographically located in the center of the province of Corrientes, of which approximately 26,000 hectares are planted with trees out of a total of approximately 36,000 plantable hectares. The company is focused on increasing its environmental performance and contributing to global decarbonization objectives. Now, I would like to comment on the main metrics of the industry. In terms of installed capacity, the system reached 43,278 megawatts in the first quarter of 2023, compared to 42,821 megawatts in the first quarter of 2022, resulting in a 1% increase. As of March 31, 2023, the installed capacity is divided into 59% thermal, 25% hydro, 4% nuclear, and 12% renewables. In the first quarter of 2023, energy generation increased 8% to 38,627 gigawatt hours, compared to 35,719 gigawatt hours in the first quarter of 2022, mainly due to a 1% increase in thermal generation, and a 74% increase in hydro generation, which was partially offset by a 28% decrease in nuclear generation and a 3% decrease in renewable generation. The increase in thermal generation was mainly due to higher dispatch. The average system availability was 73% in the first quarter of 2023, compared to 76% in the first quarter of 2022. The increase in hydro generation is mainly related to the increase in the inflow of the Paraná River. In contrast, in the case of generation from nuclear sources, the decrease is related to a severe technical failure in Atucha II. Regarding renewable energy, the decrease in generation was related to lesser wind reserves. Energy demand increased 14% to 39,490 gigawatt hours, compared to 34,513 gigawatt hours in the first quarter of 2022, in which residential demand grew 25%, commercial grew 7%, and large industrial commercial demand increased by 4%. Going now to our key performance indicators for the quarter, energy generation during the first quarter of 2023 was 5,137 gigawatt hours, 12% higher than the same period in 2022. The increase in the energy generated by Central Puerto was due to a 15% increase in energy generation from thermal units, mainly from the acquisition of Central Costanera, partially offset by lower generation from Puerto site; an 8% increase in energy generation from the hydro plant Piedra del Águila due to higher inflow of Limay and Collón Curá Rivers, partially offset by a 7% decrease in energy generation from renewable units due to lesser wind resources. During the first quarter of 2023, availability for thermal units was 73%, compared to 84% in the same period of 2022, due to lower generation caused by technical failures of Puerto site steam turbines. As a reference, the market average availability for thermal units for the same period was 73% according to data from CAMMESA. Steam production decreased 6%, totaling 435,055 tons produced during the first quarter of 2023, compared to 460,735 tons during the first quarter of 2022, due to lower demand from our client Terminal 6 S.A. Going now to the results for this quarter, our revenues decreased to ARS 27.9 billion in the first quarter of 2023, as compared to ARS 35.1 billion in the first quarter of 2022. This 20% decrease was mainly due to a 36% decrease in sales under contracts, which amounted to ARS 11.7 billion during the first quarter of 2023 as compared to ARS 18.4 billion in the first quarter of 2022. It was impacted by the ending of Brigadier Lopez TG PPA contract in August of 2022, and negatively affected by a higher inflation adjustment and peso depreciation in the period. It's worth mentioning that the impact related to the ending of the Brigadier Lopez TG PPA contract will recover with a new PPA contract for the Brigadier Lopez steam turbine when we finalize the combined cycle by the end of 2024. Additionally, there was a 7% decrease in Spot/Energía Base Sales revenues, which totaled ARS 13.3 billion in the first quarter of 2023, compared to ARS 14.3 billion in the first quarter of 2022, negatively affected by a higher inflation adjustment over the tariff increase in the period and lower generation due to technical failures of Puerto site steam turbines valued at ARS 2.8 billion, partially offset by Central Costanera revenues of ARS 1.8 billion. Furthermore, there was a 23% decrease in sales, totaling ARS 1.3 billion in the first quarter of 2023, compared to ARS 1.7 billion in the first quarter of 2022. For segment revenues, that totaled 1 billion during the first quarter of 2023. We can see changes in our adjusted EBITDA of ARS 29.8 billion in the first quarter of 2023, compared to ARS 32.2 billion in the first quarter of 2022. The 7% decrease was driven by the following changes: first, the aforementioned drop in revenues; second, a 16% increase in administrative and selling expenses that totaled ARS 2.4 billion in the first quarter of 2023, compared to ARS 2.0 billion in the first quarter of 2022; third, a 9% increase in cost of sales that totaled ARS 17.0 billion in the first quarter of 2023, compared to ARS 15.5 billion in the first quarter of 2022; and finally, a 3% increase in depreciation and amortization totaling ARS 6 billion in the first quarter of 2023, compared to ARS 5.8 billion during the same period in 2022.

Martin Arancet, Analyst

Hi. Thank you for the presentation and for the materials as always. I have four questions. I would like to ask them all at once if that's okay. My first question is about the Evasa acquisition. I was wondering how much did you pay for the company and if it was a cash or debt payment, and also if it was a hard dollar payment abroad?

Fernando Bonnet, CEO

Okay. Thank you for your questions. In terms of the payment for the Evasa acquisition, we cannot provide that information because we signed a confidential agreement with the seller, so we are not allowed to comment on the pricing. In terms of payment, yes, it was a payment abroad.

Martin Arancet, Analyst

Thank you. And a follow-up, could you indicate what EBITDA you estimate for these new forest acquisitions?

Fernando Bonnet, CEO

Well, regarding EBITDA, the idea or decision we took is similar to what they were implementing at Evasa, which is to conserve the forest and increase the quantity of trees we plant. So, we are not selling the trees right now. We expect a better exchange rate and a better price. Therefore, we are using the cash flow to increase the hectares planted. So, we are not currently generating significant cash EBITDA from these acquisitions. Also, the relevant impact for Central Puerto is limited for this year. We expect to start cutting the trees in the upcoming years, which will increase EBITDA during those times, but right now it’s almost negligible.

Martin Arancet, Analyst

That’s clear. Thank you. Can you share any updates on the Brigadier Lopez expansion? Additionally, could you provide the expected CapEx for 2023 and 2024?

Fernando Bonnet, CEO

In terms of Brigadier Lopez, we are currently working with EPC construction to reach a contract with them. We expect to have this contract signed in about two months, and we anticipate that the plant will be operational in combined cycle by the end of 2024. Regarding CapEx, while I don't have the exact number for the Brigadier Lopez expansion yet, it will be around $130 million.

Martin Arancet, Analyst

My last question is about the new resolution 59. I was wondering what power plants were added to that? And how much additional EBITDA do you expect from this regulation?

Fernando Bonnet, CEO

Regarding the plants, we signed contracts for the combined cycle of Buenos Aires, the combined cycle of Mendosa, the combined cycle of Costanera, and the combined cycle of Mitsubishi, alongside the small combined cycle of Siemens which is located in Costanera as well. We expect an increase in EBITDA depending on the evolution of the dollar and the rest of the regulations. As you know, the portion we set in dollars is not the whole remuneration, but is $2,000 per megawatt. The rest will continue to be influenced by spot prices. If we can manage to increase it, aiming to reach inflation and the dollar does not become less than inflation in the future, we expect an increase of around $13 million to $15 million in the EBITDA over a 12-month period from this new regulation.

Martin Arancet, Analyst

Very clear. Thank you.

Fernando Bonnet, CEO

You’re welcome.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference over to Mr. Bonnet for closing remarks.

Fernando Bonnet, CEO

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

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.