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Central Puerto S.A. (NYSE:CEPU)
Q3 2019 Earnings Call
Nov 12, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Central Puerto Conference Call following the results announcement for the quarter ended on September 30, 2019. [Operator Instructions]

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 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.

In addition, all financial figures were prepared in accordance with IFRS and are stated in Argentinian pesos unless otherwise noted. Please be aware that some of the numbers mentioned during the call may be rounded in order to simplify the discussion.

On the call today from Central Puerto is Jorge Rauber, Chief Executive Officer, Fernando Bonnet, Chief Financial Officer; Milagros Grande, Financial Manager; and Tomas Daghlian, Investor Relations Officer.

And now, I will turn the conference over to Jorge Rauber. Mr. Rauber, you may begin.

Jorge Rauber -- Chief Executive Officer

Thank you. We are joining you today with our management team from Buenos Aires, Argentina, to report on the results of the third quarter 2019 and to answer any questions you may have. As you may know, following the Presidential election on October 27, the new administration would take office on the December 10. We will keep you informed of any relevant policy changes that may be implemented.

But first, I will refer first to the operative figures of the quarter and then continue with some recent news regarding third quarter. Finally, Fernando will analyze the financial results of the quarter. During the period, our equipment continue to show an excellent track in terms of reliability as the availability of our thermal units remained higher, maybe 5%, a similar level to the one obtained during the same quarter of 2018 figures, 9-percentage point above the average availability of thermal units for the total market showing Central Puerto's competitive advantage.

Regarding energy generation during the third quarter, we generated 3.9 terawatt hours of electricity, a 1% [Phonetic] higher than the second quarter of 2018 and 11% lower than the third quarter of 2018. This decrease was first due to the less water inflow from the Limay River and Collon Cura rivers, which decreased 6% the generation from our hydro plant Piedra del Aguila, and second, due to the energy generation from our thermal units decreased 18% because of the scheduled maintenance during September of the steam turbine number 6 of the Puerto Complex which implied a reduction of 119 gigawatt hours during that month, and a lower dispatch of some of our smaller steam turbines. As a reference, electricity demand decreased 5.3% in the first nine months of 2019, as compared to the same period of 2018, and 1.3% during the third quarter compared to the same period of last year across all business segments. An additional factor is the introduction of new renewable energy plants and efficient plants, including some of the ones that will help Central Puerto has and will be building.

As a matter of fact, we are proud to announce that we have increased our renewable energy generation more than 230% [Phonetic] during the third quarter as compared to the same period of 2018. During the quarter, La Castellana I and Achiras I wind farms, which started operations during August and September 2018 respectively, were fully operational and generated 155 gigawatt hours. Additionally, during the third quarter of 2019, the wind farms La Castellana II and La Genoveva II began Commercial Operation adding 56 megawatt to our renewable energy portfolio and generating 32 gigawatt hours during the first weeks of operation to supply large users under the Term Market regulatory framework (MATER).

We expect our production to grow in the coming quarters as we continue to execute our aggressive expansion plan. For example, we're pleased to announce that the new Lujan de Cuyo cogeneration unit started operation on October 5, seven weeks before the schedule agreed with CAMMESA adding 93 megawatt to our installed capacity. At any generation unit, this machine is among the most efficient of the system, with almost full dispatch during the whole year. We have good advances in our Terminal 6 San Lorenzo project II, our other joint cogeneration unit. This unit will be -- will add 330 megawatt or around 8% to our current installed capacity. And more importantly, will provide electricity energy and steam with high efficiency for our customers.

Finally, during the quarter, we continue with the construction of wind farms La Genoveva I which will sell electricity under the RenovAr 2.0 program, and Manque and Los Olivos which will sell electricity under the MATER framework. As of the date of this report, these last two projects have already signed long-term power purchase agreements with private customers for a 187% of their mean estimated electricity generation respectively. These are long-term bilateral contracts entered into directly with our customers with prices set in US dollars. Additionally, we continue with the collection of the monthly installments of the CVO agreement as scheduled. During July, we collected ARS825 million, including value-added tax related to the installments corresponding to the one -- the first and to the 10th of the CVO agreement.

Finally, during the quarter, CAMMESA made a general offer to all generators to cancel all the pending trade receivables accrued between 2013 and 2016 which excuse the funding and similar programs' trade receivables, after offsetting the balance of all loans and advance granted by them. This agreement included 18% reduction of the amount of principal plus accrued interests that CAMMESA owed to us. As a consequence of this transaction, the Company collected ARS1.6 billion, including the associated value-added tax.

And now, I will turn the call over to Fernando, who will comment on the financial highlights of the quarter.

Fernando Bonnet -- Chief Financial Officer

Thank you, Jorge. Before starting, it's worth noting that the financial statements as of and for the quarter ended on September 30, 2019 include the effects of inflation adjustment, applying International Accounting Standard number 29. Accordingly, the financial figures that I will mention have been stated in terms of Argentine pesos of the end of the reporting period, including the data from previous period and the work and growth comparisons here mentioned. Consequently, the comparative information included in the financial statements for the quarter ended September 30, 2019 is not comparable to the financial statements previously published by us.

The results for our operation during the third quarter of 2018 were in line with our expectations. Revenues from continuing operations increased 37% to ARS7.8 billion in the third quarter compared to ARS5.7 billion during the third quarter of 2018, mainly driven by an increase in sales under contracts, which amount to ARS2.5 billion during the third quarter of 2019, as compared to ARS300 million in the third quarter of 2018, mainly due to the revenues related to Brigadier Lopez plant acquired in June 2019 and the energy generation from the wind farms Achiras and La Castallana I during the full quarter, and La Castellana II and La Genoveva II, which started operations during June and September 2019 respectively. And the increase in revenues was partially offset by a decrease in sales under Energia Base regulatory framework, which totaled ARS5 billion during the third quarter of 2019, as compared to ARS5.1 billion in the third quarter of 2018.

This decrease was due to a decrease in energy generated of 11%, as Jorge mentioned before, which got negative impact of ARS260 million and a decrease of ARS1 billion due to a lower energy and power price for units under Energia Base regulatory framework established by Resolution number one, starting on March 2019, and a lower than inflation increase in the exchange rate for the third quarter of 2019, which impact the tariffs set in US dollars in terms of Argentine pesos current at the end of the reporting period. As a reference, the average foreign exchange rate during the third quarter increased 40% compared to the same period of 2018 while the inflation rate for the 12-month period end on September 30, 2018 was 54%. This decrease in Energia Base was partially offset by an increase of associated to self-supplied fuel which amount to ARS1.4 billion during the third quarter of 2019, compared to ARS280 million during the third quarter of 2018.

Our gross profit margin in the quarter increased in 36%. This increase was due to above-mentioned revenues and was partially offset by an increase of the cost of sales, total ARS3.2 billion compared to ARS2.3 billion in the third quarter of 2018. The increase in cost of sales was primarily driven by, first, an increase in the use of our self-supplied fuel used for the production of the steam or to replace the fuel provided by CAMMESA for the units under Energia Base, which totaled ARS1.2 billion during the third quarter of 2019 as compared to ARS500 million in the third quarter of 2018. And second, a 13% increase in non-fuel related cost of production, which totaled ARS2 billion in the third quarter of 2019, as compared to ARS1.7 billion in the third quarter of 2018. mainly related to the operation of Brigadier Lopez Plant acquired in the second quarter this year.

Operating income before operating results net increased 36% to ARS4 billion compared to ARS2.9 billion in the third quarter of 2018. This increase was due to the above-mentioned increase in gross profit and an approximately proportional increase in administrative and selling expenses total ARS592 million. a 37% increase as compared to ARS431 million in the third quarter of 2018.

Our adjusted EBITDA was around ARS14.1 billion in the third quarter of 2019, which includes ARS6.8 billion increase in interest and foreign exchange difference associated with the FONI and similar programs' trade receivables, which are -- which are denominated in US dollars. Without considering these effects, our adjusted EBITDA during the third quarter of 2019 was ARS7.3 billion, an increase of 97% as compared to ARS3.7 billion obtained in the same period of 2018 for the same metric. This increase was mainly driven by the increase in gross profit mentioned above and a ARS3.5 billion one-time gain in interests related to CAMMESA trade receivables collection that Jorge mentioned before. This was partially offset by ARS616 million in non-cash charge related to property, plant valuation at fair value.

The consolidated net income was ARS3.5 billion compared to ARS5.4 billion in the third quarter of 2018, will result in a gain of ARS27.7 per ADR. In addition to the above mentioned factors, net income was negatively impacted by the higher financial expenses, net of financial income that amount ARS8.8 billion in the third quarter of 2019, compared to ARS3.9 billion in the same period of 2018, mainly due to the interest and foreign exchange difference accrued on the higher net debt position during the period related to the loans obtained for the thermal and renewable energy expansion projects and the acquisition of Brigadier Lopez power plant, most of which are denominated in US dollars.

And finally, we had a gain on net monetary position of ARS700 million during the quarter as compared to a loss of ARS1.3 billion in the third quarter of 2018. Thank you. And now we invite you to ask any questions to our team.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Frank McGann with Bank of America. Please go ahead.

Frank McGann -- Bank of America -- Bank of America -- Analyst

Okay, thank you very much. I was just wondering if you could maybe provide a little perspective on how you are seeing your relative position in terms of, I'm thinking more in terms of new investments going forward. What -- obviously, the market is very difficult and we have a lot of pricing issue. But in terms of the competitiveness of the overall market and the need for new investments potentially over time and to improve efficiencies in the system. I was wondering how you see yourself positioned going forward to add additional capacity and when that might be necessary. Obviously, the market is well supplied currently.

Jorge Rauber -- Chief Executive Officer

Okay. Thanks, Frank for your question. What I think is the most important thing today is to be cautious. I mean, and this is what we are doing today in order to see what the new government will do with all our investment. In the short term, what we are doing is, we continue with the projects that are advanced under construction, Terminal 6 will be an example of that case. On the other hand, we have Brigadier Lopez, which is supposed to be close -- common cycle there. We are waiting for the closing of the financial agreement we have for the project and seeing what the government will, I mean what kind of change if any, the new government will do with the contracts. And this is all I see -- I mean, the current market -- the situation of the current market is so that we don't see an urgent need for new capacity in the short term and it depends on the rules of the new market and new rules that the government -- the new government will put in place to see which will be our -- I mean, view on that for the future.

Frank McGann -- Bank of America -- Bank of America -- Analyst

Okay, thank you very much.

Jorge Rauber -- Chief Executive Officer

You're welcome.

Operator

(Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Rauber for any closing remarks.

Jorge Rauber -- Chief Executive Officer

Okay, thank you to everyone for your interest in Central Puerto. We encourage you to call us at any time for any information you may need. Thank you, and have a good afternoon.

Operator

[Operator Closing Remarks]

Duration: 21 minutes

Call participants:

Jorge Rauber -- Chief Executive Officer

Fernando Bonnet -- Chief Financial Officer

Frank McGann -- Bank of America -- Bank of America -- Analyst

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