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Central Puerto S.A. (NYSE:CEPU)
Q4 2019 Earnings Call
Mar 11, 2020, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to Central Puerto Conference Call following the results announcement of the quarter ended on December 31, 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 will be accessed by accessing the webcast of the Investor Support section of the Central Puerto corporate website.

Before we proceed, please note that certain statements may be 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 security laws. In addition, all financial figures were prepared in accordance with the IFRS and are stated in the Argentinean pesos unless otherwise noted.

For following 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 in order to simplify the discussion. On the call today for 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 Anibal Rauber -- Chief Executive Officer

Thank you. We are joining you today with our management team from Buenos Aires, Argentina to report the results of the fourth quarter, 2019 and answer any questions you may have. Our agenda for today's call as you see on Page 2 will begin with the update of the expansion project developed during the fourth quarter, 2019 and full year 2019, and then continue with the operative figures of the quarter. Finally, Fernando will analyze the financial results of the quarter and full year and explain the recent changes in the tariffs for Energia Base, effective as from February 1, 2020.

As you can see on Page 3 of the presentation, during 2019, we have managed to expand our installed capacity 12%, including the 367 megawatts of thermal units and 94 megawatts from renewal wind farms. As you may remember from our prior calls during the second quarter 2018, we purchased the Brigadier Lopez plant and in the third quarter 2019, the wind farms La Castellana II and La Genoveva II commenced their commercial operations.

During the fourth quarter, 2019, we also had good advances. For example, as you can see on Page 4, the new Lujan de Cuyo cogeneration unit started operations on Saturday 5, seven weeks before the schedule agreed with CAMMESA, adding 95 megawatt to our installed capacity. The early initiation of its operation represented around $7 million in additional income. Because of that asset cogeneration unit, this machine is among the most efficient of the system with almost full dispatch during the whole year. As a matter of fact and as [Phonetic] part of this new unit generated around 118 [Phonetic] gigawatt hours. We also continue with the development of the Terminal 6 San Lorenzo project too, as you can see on Page 5 of the presentation. This unit will add 330 megawatts to our installed capacity, and more importantly, will provide electric energy and steam with high efficiency for our customers. We have already completed around 70% of the construction. The COD committed with CAMMESA is on September, 2020 for the complete project and we expect the gas turbine to be operational during May 2020.

We also had good news on the renewable energy projects. As you can see on Page 6, the Manque project started operations for 38 megawatts of installed capacity during December 2019 and completed the construction of total installed capacity of 57 megawatts during the current quarter. Additionally, during February 2020, Los Olivos commenced commercial operations, adding 23 megawatts to our installed capacity. Going forward, we continue with the construction of La Genoveva I wind farm, which will add 88 megawatts to our installed capacity under the RenovAr program in November.

We have received -- I'm sorry, in November, we have received $76 million loan from the International Finance Corporation to support this project and our project finance structure. Although the contracted COD of this project was May 2020, it may be delayed due to the recent outbreak of the coronavirus, which may affect some of our suppliers. This problem could affect the other projects, Terminal 6 San Lorenzo project as well, especially further restrictions are applied to international products. In many of the technical specialties required for the start-up of the project are made in foreign countries.

Moving now to the -- our key performance indicators of the quarter as you can see on Page 8. Energy generation during the fourth quarter was 4.1 terawatt hours of electricity, 18% higher than the fourth quarter of 2018. This increase was first due to a 17% increase in hydro generation from Piedra del Aguila related to higher waterflow in the Limay and Collon Cura rivers and secondly, energy generation from the renewable units also increased 17%, mainly due to the positive impact of the purchase of the Brigadier Lopez plant and the new cogeneration unit in the Lujan de Cuyo project. Additionally generation from our thermal units increased 47% -- 46%, mainly due to a positive impact of the new wind farms, La Castellana II and La Genoveva II, which began commercial operation in the third quarter 2019, adding 56 megawatt to our renewable energy portfolio and Manque, which commenced operation with 38 megawatt during December 2019 to supply large users under the Term Market regulatory framework.

Regarding the projects under this regulation, which is up to date have all reached their commercial operation, we are happy to announce that 100% of the energy from them has already been contracted directly with large users with prices set in U.S. dollars in long-term PPAs. Regarding our thermal units, as you can see on the graphic on the right in the same page, we continue to show an excellent track in terms of availability reaching 92%, 3 percentage point higher than the same quarter of 2018. The figure is 10 percent points above the average availability of thermal units of the total market showing Central Puerto's competitive advantage.

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

Fernando Roberto Bonnet -- Chief Financial Officer

Thank you, Jorge. Before starting, it is worth noting that the financial statement for the year end on December 31, 2019 include the effect of inflation adjustment, applying the 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 periods and the growth comparisons here mentioned. Consequently, the comparative information included in the financial statements for the quarter ended on December 31, 2019, is not comparable to the financial statement previously published by us. I will further refer to the results of third quarter 2019 as compared to the fourth quarter 2019.

The results from our operation during the fourth quarter of 2019 were in line with our expectation. As you can see on Page 10, our revenues increased 52% to ARS11.4 billion in the fourth quarter compared to ARS7.5 billion during the fourth quarter of 2018, mainly driven by an increase in sales under contracts, which amounted to ARS3.1 billion during the fourth quarter of 2019 as compared to ARS800 million in the fourth quarter of 2018, mainly due to the revenues related to Brigadier Lopez plant acquired in June 2019, the energy generation from wind farms La Castellana II and La Genoveva II and Manque, which has started operation during June, September and December 2019, respectively, and the new Lujan de Cuyo cogeneration unit which has started operation in October 2019, and an increase in revenues for Energia Base that totaled ARS7.8 billion as compared to ARS6.3 billion in the fourth quarter 2018, mainly due the higher generation from units under these regulatory framework and the income related to self-supplied fuel, which amounted to ARS3.6 billion during the fourth quarter of 2019 compared to ARS2.2 billion during the fourth quarter of 2018.

Moving to Page 11, we can see the change in our adjusted EBITDA, which reflects the increase in our gross profit which in the quarter raised 22% as compared to the same period of 2018. This was due to the increase in revenues mentioned before and it was partially offset by an increase of cost of sales that totaled ARS6.2 billion compared to ARS3.2 billion in the third quarter of 2019. The increase in the cost of sale was primarily driven by, first, an increase in the use of self-supplied fuel used for both the production of the steam or to replace part of the fuel provided -- previously supplied by CAMMESA for the units under Energia Base framework, which totaled ARS3.2 billion during the third quarter of 2019, as compared to ARS1.7 billion in the third quarter of 2018. Second, the increase in opex related to the new thermal and renewable energy plants, and third depreciation, increased an ARS800 million [Phonetic] due to the new thermal and renewal projects.

Operating income before other operating results, net increased 23% to ARS4.3 billion compared to ARS3.5 billion in the fourth quarter of 2018. This increase was due to the above mentioned increase in gross profit and second, an approximately proportional increase in administrative and selling expenses that totaled ARS840 million, an 20% increase as compared to ARS700 million in the fourth quarter of 2018, mainly related to the new generation projects.

Finally, other operating results, net decreased ARS304 million [Phonetic] in the fourth quarter, mainly due an impairments in property, plant and equipment, which amounted to ARS3.4 billion in the quarter, due to a higher discount rate and the changes in Energia Base regulatory framework. This was partially offset by the ARS1.5 billion gain in foreign exchange difference associated with the FONI and similar programs trade receivables, which are denominated in U.S. dollar as compared to a loss of ARS2.4 billion in the fourth quarter 2018. As a consequence of these variations, the adjusted EBITDA was around ARS4.2 billion in the fourth quarter of 2019, increasing from ARS2.9 billion in the fourth quarter of 2018.

The consolidated net income was ARS1.3 billion compared to ARS1 billion in the fourth quarter of 2018. In addition to the factors mentioned before, the net income was mainly affected by the higher financial expenses that amounted to ARS2.3 billion in the fourth quarter 2019 compared to ARS840 million in the fourth quarter 2018, mainly due to interest and foreign exchange rate 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 decision of Brigadier Lopez plant, most of which are denominated in U.S. dollars.

Just to recap the main financial figures of the year 2019, please refer to Page 12. Our net income was ARS8.7 billion, which represent a gain of ARS58.5 per ADR. Compared to the net income in 2018, it's important to recall that on 2018, we had an extraordinary one-time gain associated to the update of CVO receivables which amounted to ARS17 billion before taxes, which explain most of the drop in our adjusted EBITDA and net income of 2019. The adjusted EBITDA was positively impacted by the new project which was partially offset by the impairment in some of our thermal assets due to a higher discount rate and the change in Energia Base framework.

Moving to Page 13, you can see our cash flow for 2019. Net cash provided by operating activities was ARS11.9 billion during 2019. This cash flow arises from the operating income mentioned before and the net cash provided by financial activities was ARS17 billion in 2019. This amount was the result of ARS19.6 billion in loans received net of principal repayments related to expansion projects mentioned before, mainly related to the acquisition of Brigadier Lopez power plant, the Lujan de Cuyo cogeneration unit and La Castellana II, La Genoveva I, and La Genoveva II wind farms. Net cash used for capex and investing activities was ARS27.9 billion in 2019.

Finally, let us mention some of the regulatory changes we're using for unit under Energia Base, a summary of which you can see in Page 15 of our presentation. Initial Energia variable prices remain almost unchanged, although denominated in Argentine pesos. Initial Power fixed prices for thermal units were reduced around 16%. Initial Power -- fixed Power prices for hydro plants were reduced in around 45%. This new regulation creates a new remuneration for generation in the 50 power peak hours of the month, which in our estimation should help to mitigate the Power fixed prices reduction in around 30%. And the prices are now set in Argentine pesos with an adjustment and monthly adjustment considering of a mix of 60% of the Consumer Price Index and 40% of the Wholesale Price Index. You can see further details in our last press release. As a consequence of these changes, we expect a reduction in our legacy EBITDA of 15% and with this reduction the Energia Base in our EBITDA for 2020 will drop from 40% to 36%. It's important to note that this price change only affects the spot sales, that is Energia Base. The sales under the PPAs and the cash flow from FONINVEMEM and CVO installments are not affected by this change.

Thank you, and now we invite you to ask any questions to our team.

Questions and Answers:

Operator

[Operator Instructions] At this time, there is no question. So this concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Rauber for any closing remarks. Go ahead.

Jorge Anibal Rauber -- Chief Executive Officer

I'm sorry. I see that there is a question from Frank McGann holding for -- waiting for opportunity to ask a question.

Operator

Yes. I'm sorry. I didn't see him. Okay. The next question is from Frank McGann from Bank of America. Go ahead.

Frank McGann -- Bank of America -- Analyst

Hi. Excuse me. Good afternoon. Just one quick question. The presentation is very clear and complete. At the end, you mentioned something would be down 40%, 50%. I just wanted to check what that referred to.

Jorge Anibal Rauber -- Chief Executive Officer

Yeah. It is the impact that we are seeing in our Energia Base EBITDA.

Frank McGann -- Bank of America -- Analyst

Okay.

Jorge Anibal Rauber -- Chief Executive Officer

We have seen an impact of around $38 million in our EBITDA for this new resolution.

Frank McGann -- Bank of America -- Analyst

Okay, perfect. Okay, thank you very much. That's it.

Operator

Go ahead, Mr. Frank.

Frank McGann -- Bank of America -- Analyst

No, no. I'm finished. Thank you very much. That was very helpful.

Operator

Okay. [Operator Instructions] Okay, I would now like to turn the conference back over to Mr. Rauber for closing remarks.

Jorge Anibal Rauber -- Chief Executive Officer

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

Operator

[Operator Closing Remarks]

Duration: 22 minutes

Call participants:

Jorge Anibal Rauber -- Chief Executive Officer

Fernando Roberto Bonnet -- Chief Financial Officer

Frank McGann -- Bank of America -- Analyst

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