Central Puerto S.A. (CEPU) Q4 2020 Earnings Call Transcript

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Central Puerto S.A. (CEPU -5.50%)
Q4 2020 Earnings Call
Mar 16, 2021, 10:00 a.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 December 31, 2020. [Operator Instructions] 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 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 the IFRS and are stated in Argentinian pesos unless otherwise noted. It is worth noting that the financial statements for the quarter ended on December 31, 2020, 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 the 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 security 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 Jorge Rauber, Chief Executive Officer; Fernando Bonnet, Chief Operating Officer; Milagros Grande, Financial Management; and Nicolas Macchi, Investor Relations Officer.

And now I would like to turn the call over to Jorge Rauber. Mr. Rauber, you may begin. Thank you.

Jorge Anibal Rauber -- Chief Executive Officer

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 fourth quarter and full year 2020 and then answer any questions you may have.

I would like to begin today's call analyzing the developments of the fourth quarter, comment on the progress of our expansion projects and analyze the operating figures of the quarter and full year. Milagros will present the recent financial years and results.

The COVID-19 crisis has affected almost all the world and, among other consequences, the electricity demand in Argentina. As you can see on Page 3, electricity demand decreased 2.2% during the fourth quarter 2020 as compared to the same period of 2019. As a reference, during 2020, total electricity demand declined 1.3% as compared to the prior year. Nonetheless, as you may recall, it's worth noting that electricity has a less-than-proportional impact in the income of generation companies. In the case of renewable energy units, they are unaffected since they have dispatch priority, so they can sell all the electricity that they generate. In the case of thermal units, they have a high proportion of their income associated to fixed power remuneration, which is not related to the energy generation of the units.

Finally, when demand decreases, so does dispatch of the older, inefficient units, which are remunerated under the Energia Base framework as compared to the new efficient ones that have a higher remuneration to contracts, known also as power purchase agreement, or PPA.

Going now to Page 4. As you may recall, the measures adopted to prevent the spread of the COVID-19 virus had an impact on the progress of our projects under construction, La Genoveva I wind farm and Terminal 6 new cogeneration unit. Regarding La Genoveva I, we are pleased to announce that the project reached commercial operation for its 88.2 megawatts on November 21, 2020, and is currently remunerated under a 20 years PPA with CAMMESA. It should be highlighted that the wind farm had two partial CODs in September 11, 2020, and October 30, 2020, for 50.4 megawatt and 33.6 megawatt, respectively. This is the seventh wind farm that we commissioned since 2016, reaching a total installed capacity of 374 megawatts of wind power.

During the quarter, we have continued with the construction of the new Terminal 6 San Lorenzo cogeneration plant. On November 21, 2020, the plant obtained partial commissioning of its gas turbine, 269.5 megawatts selling energy under the spot market regulation, Resolution 31, 2020. Whilst the COD for the full project is achieved, which is expected for the third quarter 2021, the plant will be remunerated under a 15-year PPA on the energy side and sales team to a private off-taker and then another 15-year contract.

Going now to our key performance indicators for the quarter. As you can see on Page 5, energy generation during the fourth quarter was 3.8 terawatt hours of electricity, 7% lower than the same period 2019. This was, to a large extent, due to a 281 gigawatt hour drop in duration from our Piedra del Aguila hydro plant related to lower water inflows and 159 gigawatt hour decline in duration of Puerto's combined cycle and Brigadier Lopez power plant, partially offset by the generation from the new wind farms, Manque, Olivos and La Genoveva I.

Renewable energy increased 157 gigawatt hours compared to the same quarter of 2019. Steam production during the fourth quarter increased 4% due to a good dispatch and availability of the Lujan de Cuyo cogeneration plant. Regarding the availability of our thermal units, during the fourth quarter 2020, it reached 91% as compared to 94% during the same quarter of 2019. This was mainly due to certain small failures in Puerto's combine cycle during October 2020 and the unavailability of some of the steam turbines of the Puerto and Lujan de Cuyo plants. Still this indicator remains significantly higher than the market average availability for thermal units, which is 78% for the same period according to data from CAMMESA.

On Page 6, you can review the annual key indicators for 2020. Generation reached 14.3 terawatt hours of electricity, 3% lower than 2019. The decline was due to a 485 gigawatt hour decrease of Piedra del Aguila due to lower water inflows and a 627 gigawatt hour drop in the electricity generation of Lujan de Cuyo's combined cycle due to the unavailability registered during the second quarter of 2020 and, to a lesser extent, due to a lower dispatch of Central Puerto's combined cycle, partially offset by a full year of generation of the new Lujan de Cuyo cogeneration unit and the energy generation from renewable units, which increased 598 gigawatt hours.

La Castellana II, La Genoveva II wind farms that commenced their commercial operation during the third quarter 2019 accomplished a full year of operation, while Manque, Los Olivos and La Genoveva I reached COD in 2020. During 2020, machine availability for thermal units reached 89% compared to 93% in 2019, mainly due to a significant failure in the main transformer of the Siemens branded combined cycle and, to a lesser extent, due to some power limitations on the steam terminals from Lujan de Cuyo and in Puerto complex, certain small failures in the combined cycle during June and October 2020 and an unavailability of some steam turbines.

As referenced, the market average availability for thermal units for the same period was 82% according to data from CAMMESA. Finally, steam production showed an increase of 6%, mainly due to Lujan de Cuyo's cogeneration COD.

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

Milagros Grande -- Financial Management

Thank you, Jorge. I will first refer to some recent financial news for the company and then comment on the results for the fourth quarter of 2020 and the full year.

On December 22, the company signed an amendment to a syndicated loan obtained to fund the acquisition of Brigadier Lopez thermal plant. Modifying, among other terms, the amortization schedule in order to compare with the requirements of Communication A 7106 issued by the Central Bank extending the financials of December 2020 and March '21 installments. One installment until June '23, incorporating monthly repayments from January 2021 to January 2022, and maintaining the repayment foreseen in the initial statement for June, September and December 2021, which equivalent to 20% of the capital.

Furthermore, in December 2020, 40% of the installment scheduled for such month was constant. In addition, the agreed modification included limitation for the payment of dividends during 2021, and maximum allowed of $25 million for 2022. Likewise, certain guarantees were granted, including a pledge of the turbines of Brigadier Lopez power plant, a mortgage on the land on which said power plant is located and an assignment of certain FONI collections. On February 25, 2021, Central Bank extended the the obligation to reprogram payments scheduled payment scheduled between April and December of this year. Nowadays, we are working with the banks on this regard.

Going now to the results for the quarter. If you can see on Page 7, our revenues were ARS9.3 billion as compared to ARS15.5 billion during the fourth quarter of 2019. This decrease was driven by the discontinuation of the fuel purchases operations due to a regulation stage on December 31, 2019, that centralized the fuel purchases for all generators in CAMMESA. This effect represented a ARS4,565 million variation during the quarter compared to the same period of the prior year. Excluding this effect, revenues were ARS8.9 billion compared to ARS10.9 billion in the last quarter of 2019. This decrease was mainly driven by a decrease of ARS2,125 million in [Indecipherable] that is revenues coming from Resolution 31, which, without considering the remuneration associated to the said procured fuel mentioned above, totaled ARS3,585 million in the fourth quarter of 2020 as compared to ARS5,710 million in the fourth quarter of 2019, mainly due to a lack of monthly price adjustment of Resolution 31 instructed by the Secretary of Energy on April 8 of 2020, and to a drop of 6% of the energy generation from the thermal unit.

Decrease in revenues was also explained by a decrease of ARS60 million in the steam side, which totaled ARS240 million in the fourth quarter of 2020 compared to ARS300 million in the fourth quarter of 2019 despite an increase of 4% in the steam production. This was partially offset by an increase of ARS510 million in sales under contracts, which amounted ARS4,759 million during the fourth quarter of 2020 as compared to ARS4,249 million in the fourth quarter of 2019, mainly due to the new format mentioned above.

The gross profit was ARS4.7 billion during the fourth quarter of 2020 as compared to ARS7 billion in the same period of 2019. This was due to the variation in revenues mentioned before and was partially offset by 26% reduction in cost of sales that totaled ARS4.5 billion compared to ARS8.5 billion in the same period of 2019. The decrease in the cost of sales was primarily driven by a decrease of ARS3.8 billion in the purchase of fuel and related concepts due to the continuation of this operation according to the new regulations. Given the current scenario, no price adjustment for units under Energia Base framework, the company made a strong review on all nonfuel-related cost of productions. Therefore, administrative and selling expenses were reduced in 25% in real terms, saving more than ARS283 million during the fourth quarter of 2020 as compared to the same period of 2019. Gross profit margin totaled 51% during the quarter as compared to 45% in the same period of 2019.

Going to Page 8, we can see the change in our EBITDA, which was around ARS6.8 billion in the fourth quarter of 2020 compared to ARS5.6 billion in the fourth quarter of 2019. In addition to the variation in gross profit mentioned, this was due to an increase of ARS3,599 million in the other operating results, mainly due to foreign exchange difference gain of ARS980 million, mainly related to dollar-denominated FONI trade receivables that generated ARS3.1 billion gain during the fourth quarter 2020 compared to ARS2.1 billion during the fourth quarter of 2019.

As a reference, during the fourth quarter of 2020, the Argentine peso depreciated 10.4% compared to 3.9% for the same period of 2019. Variation was also due to ARS2,544 million lower noncash charge related to the property, plant and equipment impairment registered, which totaled ARS2,516 million during the last quarter of 2020 compared to ARS5,060 million for the fourth quarter of 2019, mainly related to the price reduction of Energia Base regulatory framework established by Resolution 31.

Going to Page 9, the consolidated net income was ARS0.6 billion compared to ARS1.8 billion in the same period of 2019. In addition to the factors mentioned before, net income was positively impacted by higher financial income that increased ARS393 million in the fourth quarter of 2020 as compared to the same period of 2019, mainly due to higher FX difference results on the financial assets denominated in foreign currency, which excludes FONI and other trade receivables, measured in Argentine pesos and a higher mark-to-market gain on financial assets, and negatively affected by higher financial expenses, which increased ARS2,854 million due to a higher foreign exchange difference on loans, most of which are denominated in U.S. dollars.

Additionally, the share of profit of associates had a negative impact of ARS237 million, there was a ARS34 million gain during the fourth quarter of 2020 compared to ARS271 million during the same period of 2019, mainly due to the lower results from the operations of Ecogas due to the lack of tariff adjustments for the natural gas distribution business during 2020. Finally, the gain on net monetary position totaled ARS219 million in the fourth quarter of 2020 as compared to ARS145 million in the fourth quarter of 2019, resulting in a positive impact of ARS73 million.

Going to Page 10, you can see our cash flow for the 12-month period ended in December of 2020. Net cash provided by operating activity was ARS19.3 billion. This included ARS6.6 billion in collection from FONI and CVO installment. The cash flow from operation was partially offset by ARS12 billion capex disbursement for the expansion projects and ARS5.5 billion used in short-term investments, among other things. Additionally, on the financing side, ARS7.5 billion were used for principal and interest debt services, which was partially offset by ARS4.1 billion in new loans received during the period, mainly related to the Green Bonds issued during the third quarter of 2020, among other things.

Finally, on Page 11, the key financial figures for 2020 full year. Revenues decreased ARS38.1 billion for 2020 compared to ARS49 billion of 2019. The decrease in revenues was mainly affected by the abrogation of Resolution 70 of 2019, and lower remuneration given by Resolution 31 of 2020, and the lack of monthly adjustment as described in the quarterly analysis before. During 2020, energy generation decreased 3% despite the addition of new thermal and renewable energy plants as described in the highlights.

Adjusted EBITDA for 2020 reached ARS33.9 billion compared to adjusted EBITDA for 2020 reached ARS33.9 billion compared to ARS42.8 billion in 2019, mainly due to lower gross profit and operating income negatively impacted by lower FX difference and the interest on trade receivables, which declined from ARS5.3 billion and ARS6.7 billion, respectively. Finally, consolidated net income was ARS7 billion in 2020 compared to ARS11.8 billion in 2019, mainly due to a lower gain of ARS1.4 billion on the share of profit from associates, higher financial expenses for ARS617 million, partially offset by higher financial income for ARS258 million. FONI collections totaled ARS6.6 billion during 2020.

Thank you. And now we invite you to ask any question you may have to our team.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Frank McGann with Bank of America. You may proceed with your question.

Frank McGann -- Bank of America -- Analyst

Okay, thank you very much. Two questions, if I could. One is just if you could just discuss potentially how the payment process is now with CAMMESA, if it's continuing normally or what the length of time it is for you to receive payments.

And secondly, just looking forward, when you think of -- the demand levels have been generally lower over the last year, I was just wondering how your dispatch might be potentially positively affected given more limited capacity being added to the systems as demand starts to recover and begins to grow again. Would you expect that to be actually positive for the -- your volumes that you sell into the market over time?

Jorge Anibal Rauber -- Chief Executive Officer

Fernando, would you like to answer the first question?

Fernando Roberto Bonnet -- Chief Operating Officer

Okay. Yes, yes. In terms of -- I think, Frank, you asked for the delays in the CAMMESA payment. I think that in this way, CAMMESA is kind of stable in the delay, it's more or less stabilizing in 30 -- between 30 and 35 days of delay. We are not suffering much more delays than that. We are collecting -- this is in the terms of the energy payments. In terms of FONI payments, we are on schedule. We are receiving the FONI payments on time.

And the renewable contracts, which are guaranteed by that further, we are receiving also the payments on time. We are only having delays on the Energia Base framework and thermal contracts. And the delay, as I mentioned, are stable, around 30 days, 35 days of delay and stable on that number. So we are not having additional problems that we suffered in terms of delay in the last year.

So it is more or less stable. The -- for the news that we have, the Secretary of Energy and CAMMESA are working toward regularization of that delay in terms of reaching an agreement with the distribution companies in terms of making an increase in tariffs and additional payment plan, payment scale for the past. And we see there are some news -- or we hope to see some news soon in that sense to reduce that 30 days of delay, but they are working on that. We hope to have some news during this month and the next month. So that is in terms of payment.

Jorge Anibal Rauber -- Chief Executive Officer

Yes. Basically, what they do, Frank, is the government is covering any delay we can see on the side of the customers. In particular at the beginning of the quarantine here in Argentina, March or April last year, we had an impact in payment for the size of the final customer, but the government acted eagerly to reduce that and maintain the payment completely stable. So we don't have a position now, which is worse than, I don't know, one year before. So it's stable.

On the side of dispatch is your second question, what we see is that we reach a kind of base dispatch for our plant. What we have today on dispatch is our more efficient plants, especially common cycles. Naturally, we have also the renewable energy operating because they have a dispatch priority. So we don't see a real impact in terms of dispatch or in terms of revenue, especially because, as we mentioned before -- in our speech was mentioned that we have a remuneration, which is basically based on installed capacity instead of on dispatch, except for the side of the renewal, where we have a priority in terms of dispatch.

So we don't see much impact. Perhaps if the demand increases after the quarantine when the -- I don't know when the country start recovering, the consumption, perhaps we have a slight increase in terms of dispatch, but we don't see a huge impact in terms of revenue. What we have today is a kind of base and we expect, I mean, to improve our remuneration, the price instead of the quantity.

On the side of our project, Terminal 6 is also a very, very efficient unit. So we don't -- I mean we expect full operation as soon as the plant is completed, but we expect by the third quarter of this year.

Frank McGann -- Bank of America -- Analyst

Okay. If I could follow-up just -- sorry, sorry.

Fernando Roberto Bonnet -- Chief Operating Officer

Sorry. No, I want to add something that Jorge mentioned, which was clear, but I want to add that the main reduction, if you compare 2019 with 2020 are guided by two facts. One is our big problem in our combined cycle in Mendoza, the transformer issue that we have during the second quarter was more than I think 70 days out of this combined cycle. That was a big impact in our production. And of course, that was -- that time since July last year that was also -- this was a big impact in our -- this was not dispatch, was a problem, was a failure in transformer.

And the second impact in our generation during the 2020 was the lower inflows, water inflows in Piedra del Aguila, which in our dispatch also less water to produce the electricity in our hydro plant. So if you see in terms of dispatch, the reduction is not so high. And additionally, in the other hand, we increased production in terms of renewables.

So if you see in terms of dispatch, as Jorge mentioned, we have not seen a problem in our efficient units. In the other ones, since we have additional exportation to Brazil during the last of the 2020 and the 2021, also, the -- all the equipment, the steam turbines were more dispatch than in the previous year. So as Jorge mentioned, we are not seeing there a problem, a real problem in our efficient units to reduce dispatch in the future.

Frank McGann -- Bank of America -- Analyst

Okay. Great. If I could just follow up, in terms of legacy prices, has there been any movement or any discussions about possibly going back to have inflation adjustments or some sort of an adjustment factor?

Jorge Anibal Rauber -- Chief Executive Officer

Yes, in fact, we were having a lot of discussion with the government. The problem is that they are kind of linking the discussion with the prices with the distribution companies. We are in a year where we have an election this year. So it's difficult in political terms. But for sure, we are having discussion with them. According to the information we have, they are convinced that they have to do something with the prices going somehow back to the price we agreed or setting a resolution last year. When they change and put in resolution last year. When they change and put in place the Resolution 31, they specified the prices at that time, reduced the prices in dollar terms, specified them, but they were supposed to have an adjuvant. That adjustment was council [Phonetic] suspended somehow.

So, the discussions are basically focusing on this aspect. I mean, we have to go back. The government is convinced that they have to go back, but they are kind of linking this with a bigger discussion they have with the distribution companies in order to -- I mean, try to figure out how to solve that problem, because basically our system now is relying again on a high portion of subsidies. So, they have to completely change.

Frank McGann -- Bank of America -- Analyst

Okay, great. Thank you.

Jorge Anibal Rauber -- Chief Executive Officer

But I mean, the discussion is ongoing all the time. In fact, we have a meeting tomorrow with them again.

Frank McGann -- Bank of America -- Analyst

Okay, well. Good luck.

Operator

[Operator Instructions] This concludes our question-and-answer session. I would like to turn this conference back over to Mr. Rauber for closing remarks.

Jorge Anibal Rauber -- Chief Executive Officer

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.

Operator

[Operator Closing Remarks]

Duration: 32 minutes

Call participants:

Jorge Anibal Rauber -- Chief Executive Officer

Milagros Grande -- Financial Management

Fernando Roberto Bonnet -- Chief Operating Officer

Frank McGann -- Bank of America -- Analyst

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