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Central Puerto S.A. (NYSE:CEPU)
Q1 2021 Earnings Call
May 13, 2021, 12:00 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 March 31st, 2021.

[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 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 March 31, 2021, 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 from Central Puerto is Fernando Bonnet, Chief Executive Officer; and Enrique Terraneo, Chief Financial Officer; Milagros Grande, Chief Financial Manager; and Nicolas Macchi, Investor Relations Officer.

And now, I'll turn the call over to Fernando Bonnet. Mr. Bonnet, thank you. You may begin.

Fernando Roberto Bonnet -- Chief Executive Officer

Thank you very much. Good morning and welcome. It's a pleasure for me now as a CEO, joining you today with our management team from Buenos Aires to report on the results of the first quarter 2021, and then answering the questions you may have. I would like to begin today's call analyzing the developments of the first quarter, comment on the progress of our expansion projects and analyze the operating figures of the quarter. Milagros will present the recent financial news and results. First of all, I'm going now to Page 3. As you may recall, during 2020, the measures adopted to prevent the spread of the COVID-19 virus had an impact on the progress of our project Terminal 6 new cogeneration unit. During the quarter, we have continued with the construction of the new Terminal 6-San Lorenzo cogeneration plant and reached a progress of 92%. It's important to remark that since November 2020, the plant obtained a partial commissioning of its gas turbine of 269 megawatts, selling energy under the spot market regulation. Once the COD of the full project is achieved, which is expected for the third quarter of 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 also a 15-year contract.

Moving now to our key performance indicators for the quarter. As you can see on Page 4, energy generation during the first quarter was 3,479 gigawatt hours of electricity, 11% lower than the same period of 2020. This was mainly due to a 306 gigawatt hour drop in generation from our Piedra del Aguila hydro plant, related to a lower water inflows and 180 gigawatt hour decline in our thermal generation, mainly due to a small failures in our Puerto's combined cycle and some of our steam turbines, partially offset by the generation from the new wind farms Manque, Los Olivos and La Genoveva I renewable energy increased 56 gigawatts compared to the same quarter of 2020. The steam production during the fourth quarter increased 3% due to a good availability and generation of our Lujan de Cuyo cogeneration plant. Regarding the availability of thermal units, during the first quarter of 2021, it reached 89% as compared to 93% during the same quarter of 2020. This was mainly due to small failures in our Puerto's combined cycle during March 2021 and some of the steam turbines of Puerto and Lujan de Cuyo plants. Still this indicator remains significantly higher than the market average availability for thermal unit which was 81% for the same period according to data from CAMMESA. Finally, regarding the spot market tariff scheme, it's worth to mention that we have several calls and meetings with the Secretariat of Energy in which we discuss the necessity and the urgency to have an adjustment in these remuneration scheme, which was freezed since February 2020. And we are expecting to have news in this regard in the next weeks.

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

Milagros Grande -- Chief Financial Manager

Thank you, Fernando. I will start referring to some recent financial news for the company and then comment on the results of the first quarter 2021. On February 25, the Central Bank decided to extend the FX regulatory restrictions established by the Communication 7106 until December 31, 2021 through the issuance of Communication 7230. The installments, under the Syndicate loan signed with Citibank, JP Morgan Chase Bank and Morgan Stanley Senior Funding for the acquisition of Brigadier Lopez Thermal Plant, maturing on June, September and December 2021 are under the scope of such regulation. Therefore, as of the date of this press release, we are maintaining negotiations with these banks to reschedule those installments.

Moving now to the results for this quarter. As you can see on Page 5, our revenues were ARS10,164 million as compared to ARS11,419 million during the first quarter of 2020. This decrease was mainly due to a 31% decrease in Spot Sales/Energia Base, which totaled ARS4,166 million in the first quarter of 2021 as compared to ARS6,050 million in the first quarter of 2020, mainly due to the lack of monthly price adjustment of Resolution 31, instructed by the Secretariat of Energy on April 8th, 2020 and to a lesser extent, to small failures in Puerto's combined cycle and some of its steam turbines. This was partially offset by a 13% increase in sales under contracts, which amounted ARS5,444 million during the first quarter of 2021 as compared to ARS4,833 million in the first quarter of 2020, mainly due to the new windfarms mentioned above and 9% increase in the steam sales, which totaled ARS281 million in the first quarter of 2021 compared to ARS258 million in the first quarter of 2020, as the steam production increased 3% in the quarter. The gross profit was ARS4,973 million in the first quarter of 2021 compared to ARS6,686 million in the first quarter of 2020. This decrease was due to the above mentioned variation in revenue and a 10% increase in the cost of sales that totaled ARS5,191 million compared to ARS4,734 million in the first quarter of 2020. This increase in the cost of sales was primarily driven by a 43% increase in purchases of materials and spare parts, which totaled ARS1,345 million during the first quarter as compared to ARS942 million in the first quarter of 2020, and also a 6% increase in cost of production, which totaled ARS4,052 million in the first quarter of 2021, as compared to ARS3,806 million in the first quarter of 2020, mainly due to the increase in depreciations of ARS349 million, an increase in maintenance expenses of ARS173 million. Given the current scenario of no tariff adjustment for units under Energia Base framework, the company made a strong review on expenses. Therefore administrative and selling expenses were reduced 11% in real terms, saving more than ARS100 million during the first quarter of 2021, as compared to the same period of 2020. Gross profit margin was 49% during the first quarter of 2021, as compared to 59% in the first quarter of 2020.

Going to Page 6, we can see the changes in our EBITDA, which is ARS9,679 million in this quarter, compared to ARS10,848 million in the first quarter of 2020. In addition to the variation in gross profit mentioned, this was mainly due to a 17% decrease in foreign exchange difference on operating assets, mainly related to FONI trade receivables that generated ARS2,862 million gain during the first quarter of 2021, compared to ARS3,461 million during the first quarter of 2020. It is worth mentioning that during 2020, CAMMESA has completed all scheduled payments of principal and interest in accordance with the FONI agreement for Termoelectrica Jose de San Martin and Termoelectrica Manuel Belgrano. This was partially offset by a higher depreciation of the Argentine peso. As a reference, during the first quarter of 2021, the Argentine peso depreciated 9.28% as compared to 7.77% during the first quarter of 2020. Variation of gross profit was also due to a 44% decrease in interest from clients with total ARS613 million during the first quarter of 2021 compared to ARS1,094 million in the first quarter of 2020, mainly related to the total collection of the FONI Agreement for San Martin and Belgrano during 2020. All this was partially offset by an increase in depreciation and amortization that totaled ARS1,913 million during the first quarter of 2021 as compared to ARS1,657 million during the first quarter of 2020. During this quarter, no impairment accounted compared to the ARS1,105 million of the first quarter of 2020.

Going to Page 7, the consolidated net income was ARS640 million compared to ARS1,364 million in the same period of 2020. In addition to the factors mentioned before, the net income was positively impacted by higher financial income, which amounted ARS422 million during the first quarter of 2021 compared to ARS185 million in the first quarter of 2020 and to lower income tax expenses that amounted ARS450 million in the first quarter of 2021 compared to ARS2,325 million in the first quarter of 2020. Also, the net income was negatively affected by higher financial expenses that amounted ARS7,012 million in the first quarter of 2021 compared to ARS6,213 million in the first quarter of 2020, mainly due to higher foreign exchange difference on loans, most of which are denominated in US dollar. Additionally, the share of profit of associates was ARS267 million loss during the first quarter of 2021 compared to ARS77 million gain during the first quarter of 2020, mainly due to lower results of the operations of Ecogas due to lack of tariff adjustments for the natural gas distribution businesses. Finally, the gain on net monetary position totaled ARS181 million during the first quarter of 2021 as compared to ARS447 million in the first quarter of 2020.

Going to Page 8, we can see our cash flow for the first quarter ending on March 2021. Net cash provided by the operating activities was ARS4,021 million. This included ARS1,109 million in collections from Vuelta de Obligado Plant. Also, net cash provided by investing activities was ARS303 million. Additionally, on the financing side ARS4,439 million were used for bank and investment accounts overdrafts payments for ARS1,171 million, long-terms loans for ARS2,228 million and interest and other cost loans for ARS1,041 million.

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

Questions and Answers:

Operator

Thank you. 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. I wondered in terms of the legacy price adjustment that you said you've been discussing with the Secretariat of Energy and others have suggested that as well. It sounds like you're fairly confident I guess. I'm just wondering if you have any feel for how material that could be, how it might be structured, particularly in light of what we saw with the distribution increase that was granted recently? I'm just wondering if, how much risk maybe there is associated with getting it? And then secondly, just a couple more mundane things. Just in terms of the current hydro situation for Piedra del Aguila and the Puerto plant, the issues that you had with it, if you could provide a little bit more detail may be and if those are completely resolved at this stage?

Fernando Roberto Bonnet -- Chief Executive Officer

Okay. Thank you, Frank for your questions. And in terms of the tariff increase in Resolution 31, as you mentioned, and we talked in the call, we had several meetings since last year with Secretariat of Energy in Reca Osvaldo, and we have additionally meeting with Dario Martinez which is the Secretary of Energy. In those meetings, we -- as we mentioned, we discuss about the [Indecipherable] [00:18:05] of these adjustment. They really understand the situation. They agree with our situation. They want to move in the same or try to move together the different in tariff increases not taking one-by-one. They want to solve the increases as we hold, and they work on the gas sector, they work on the electricity distribution sector information and the last one is a -- is our increase. We talk with them in order to establish the Resolution 31, which will establish a mechanism to make the adjustment, establish a mechanism which is related to inflation and we are seeing that they believe that this perhaps is not or perhaps is not the way we have several domestic way. They are not so -- or they not plan to make that domestic which is establishing the Resolution, they are thinking more in an adjustment asking in the old days that you receive an adjustment once a year in order to cover inflation. And I think this is -- and this is the only thing that is pending is to have the final number and to establish when it's going to apply. We talk with them in order to establish average tariff in effect from February. And I think they're willing to accept that, to establish this new tariff adjustment from February. But we don't have the final numbers yet. Of course, we are in the case of the generation -- the interesting thing is that there is an increase of 30% to say so in the generation in terms of Resolution 31, the impact on the tariff, the final tariff is very, very small, less than 1.5%. So I think there is no restrictions to do it, they want to, as I mentioned, they want to move in line with, first solve the distribution and gas issues, and then start working on or closing the Resolution 31 increase. We are confident that we are going to move forward and -- they are going to move forward in that way to a formal increase would counter at least part of inflation that we suffered but we don't know yet the final number. We don't have the final number coming from them. We perhaps as you -- you have different information coming from the news but we don't have the final number coming from them. They asked for calculations to CAMMESA surrounding 29% increase, making numbers of around that. But we don't have the formal confirmation that this will be the number yet. So this is the information that we have until now. And in terms of the other question, which is the situation about Piedra del Aguila, the situation is more or less the same as last year. We have a dry period in the inflows, water inflows will have less water inflow than the normal, the medium of the last 15 years, 20 years. We are having very dry years in Piedra del Aguila. So this explains why -- the production or the generation in Piedra del Aguila is less than in the past. We don't know yet its attendance. We are still seeing that this is a dry period only. But we are analyzing with a specialist what perhaps the next year will bring in terms of inflows -- water inflows for Piedra del Aguila. But it's only that. We don't suffer any problem in the turbines. We don't suffer any restraints or constraints in terms of lines. These parts is only about water inflows. And in the case of Central Puerto, as you ask additionally, in the case of Central Puerto, we suffered different -- small failures in our combined cycle here in Buenos Aires. All of these failures are mainly small problems related to plants, related to the boiler. Some figures in the boiler but nothing that are extremely important and takes few days in order to come back online. That was what we suffered that reduction in production in Puerto that's related to the dispatch, the combined cycle is very efficient. So every time that is available, the combined cycle is having these spikes. But we suffered as I mentioned, several small failures during the first quarter. Right now, the combined cycle is operating normally without any problem. So we don't think that these small failures will be happening again in the near future.

Frank McGann -- Bank of America -- Analyst

Okay, great. [Speech Overlap] follow-up -- you mentioned that an estimate of 30% increase in the legacy and tariffs would be what percentage to the legacy prices? What percentage of final tariff? 1.5% is that you said?

Fernando Roberto Bonnet -- Chief Executive Officer

No. This is an impact that the -- if they applied -- we don't know the number yet as we mentioned. We have actually perhaps listened some news on the breadth, and as I mentioned the figures that are finished yet, calculations to commence that regarding the 29% increase in 2019 [Phonetic]. But I mentioned that this 29%, if they apply this 29%, the impact on the final tariff is very small, it's less than 1.5%. That was [Indecipherable].

Frank McGann -- Bank of America -- Analyst

Okay. Yes, that's what I want. Okay, thank you very much.

Fernando Roberto Bonnet -- Chief Executive Officer

You're welcome.

Operator

[Operator Instructions]

Our next question comes from the line of Roman Rossi Lores with Balanz Capital. You may proceed with your question.

Roman Rossi Lores -- Balanz Capital -- Analyst

Hi everyone, thank you for taking my question. I would like to ask you about Terminal 6. You mentioned that you have reached 92% completion. So what's the remaining capex for this? And then another question, are you planning to tap the market during 2021? Thank you.

Fernando Roberto Bonnet -- Chief Executive Officer

Thank you for your question. Yes, we are in 92%. The remaining capex is for Terminal 6. The remaining capex is around $15 million. And in the same concourse, regarding to the second question, we are not right now -- we are not thinking to go back to the market in 2021 because we do not have any additional capex, big capex in this year, and we are restructuring our debt, our short-term debt because of the resolution of the Central Bank. But we are restructuring in fact. So we don't think by now, of course, perhaps some opportunities may appear but we are not seeing right now going to the market.

Roman Rossi Lores -- Balanz Capital -- Analyst

So do you have any updates on the Syndicate negotiation?

Fernando Roberto Bonnet -- Chief Executive Officer

Yes, we are discussing the extension regarding to the 60% of the last three installments. And we are in the process with the banks. We are not -- these process are not closed but we have several advances, yes.

Roman Rossi Lores -- Balanz Capital -- Analyst

Okay, thank you very much.

Fernando Roberto Bonnet -- Chief Executive Officer

You're welcome.

Operator

Our next question comes from the line of Allen Ross [Phonetic]. You may proceed with your question.

Allen Ross -- Analyst

Hello. Thanks everyone. My question is, two questions mainly regarding the Resolution 31/20. First thing is, are you --- is there a strategy in discussion, is it going to be like an increase to the fixed price for another term or can it be like a variable price? And then the second thing is, is there any deadline because you say we don't have any information from the parties, is there like a timeframe that they have to provide us either yes or no, there could be an increase in the price or definitely no for a deadline? And then if there is any update, do I see or we would we see that? Would it be on the news, on the website as a news posting? And that's it. Thanks.

Fernando Roberto Bonnet -- Chief Executive Officer

Okay, thank you for your question. As we have been talking with them and as we see the things going on, we don't see a newer scheme. We see an increase on that fixed price at least for this next month I think. That will be -- the new opening of discussion about the new increase will depend on the inflation. But I see as we mentioned a new fixed price for a period of time, I don't know for how many months, but that will be depending on the inflation [Indecipherable]. If we have a higher inflation, I think we need to discuss a new increase. But we need that newer Resolution, this will as in the past, all this increase in the Resolution or we may spot the scheme came by a resolution of Secretariat of Energy is not like an automatic increase. So as we see the situation right now, this increase will be for a period. I don't know for how many months but that will be depending on the inflation, how it's going on. If inflation is get smooth -- smoother than now which is higher, perhaps we maintain this increase for -- perhaps until the elections. And then if the inflation goes up, we need to discuss new adjustments or we'll request that at least. And I think the other question was how you -- how we are going to present that increase. I think we will be public because it's a Resolution, but we can also express something on our website also or at least perhaps on a relevant release or press release. Yes, when it happens.

Allen Ross -- Analyst

Okay. Thank you very much.

Fernando Roberto Bonnet -- Chief Executive Officer

You are welcome.

Operator

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

Fernando Roberto Bonnet -- Chief Executive Officer

Well, 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. Thank you.

Operator

[Operator Closing Remarks]

Duration: 32 minutes

Call participants:

Fernando Roberto Bonnet -- Chief Executive Officer

Milagros Grande -- Chief Financial Manager

Frank McGann -- Bank of America -- Analyst

Roman Rossi Lores -- Balanz Capital -- Analyst

Allen Ross -- Analyst

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