Central Puerto SA (CEPU) Q2 2021 Earnings Call Transcript

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Central Puerto SA (CEPU 2.44%)
Q2 2021 Earnings Call
Aug 12, 2021, 11:00 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 Second Quarter ended on June 30, 2021. [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. [Operator Instructions]

Before we proceed, please be aware that all financial figures were prepared in accordance with the IFRS and are stated in Argentinean pesos unless otherwise noted. Is worth noting that the financial statements for the quarter ended on June 30, 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 Argentinian 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 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 for Central Puerto is Fernando Bonnet, Chief Executive Officer; Enrique Terraneo, Chief Financial Officer; Milagros Grande, Financial Manager; and Nicolas Macchi, Investor Relations Officer. And now, I will now turn the call over to Fernando Bonnet. Mr. Bonnet, you may begin your presentation.

Fernando Roberto Bonnet -- 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 second quarter 2021, and then answer any question you may have.

I would like to begin today's call by analyzing the recent development, comment on the progress of our expansion projects and analyze the operative figures of the quarter. Milagros will present the latest financial news and result. First of all, I want to focus on the new Resolution 440 published by the Secretary of Energy on May 21, which established a price adjustment of the spot market remuneration scheme. In general terms, the Resolution update the values to be collected by the generating agents in a 29% increase compared to the existing value. Is worth to remark that these tariff increase was below inflation of 40.7% reached between the last tariff review in February 2020 and February '21 when this new remuneration becomes applicable. Additionally, this new Resolution repeals the Article 2 of the Resolution 31, which established an automatic inflation adjustment for the spot market remuneration. In that sense, new tariff increases will require a new Resolution from the Secretary of Energy.

Going now to Page 3. During the quarter, we have continued with the construction of the the new Terminal 6 San Lorenzo cogeneration plant. The expected progress was affected by the effects and restriction imposed due to the second wave of COVID-19 that strongly impacted Argentina, and especially Santa Fe province since April. In this context, we suffered a higher level of positive cases on the strategic staff on site. And additionally, we faced several restrictions, delays and rescheduling on the incoming flights of the main constructer specialist. Despite all of these difficulties, we expected to reach the commercial operation of the full project during the third quarter of 2021.

It's important to remark that since November 2020, the plant obtained partial commissioning of its gas turbine 269 megawatts selling energy under the spot market regulation. Once the commercial operation for the full project is achieved, 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 per performance indicator for the quarter. As you can see on Page 4, energy generation during the second quarter of 2021 was 3.74 gigawatt hours of electricity, 40% higher than the same period of 2020. This increase was mainly due to, first a 739 gigawatt rise in thermal units production due to a higher generation from the recovery to average production of our Lujan de Cuyo Siemens branded combined cycle due to a failure of its main transformer in the second quarter of 2020, and due to a higher production of the steam turbines and Terminal 6 gas turbine.

Second, 238 gigawatt increase in generation from our Piedra del Aguila hydro plant related to an exceptional higher dispatch during May '21 because lack of natural gas. And third, an 89 gigawatt rise in renewable generation from the new wind farms Manque, Olivos, and and Genoveva I. Steam production during the second quarter of 2021 increased 5% due to a good performance of Lujan de Cuyo cogeneration plant.

Regarding the availability of our thermal units during the second quarter 2021, it reached 90%, in line with a strong availability history of Central Puerto. The comparison with the 82% reached during the same quarter of 2020 shows the availability of the Lujan de Cuyo Siemens combined cycle related to the failure of its main transformer. As a reference, the market average availability for the thermal unit for the second quarter of 2021 was 82% according data from CAMMESA.

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 second quarter of 2021. On February 25, Central Bank extended until December 31, 2021 the FX regulatory restrictions established by A 7106, through the issuance of Communication A 7230. The installments, under the Syndicate loan signed with Citibank, J.P. Morgan and Morgan Stanley maturing on June, September and December 2021 were under the scope of such regulation. On June 15, 2021, the company signed a new amendment, which provides for the modification of the amortization schedule, rescheduling 60% of the installments maturing in June, September and December 2021 and extending the final term of the loan to January 2024. The current schedule, including this amendment and the one dated December 2020, contemplates monthly repayments until January 2022, an amortization in June 2023 for $34 million and the last one in January 2024 of $55 million. Dividend restriction for 2021 and limitation of a maximum of $25 million for 2022 remains without modification. For 2023, the maximum million distribution allowed is $20 million. Another important point to mention is that the company has identified signs of potential impairment of its property, plant, and equipment, change in tariffs established for the spot market by Resolution 440, explained before by Fernando.

The company has estimated that the book value of Brigadier Lopez Thermal Plant and the combined cycle plant located in Lujan de Cuyo exceed its recoverable asset value. Therefore, an impairment charge was determined and recorded consolidated income statement for the six-month period ended June 31, 2021, for an amount of ARS3.9 billion. On June 16, 2021, the Argentine Government issued Law No. 27,630 which established changes in the corporate income tax rate, effective for fiscal years beginning on January 1, 2021, which affected our consolidated net income.

Moving now for the results for this quarter, as you can see on Page 5, our revenues were ARS12.3 billion as compared to ARS10.8 million during the second quarter of 2020. This 14% increase was mainly due to a 39% increase in Spot Sales/Energia Base, which totaled ARS6.2 billion in the second quarter of 2021 as compared to ARS4.5 billion in the second quarter of 2020. Due to a higher power generation from the hydro plant Piedra del Aguila, the recovery to average production of the Siemens branded combined cycle of the Lujan de Cuyo plant and Terminal 6.

It is important to highlight that the average adjustment approved by the issuance of Resolution 440 mentioned before was 29% compared to an inflation of 36.1% for the full year of 2020. Also a 30% increase in Steam Sales, which totaled ARS0.4 billion in the second quarter of 2021 compared to ARS0.3 billion in the second quarter of 2020. Also Steam production increased 5% in the quarter. This was partially offset by a 5% decrease in sales under contract, which amounted to ARS5.4 billion during the second quarter of 2021 as compared to ARS5.7 billion in the second quarter of 2020.

Going to Page 6, we can see the changes in our EBITDA excluding impairment on FONI FX difference and interest, which was ARS6.9 billion in the second quarter of '21 compared to ARS7.2 billion in the second quarter of 2020. This decrease was due to a 33% increase in the cost of sales that totaled ARS6.7 billion compared to ARS5.1 billion in the second quarter of 2020, which was partially offset by the above-mentioned variation in revenues.

The rise in the cost of sales was primarily driven by a 31% increase in cost of productions, which totaled ARS5.6 billion in the second quarter of 2021 as compared to ARS4.2 billion in the second quarter of 2020 mainly due to an increase in maintenance expenses of ARS0.6. Administrative and selling expenses reduced 10% in real terms, saving more than ARS80 million during the second quarter of 2021 as compared to the same period of 2020.

Going to Page 7, the consolidated net loss was ARs4.4 billion compared to a consolidated net income of ARS3.3 billion in the same period of 2020. In addition to the factors mentioned before, the net income was affected by ARS3.2 billion or 486% increase in impairment of property, plant and equipment, and intangible assets related to Brigadier Lopez and Lujan de Cuyo plants. A 76% decrease in foreign exchange difference on operating assets, mainly related to trade receivables, that generated ARS1.1 gain during the second quarter of 2021 compared to ARS4.6 billion during the second quarter of 2020, also depreciation of the Argentine peso during the quarter and lower trade receivables balances maintained.

As a reference, in the second quarter of 2021, the Argentine peso depreciated 3.77% compared to 9.19% during the second quarter of 2020.. A 6% decrease in interest from clients, which totaled ARS0.91 billion during the second quarter of 2021 compared to ARS0.96 billion of second quarter of 2020, mainly related to lower receivable balances and lower LIBOR rate. ARS2.4 billion or 266% increase in income tax expenses that amounted ARS3.4 billion in the second quarter of 2021 compared to ARS0.9 billion in the second quarter of 2020, mainly due to a recent changes in the corporate income tax rate explained before.

Now our financial income, that amounted ARS0.2 billion loss in the second quarter of 2021 compared to ARS2.1 billion gain in the second quarter of 2020, mainly due to interest rate swap losses and the the net income on financial assets at fair value in the second quarter of 2020. And that's for a lower financial expenses, which amounted ARS2.9 billion during the second quarter of 2021 compared to ARS7.5 billion in second quarter of 2020 as there were less foreign exchange difference, which decreased from ARS6.2 billion in the second quarter of 2020 to ARS2.1billion for the second quarter of 2021, mainly due to a lower depreciation of the Argentine peso during the quarter and lower debt balance denominated in dollar.

Additionally, the share of profit of associates was ARS0.4 billion loss during the second quarter of 2021 compared to a loss of ARS0.1 billion in the second quarter of 2020, mainly due to lower results from the operations of Ecogas due to lack of price adjustments for the natural gas distribution business.

Finally, the gain on net monetary position totaled ARS0.02 billion during the second quarter of 2021as compared to ARS0.2 billion in the second quarter of 2020. FONI collections totaled ARS2.4 billion in the second quarter of 2021 associated to the FONI trade receivables for Vuelta de Obligado Plant, compared to ARS2.0 billion of second quarter of 2020. The amounts are being collected on time and according to the signed contract.

Going to Page 8, you can see our cash flow for the first half of 2021. Net cash net cash provided by operating activities was ARS6.6 billion. This included ARS3.6 billion in collections from [Indecipherable] Net cash used by investing activities was ARS0.6 billion, mainly due to the construction of Terminal 6.

Additionally on the financing side, ARS6 billion were used for payment of long-term loans for ARS4.7 million and interest and other loan costs for ARS2.3 million, partially offset by ARS1 billion bank and investment accounts overdrafts obtained.

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] This concludes our question-and-answer session.

I would like to turn this call back over to Mr. Bonnet for closing remarks.

Fernando Roberto Bonnet -- 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 calibrated. Thank you.

Operator

[Operator Closing Remarks]

Duration: 20 minutes

Call participants:

Fernando Roberto Bonnet -- Chief Executive Officer

Milagros Grande -- Chief Financial Manager

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