Earnings Transcript for CEPU - Q4 Fiscal Year 2022

Operator: Good morning, and welcome to the Central Puerto conference call following the results announcement for the fourth quarter ended on December 31, 2022 and full year 2022. [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 IFRS and are stated in Argentinian pesos, unless otherwise noted. It is worth noting that the financial statements for the fourth quarter ended on December 31, 2022 and full year 2022 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 at 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 from Central Puerto is Fernando Bonnet, Chief Executive Officer; Enrique Terraneo, Chief Financial Officer; and Federico Bozhori, Financial Controller. And now I will turn the call over to Federico Bozhori. Mr. Bozhori, you may begin.

Federico Bozhori: 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 of 2022 and full year and then answer any questions you may have. I would like to begin today's call by analyzing the recent events, the industry in general. And finally, the operating figures for fourth quarter and full year of 2022 and the most recent financial news and results. I would like to mention the following updates regarding Central Puerto. On December 14, 2022, the Secretariat of Energy issued the resolution number 826 which increases the tariff for capacity power energy and energy generation under the base energy scheme. The resolution increases retractively 20% from September of 2022, an additional increase of 10% from December of 2022, 25% increase from February of 2023 and 28% from August of 2023. On February 7 of 2023 through Resolution 59 of 2023, the Secretariat of Energy authorizes generators that have combined cycle units to other to the agreement on availability of power and improvement of efficiency with the aim of encouraging the necessary investments of major and minor maintenance of the machines. Through this agreement, the other generators undertake to achieve at least 85% availability of average month power in exchange for a new power and generation price. In the case of power, an amount of $2,000 per megawatt month is established plus the sum in pesos corresponding to 85% and 65% of the power value established in Resolution 826 of 2022 for the periods of spring and autumn and summer and winter, respectively. Additionally, the price for generated energy is set at $3.5 per megawatt hour in the case of using gas and at $6.1 per megawatt hour for alternative fuel. The adherence to the agreement by the company, together with improvements downloaded by the Resolution 8226 represents a significant increase in the income of the thermal units, the effects of which will be fully verified in the 2023 period. On the December 23, 2022, the ordinary general assembly of Central Puerto decided to distribute as a dividend the amount of PEs 2.88 per share. New investments and acquisitions. In line with our growth strategy, focus on new opportunities in the energy sector and other business in which Argentina shows strong competitive advantages, we performed the following transactions. On December 27 of 2022, Proener an affiliate controlled by Central Puerto acquired 100% of the capital stock and votes of Forestal Argentina and Masisa Forestal. Both companies were acquired to Masisa Chile, consisting of approximately 72,000 hectares in the province of Entre Rios and Corrientes, of which approximately 43,000 hectares are planted with eucalyptus and pine. The transaction price was $69.4 million. This is the largest transaction in the forestry sector in the last 30 years in Argentina. In this way, Central Puerto becomes the main Argentine company in the forestry sector, a market in which foreign capital companies mostly operate. Central Puerto has made a strategic decision to invest in those sectors in which the country has clear competitive advantages. Argentina has one of the highest growth rates, not only in the region but also worldwide. Trees grow about 10x faster than in the Northern Hemisphere. That is why the forestry sector provides one of the businesses with the greatest competitive advantages and higher growth potential in Argentina. Being a source of future business opportunities linked to carbon credits and energy generation with biomass. On February 17, 2023 Proener acquired from Enel Argentina, 75.68% of the capital voting and stock of Enel Generacion Costanera. The transaction price amount $48 million. By taking position of Central Costanera, Central Puerto reinforces its growth in Argentina, consolidating as a market leader in the generation sector. The value of Central Costanera represents a unique opportunity as a strategic asset. The growth potential of this acquisition is based on the operational and corporate synergies, experience management and knowledge in technical and operational field. We believe that it is necessary to increase the power availability of the Central Costanera machines in order to strengthen and cover the demand at the national level. All of this means that the acquisition costs does not accurately reflect the enormous growth potential of Central Costanera. Proener celebrated a stock purchase agreement with Enel Argentina and Enel Americas, in which Enel Americas agreed to sell to Proener its participation interest in Inversora Dock, representing 57.4% of Inversora Dock Sud capital and voting stocks. And the Enel Argentina agreed to sell to Proener its participation interest in Inversora Dock Sud of 0.24% of central Dock Sud capital and voting stocks, indirectly representing 41.25% of the capital and voting stock. This transaction is subject to certain conditions not accomplished at the issue of this report. $55 million is the amount offered by Central Puerto to acquire the participation interest in Inversora Dock Sud. Now I would like to comment on the main metrics of the industry, as you can see on Page 5. In terms of installed capacity, the system reached 42,927 megawatts in the fourth quarter of 2022 compared to 42,988 megawatts in the fourth quarter of 2021, resulting in a 0.1% decrease. As of December of '21, 2022, the installed capacity is divided in 59% thermal, 25 hydro, 4% nuclear and 12% renewable. In the fourth quarter of the 2022, energy generation decreased 1% to 35,084 gigawatts hour compared to 35,534 gigawatts hour in the fourth quarter of 2021, mainly due to, first, a 10% decrease in thermal; second, an 83% decrease in nuclear, which was partially offset by a 60% increase in hydro; and a 7% increase in renewal. The decrease in thermal generation was mainly due to lower dispatch related to increased hydro dispatch and lower availability of certain machines, which caused an average system availability of 75% in the fourth quarter of 2022 compared to the 78% of the fourth quarter of 2021. In the case of generation from nuclear sources, the decrease was related to the shutdown for maintenance at the. Atucha I and Embalse nuclear power plants, and a technical problem with the Atucha II turbines. In contrast, the increase in hydro generation is mainly related to the increase in the inflow of the Paraná River due to the opening of gates of Brazilian dams on the Iguazú River, a tributary of the Paraná River, which softened the water inflow drop due to droughts that occurred in the region. Regarding renewable energies, the increase in generation was related to the increase in installed capacity. In 2022, energy generation decreased 2% to 138,741 gigawatts hour, compared to 141,797 gigawatts hour in 2021, mainly due to

Operator: [Operator Instructions]. Your first question is coming from Martin Arancet from Balanz Capital.

Martin Arancet: Martin Arancet here from Balanz Capital. There was a very new figure. And well, I have 5 questions. Sorry for this. I would like to run them one by one, if that's okay. First, going into the new forest line of business. I just wanted to confirm how much do you expect average EBITDA, consider, of course, the volatility that each year might have? And do you sell the wood on the spot or contract terms? Probably if you can share with us what index should we follow to better track pricing?

Fernando Bonnet: Sorry, we are suffering some noise on the line. Can you repeat the question, please?

Martin Arancet: Yes, yes. About the forest line of business -- the new forest line of business, first, I want to confirm how much do you expect as average EBITDA considering the volatility, of course, [indiscernible] have? And also, if you sell the wood on the spot or contract terms and what index should we follow to better track pricing?

Fernando Bonnet: Sorry, I cannot hear very well. I'll try to answer how I understand that your question. You're -- I think you are asking for a projection of EBITDA for 2023, you say? Or the impact of the new regulation in the EBITDA?

Martin Arancet: I was asking about an average expectation on EBITDA like because I know that each year has -- it could be very volatile. And if you saw the wood on the spot or contract terms?

Fernando Bonnet: Okay. Okay. In terms of the new regulation, we are receiving a new PPA for the combined cycles. The combined cycle, which are the spot market. So this new regulation allowed us to sign a PPA for the -- only the combined cycle, not the steam turbines. And this new regulation give us $2,000 per megawatt of installed capacity per month in dollars and the rest will be collected as a portion of the actual regulation which is the Resolution 826, the last one that we have. So we will have a mix for the combined cycle, we will have a mix of dollars and pesos. So it's difficult to predict the evolution of EBITDA because it will be affected by the FX. But this more or less to say, to give you a guidance about how this impact in Central Puerto will be like between $10 million and $15 million for our combined cycles. So the one that we have in [indiscernible] and the one [indiscernible]. These are the machines that receive these benefits. In terms of Central Costanera, the new acquisition will be -- the impact will be more or less the same, another $15 million. And of course, this is depending on the evolution of the FX. And the despatch of equipment. But considering the same availability that we see -- that we saw during the 2022. We will have these impacts of -- regarding the new regulation. Apart from that, we expect that we can maintain the remuneration that we saw or the EBITDA that we saw in the last year. Of course, apart from the ending of the PPA of Brigadier Lopez, as Federico mentioned. This brings a reduction in EBITDA around depending -- as I mentioned, again, the effects about rounding $40 million. So that's more or less you can construct the expectation of EBITDA evolves.

Martin Arancet: Okay. That's great. Can you hear me? I hear you correctly, but I don't know if you can hear me.

Fernando Bonnet: Yes, yes. I can hear you about the quality of sound is not very good.

Martin Arancet: Okay. I will try to talk louder then. About the forest line of business, I wanted to know if you sell the wood on the spot or if you have contracts?

Fernando Bonnet: As you say in terms of Masisa acquisition?

Martin Arancet: Yes, exactly.

Fernando Bonnet: Yes, we have both. We have contracts, and we have -- we sell on the spot, yes. We have both. Mainly it's on the spot.

Martin Arancet: Mainly for the spot. And there is an index that we can follow to track the pricing?

Fernando Bonnet: Yes. Yes. There is -- yes, there is a price index in the inter-web page. Hello?

Martin Arancet: Hello? Yes -- page. Okay. Great. Going to my second question then. [indiscernible] 10 megawatt solar park that you will be constructing in the coming months, who will be these people to eventually [indiscernible] larger facility -- do you have land transmission right, permits and ancillary infrastructure to span beyond those 10 megawatts if you get more offtakers.

Fernando Bonnet: In fact, we have land, but there are some constraint in the transmission line. So we can enlarge it. But I think right now, with the lines as it is I think we can go for 5 megawatts more, but not more than that with these line constraints that we are seeing there. We can go for -- yes, for 5 megawatts, but not more than that until the transmission lines get wider. We are entering there, in fact, we are not entering in 500 kV or 132 kV, we are entering 33 kV. So it's kind of at the level of distribution companies. So we are not much more space there for enlarge. Of course, we have land for enlarge, yes, but not the space [indiscernible].

Martin Arancet: Okay. Very clear. And then my second question -- then my next question -- my next question is you recently heard about your interest in mining. Are you already in talks for potential acquisitions? And also, is it metallic mining that you're talking or lithium projects or maybe both?

Fernando Bonnet: No, we are in the very first steps of knowing the markets and knowing the sector, knowing the players. We attend to the mining convention in Toronto. So we start getting in touch with the players, but we don't have any prospect in mind yet. And in terms of materials, we are putting focus on -- as you mentioned, metals. Lithium is something that we saw, but I think we are in this phase of evolution of the market in Argentina and for us, it's not easy to compete with Chinese companies and the big players. So it's not easy to enter there right now.

Martin Arancet: Okay. Great. Regarding the Brigadier López, I'm sorry if you already mentioned this, I had some problems. Do you have any more specifics to share with us like let -- updated CapEx or COD, for example?

Fernando Bonnet: Yes. In fact, we are starting the pre-analysis -- the analysis, not the pre-analysis. We are starting in an agreement with the constructor -- the possible constructor in an evaluation assessment, which is the previous Phase II started to enter in the construction, in fact. So we expect to have more or less 3 months, let's say, to discuss these analysis, reevaluation and all the information that they need to assess, which is they've engineering -- detailed engineering, specific engineering, what is -- what we have on site and what we had to update and then after that, we are expecting between 20 and 24 months of construction, that are our expectations. . In terms of CapEx, we don't have a fully updated CapEx yet after this evaluation that I talked about, I think in 2 or 3 months, we will have a clear view of the CapEx amount. But we are not expecting to go further than we have in the past, which is around $140 million -- between $120 million and $140 million.

Martin Arancet: Perfect. Very helpful. And my final question then if you look the entire forestry base business, payment in the last quarter? Or is there something still to be paid in 2023?

Fernando Bonnet: You talk about what kind of payments, sorry, I didn't hear you.

Martin Arancet: The payment for the new forestry business to [indiscernible], if you look at the entire payment in 2022, if there's something left for 2023?

Fernando Bonnet: You say payments related to CapEx, to development -- I cannot hear you very well.

Martin Arancet: When you bought the forest, the payment to buy the forest.

Fernando Bonnet: Yes. We pay in full. This is -- we already paid the full amount. So we are not expecting a payment for this acquisition. No payment, no.

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

Fernando Bonnet: 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.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.