Central Puerto Q4 2024 Earnings Call Transcript

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Provided by Quartr
March 12, 2025

Key Takeaways

  • Positive Sentiment: Financial performance improved: Fourth-quarter revenue rose 71% year over year to $168 million and adjusted EBITDA increased 44% to $65 million. Full-year revenue grew 25% to $671 million, while net debt fell $154 million to $132 million, or approximately 0.5 times adjusted EBITDA.
  • Positive Sentiment: Management is optimistic about Argentina’s electricity-market deregulation, citing opportunities to purchase fuel directly, improve remuneration for efficient combined-cycle units, and potentially sign private PPAs for new capacity.
  • Neutral Sentiment: Electricity generation increased 5% in the quarter to 5.4 TWh, driven by a 25% rise in thermal generation, while hydro generation declined 31% because of lower river flows and reduced access to Yacyretá capacity. Higher thermal dispatch also increased fuel consumption.
  • Negative Sentiment: The company reported a fourth-quarter net loss of $28 million, primarily due to non-cash effects including an impairment of nearly ARS 100 million, higher depreciation and amortization, and inflation/devaluation accounting distortions. Maintenance costs and selling, general and administrative expenses also increased.
  • Negative Sentiment: Brigadier López remains on schedule, but the San Carlos solar project has experienced contractor delays, and management is working to keep it on track. The company is also evaluating additional investments in battery storage, transmission and cogeneration, though timing and demand remain uncertain.
AI Generated. May Contain Errors.
Earnings Conference Call
Central Puerto Q4 2024
00:00 / 00:00

There are 4 speakers on the call.

Operator

Good morning, ladies and gentlemen. Welcome to Central Puerto's fourth quarter of 2024 and fiscal year 2024 earnings conference call. A slide presentation is accompanying today's webcast and is also available on the investor section of the company's website, www.centralpuerto.com/en/investors. All participants will be in a listen-only mode during the presentation. After that, there will be an opportunity to ask questions. Please note this event is being recorded. If you do not have a copy of the press release, please refer to the investor relations support section on the company's corporate website at www.centralpuerto.com. In addition, a replay of today's call may be accessed by accessing the webcast link at the same section of Central Puerto's website. Before we proceed, please be aware that all financial figures were prepared in accordance with IFRS and were converted from Argentine pesos to USD for comparison purposes only.

Operator

The exchange rate used to convert Argentine pesos to USD was the reference exchange rate reported by the Central Bank of the Argentine Republic for USD for the end of each period. The information presented in USD is for the convenience of the reader only, and you should not consider these translations to be representations that the Argentine peso amounts actually represents this USD amount, or could be converted into USD at the rate indicated. Finally, it is worth noting that the financial statements for the fourth quarter ended on December 31st, 2024, include the effects of the inflation adjustment. Also, please take into consideration that certain statements made by the company during this conference call and answer to your questions may include forward-looking statements, which are subject to risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by industry remarks.

Operator

Thus, 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 securities 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 Financial Officer, Enrique Terraneo, and Alejandro Diaz-Lopez, Head of Corporate Finance and Investor Relations Officer. Now, I will turn the call over to Alejandro Diaz-Lopez. Please, Alejandro, you may begin.

Speaker 1

Thank you very much, and good morning, everybody. Thank you for joining us today on a new session of earnings presentation, where we are going to discuss our financial results for the fourth quarter of 2024 and the fiscal year of 2024. As usually, I will begin the presentation by addressing shortly the main figures of the quarter and the whole fiscal year, followed by a quick update of the regulatory framework and relevant news. Then I will show an overview of the Argentine electricity industry, moving afterwards to our operational and financial results. Finally, at the end of the presentation, we will be happy to address any question you may have. Before going into a more exhaustive analysis of our financial and operational results, let me briefly review Central Puerto's main figures for the fourth quarter of 2024 and the whole fiscal year.

Speaker 1

The group's installed capacity remains at 6,703 MW, and energy generation amounted to 5.4 TWh during the fourth quarter of 2024, increasing 5% year-over-year. Annual generation rose 4% to 21.6 TWh. Regarding our financial results, it should be noted that due to Central Puerto's accounting methodology, all items in ARS must be inflation-adjusted to the end of the quarter local currency. While the company reports its results in dollars by converting them at the end of the period official exchange rate, the so-called Central Bank A3500 exchange rate. This causes a non-cash impact that affects positively or negatively, as appropriate, our financial metrics. Also, the sharp devaluation of December of 2023 created a distorted base for comparison. Revenues for the fourth quarter of 2024 amounted to $168 million, increasing 71% year-over-year compared to the fourth quarter of 2023.

Speaker 1

While annual figure reached $671 million, rising 25%. Adjusted EBITDA rose 44% year-over-year for the fourth quarter of 2024 to $65 million, whereas annual metric increased 4% to $288 million. Net income for the fourth quarter of 2024 was negative in $28 million, and the result for the fiscal year of 2024 was positive in $52 million. Finally, net debt as of December 31st of 2024 amounted to $132 million, a reduction of $154 million vis-à-vis December of 2023, showcasing a net debt to adjusted EBITDA ratio of about 0.5 times. Now, let's move to the most recent regulatory updates and news. Spot prices have been adjusting once a month since June of 2024. For the fourth quarter of 2024, we had 3% in October, 6% in November, and 5% in December.

Speaker 1

For the upcoming first quarter of 2025, we will have a compound 10% increase with respect to December of 2024 figures. As we anticipated in our last earnings session, by means of Resolution 294 issued last year, it established a contingency plan for the electricity industry with the aim to mitigate possible critical situation during the period December of 2024 and March of 2026, with action plans for generation, transmission, and distribution, as well as for major demand. Central Puerto's eligible units to adhere to this resolution include steam turbines located in Buenos Aires and Luján de Cuyo, gas turbines located in Luján de Cuyo, as well as the Brigadier López Thermal Power Plant. For Central Puerto, the additional remuneration for power varies from $2,000 to $2,500, depending on month, hours, and units considered.

Speaker 1

Continuing with news and regulatory updates, as you may know, the Secretary of Energy aims to deregulate the industry and normalize the wholesale market. In this sense, the first step was the issuance of Resolution 21 last January that eliminated some restriction and set path for future administrative decisions. We should highlight that thermal power plants installed after January 1st of 2025 are able to celebrate PPAs with private agents. Since March 1st of 2025, thermal generators are allowed to manage the fuel. Finally, an ending is scheduled for the Energía Plus framework. Current contracts will be in place and continue until their ending day, but new agreements and extension will have a deadline, October 31st of 2025. Also in January, the Secretary of Energy, through CAMMESA, issued a document with new regulatory framework for the industry with the objective to put into operation by November of 2025.

Speaker 1

The basic idea is to rebuild the spot and term markets, reinstating a marginal cost system in the first one with some adjustment. Generators will declare again a variable cost of production, including the cost of fuel. There will be three sources of remuneration, power, energy, and fuel, being the spot prices determined by the market. The new scheme will put focus on energy remuneration, aiming to reinstate market signal to boost investment and efficiency, as well as properly reflect cost and scarcity. The last concluding remark concerning the industry situation is the issuance of Resolution 67/2022, which call for a storage capacity tender process. We are carefully analyzing the terms and conditions of this process since we are interested in this project. Moving now to Central Puerto's corporate news and updates, we recall the dividend payments of last November with the distribution of ARS 39 or ARS 47 per share.

Speaker 1

Moving to slide seven, we also announced in December our high voltage transmission line project with the goal of supplying efficient, reliable, and competitive energy to mining companies located in the Puna region, which is in northwestern of Argentina. In December, we signed an agreement with the IFC to finance the feasibility studies and project analysis. In January of 2025, we set an agreement with YPF Luz to jointly carry on the development of this remarkable project. With regards to our mining activity, we have recently executed two investments. We have acquired a 27.5% stake in Tres Cruces, which is a lithium project, and we have increased our equity participation in Aura Silver to 9.9%. Finally, a concluding remark regarding our investment projects currently in execution. I mean the San Carlos solar farm and the Brigadier Lopez combined cycle.

Speaker 1

Brigadier Lopez is on schedule, moving at a good pace, while the contractor of San Carlos has presented some delays in its workflow. We are currently working together to solve our issues and keep the project on track. Now, let's skip to the Argentine electricity market picture of this quarter that will be shown on slides eight and nine. By the end of the fourth quarter of 2024, the country's installed capacity reached 43,350 MW, which means a decrease of 1%, or 423 MW, compared to the 43,773 MW recorded as of December 31st of 2023. The variation results from the installation of new power facilities, a reduction in cell capacity, and adjustment and repowering to power plants already in operations. The contraction of 423 MW is decomposed as follows.

Speaker 1

The addition of 925 MW of renewable sources, of which 614 MW corresponds to wind farms, 307 MW to solar plants, and 4 MW to biogas power plants. Then, a reduction of 1,195 MW in hydraulic sources and a decrease of 153 MW in thermal sources, where a contraction was recorded in gas turbines, steam turbines, and diesel engines, being all partially offset by an addition of combined cycles. It is worth to highlight that the decline of 1,195 MW in hydro and sun capacity is basically explained by a reassessment of Yacyretá's power available between Argentina and Paraguay. Since August 2024, 50% of Yacyretá's installed capacity is allocated to Argentina, whereas it used to be approximately 88% before then. Generation decreased 2% during the quarter on a year-over-year basis. This decrease was driven by nuclear and hydro generation, 48% and 30% respectively.

Speaker 1

Nuclear generation decreased basically by the two-year maintenance shutdown of Atucha I, which started in November, and a seasonal maintenance program of Atucha II, carried on between the end of September and the beginning of December. Hydro generation shrank due to a combination of two factors. The aforementioned change in the allocation of Yacyretá's installed capacity and energy generation upon Paraguay claim, and a reduction of river flows, mostly in the Uruguay and Parana rivers. Finally, renewable and thermal generation rose 13% and 24% respectively. The growth in thermal generation led to higher fuel consumption, 65% rise in gas oil, 9% in natural gas, and 3% in fuel oil. Focusing now on the demand, as you can see, electricity demand kept almost flat during the fourth quarter of 2024, vis-à-vis the fourth quarter of 2023. There was a slight contraction in residential consumption, almost offset by commercial and major demand.

Speaker 1

Higher temperatures recorded during October of 2024 in comparison to the same month of 2023 prompted higher retail consumption, which shrank then in November and December as a result of milder temperatures compared to equal months of 2023. For the whole 2024, residential demand barely grew 0.4%, and major and commercial demands both ending 2024 with a 1% decrease in their consumption. Though some positive internal growth rate were observed during the second half of the year, especially for food and beverage, oil and gas, and mining. Finally, the electricity trade balance resulted in a net import situation during the whole quarter, with a peak in November. In line with the demand trend showcased above, net imports were recorded in October and November, being substantially lower in December. We now go to slide 10 to our key operating indicators for the quarter.

Speaker 1

We can see that electricity generated by Central Puerto rose 5% to 5,416 GWh, compared to 5,168 GWh during the fourth quarter of 2023. Hydro energy generation from Piedra del Águila dropped 31%, reaching 1,164 GWh from 1,678 GWh during the fourth quarter of 2023. This decline was primarily due to a 7% reduction in water levels of the Collón Curá River and 22% in the Limay River, which both resulted in lower availability of water for generation. Wind generation decreased 3%, reaching 396 GWh during the fourth quarter of 2024, compared to 410 GWh during the same period of 2023. This decline was mainly due to lower wind resource and also some maintenance works.

Speaker 1

On the other hand, solar energy generation reached 88 GWh during the period under analysis, compared to 73 GWh during the fourth quarter of 2023, basically as a result of higher results availability. Thermal generation increased 25% during the fourth quarter of 2024 compared to the fourth quarter of 2023, reaching 3,767 GWh, from 3,007 GWh. The growth was mainly due to higher dispatch of some steam turbines in Puerto site and some steam and gas turbines in Luján de Cuyo, as well as higher generation of the Brigadier Lopez open cycle and the combined cycle of Santa Fe. Also, a higher availability and dispatch were recorded for the Mitsubishi combined cycle located in Costanera site.

Speaker 1

Finally, it is worth to highlight that, during the quarter, some important maintenance programs were carried out in steam turbines and combined cycles, especially that executed in the combined cycle located in Nuevo Puerto. That maintenance lasted more than expected due to some findings recorded in the steam turbine and the generator while performing the overhaul. These findings were partially settled and are expected to be completely solved out during the next maintenance program to be carried out next September. Notwithstanding this, the combined cycle is 100% operative. Now, let's move to our revenues breakdown. As you can see on slide 11, this amounted to $168 million in the quarter as compared to $98 million in the same period of 2023.

Speaker 1

The variation in revenues is a consequence mainly of a 61% or $29 million increase in spot market revenues, driven by a cash effect on the gap between currency devaluation and spot generation increases, higher thermal generation, mainly in steam turbines, the Brigadier Lopez open cycle plant, and Costanera Mitsubishi combined cycle. Finally, a non-cash effect on the gap between currency devaluation and inflation, primarily attributed to the one-time devaluation of December of 2023. We have a 62% or $27 million increase in sales under contract, driven by higher solar generation of Juan Isuiri solar farm, higher energy sales of cogeneration units, especially in the San Lorenzo plant, and also a non-cash effect on the gap between currency devaluation and inflation. Those were all partially offset by lower wind generation, mainly due to lower wind resource and extraordinary maintenance.

Speaker 1

We have a 109% or $4 million increase in steam sales, driven by higher steam production in both Luján de Cuyo and San Lorenzo facilities, but substantially in the latter one, as a consequence of higher demand from clients. As we commented in our last earnings session, we expect that steam demand will continue to be higher in the future, showing a new trend due to new economic activity levels in some industries, remarkably in oil and gas. On slide 12, we can see the dynamic of our adjusted EBITDA. During the fourth quarter of 2024, the group's adjusted EBITDA amounted to $65 million, rising 44% or $20 million when compared to the fourth quarter of 2023. When analyzing the adjusted EBITDA, we can observe that the variation is mainly explained by the previously stated higher aggregate sales, driven by spot sales and sales under contracts.

Speaker 1

Spot remuneration increases higher than currency devaluation and a positive non-cash effect on the gap between currency devaluation and inflation. We have a $43 million increase in cost of sales, explained basically by a rise in maintenance expenses and a real appreciation of the Argentine peso. On the other hand, production costs were also negatively impacted by a non-cash effect on the gap between currency devaluation and inflation. SG&A rose $11 million, mainly by higher fees and compensation for services related to one-time projects and the real appreciation of the Argentine peso. Similar to production costs, SG&A were also negatively impacted by the so-called non-cash effect due to the gap between currency devaluation and inflation.

Speaker 1

Finally, our operating results net were positive and higher than the fourth quarter of 2023 figures by ARS 4 million, basically as a consequence of insurance recovery, which was partially offset by lower interest from clients due to lower commercial delays, the effects of the Resolution 58, and the negative non-cash effect on the gap between currency devaluation and inflation. Moving to the next slide, the consolidated net income. During the fourth quarter of 2024, Central Puerto's net income amounted to a loss of ARS 28 million. This is basically the result of negative impacts driven by non-cash effects. We should highlight an impairment of almost ARS 100 million, higher D&A, and some one-time gains from M&A transactions registered in 2023. These effects were partially offset by better results driven by the change in purchasing power of the currency due to lower inflation and higher variation in biological assets.

Speaker 1

Then we have lower funding FX difference and interest due to lower FX variation, and some positive effects were recorded by the aforementioned adjusted EBITDA dynamic and net financial results, which were driven by lower FX differences of financial liabilities and lower bank commissions. Finally, income tax was higher due to higher income before tax. Lastly, on slide 14, we have the cash flow dynamic during the 12 months of 2024. Net cash provided by operating activities was ARS 250 million during 2024. This cash flow arises mainly from net income for the period before income tax, collection of interest from clients, insurance recovery, being all partially offset by income tax and other taxes paid. Net cash used by investing activities was ARS 160 million during 2024.

Speaker 1

This amount is mainly explained by acquisitions of property, plant, and equipment and inventory, and acquisitions of other financial assets, being all partially offset by dividends collected and the sale of property, plant, and equipment. Net cash used by financing activities was ARS 106 million during 2024. This is basically the result of long-term debt repayments, interest, and other long-term debt costs paid, and dividends paid, being all partially offset by long-term loans received and net overdraft received. Consequently, our cash position as of December 31st of 2024 amounted to ARS 4 million. If financial assets are included, our total current liquidity amounts to ARS 233 million. With this, I conclude the presentation. Now, we invite you to ask any question to our team. Thank you very much for your attention.

Operator

Thank you very much for the presentation. We will now begin the Q&A section for investors and analysts. If you wish to ask a question, please press the button Reaction and then click on Raise Hand. If your question has already been answered, you can leave the queue by clicking on Put Hand Down. Please wait while we poll for questions. Again, if you have a question, please press the button Reaction and then click on Raise Hand. Our first question comes from Tomas Francisco with Balance.

Speaker 2

Hello. You can hear me correctly?

Speaker 3

Yes, Tomas.

Speaker 2

Okay. Good morning to all. I'm Tomas Francisco from Balance Capital. I want to ask three questions. The first one is, what impact do you expect from Central Puerto from the new regulations that aim to liberalize the power sector? What is your view on this topic and the future interest of generators to invest?

Speaker 3

Okay. Thank you for the question, Tomas. We are seeing different phases of the deregulation that the government are trying to establish, and we are talking with them. The first one was the Resolution 21 that we explained in the script. This is a minimum deregulation that allowed us to start buying some fuel, some gas, which is very important for us because, as you know, right now, all the fuel and gas is provided by CAMMESA. In the past, we do that, and we can have some efficiency because, as you know, we are the biggest one, and we have a very powerful purchase, quantity of gas and fuel. We are expecting to start buying our own fuel since March, since this month, minimum amounts, because as you know, CAMMESA have already set contract with the gas providers, the Plan Gas.

Speaker 3

So the volumes out of that are right now small volumes, but we are start doing that. It is the first phase of the regulation, start buying fuel and gas for us. This is very good because, as I mentioned, we can have advantages there. In terms of new capacity, the Resolution 21 established that with new capacity, we can start selling power through private PPAs. This is a good start. Of course, it is not easy because right now the demand or you have the demand are covered by renewables, so we are not expecting perhaps too much new power plants building in the Resolution 21. The other changes that the government are talking about is the possibility of have certain conditions of marginality prices in the future. We are talking about, in October, have a new regulation in place, the full new regulation in place.

Speaker 3

There we can have some advantages of our combined cycle that are selling right now in the spot market. So we are seeing some improvement there. Since November this year, we can have some improvement in our remuneration, which is right now only at the spot market, and we can receive some additional prices in terms of some kind of, not pure marginalism, but some kind of marginalism that the government are willing to set to establish some benefits to the equipment that are more efficient and have less or yes, are more efficient and have better availability. So we are seeing there some important opportunities for our most efficient combined cycles.

Speaker 3

As I mentioned, we have some opportunities in terms of buying our own fuel, which is small right now, but I think in November, December, could be more important, at when government establish the full deregulation scheme. So I am optimistic about that. I think they are in the good path. They are trying to establish more competition in the sector, not only in the energy generation sector, in the gas sector also. I think we are in the good path.

Speaker 3

Of course, this 20 years of regulation is not easy to remove in only one year, but I think we have some opportunities in order to start selling new capacity to perhaps a spot or perhaps a niche of transactions, in terms of new capacity, but also in terms of the existing capacity, have better prices, for the efficient equipment that allowed us to keep maintaining those equipment and to improve those equipment, which is already 20 years old. So we need to improve that. We need to maintain that. So we are seeing opportunities there, having more, flexibility not only to go to the spot, but have some or catch some marginal prices somehow. In terms of fuel also, we are looking forward to do that, to have our own fuel and gas provision. So, we see also some improvement there as in our remuneration.

Speaker 2

Okay, thank you. The second one is, you made some small investment in mining, and you also have the transmission project with YPF Luz, and probably some generation projects in the portfolio. Will we see more aggressive investment this year?

Speaker 3

Well, first, we have the You mentioned it, but we have an option for battery supply from CAMMESA. First, we are looking there. Actively, we are looking to participate. Of course, it's a technology that we are entering. It's not a technology that we know. But we are looking forward to participate in that auction first, this May. Then, of course, we are working heavily with YPF to develop the transmission line in the puna. This is another important project for us. The cogeneration depends not only on the regulation. The regulation, as I mentioned, established the possibility to establish a private contract with the demand for new capacity. The thing about that is we need to have the demand.

Speaker 3

When you think about the cogeneration, the most important thing for the outtaker is the steam, but we also need to have the demand for the electricity to cover that for the complete business. So we are looking for that. We have one or 2 projects we are looking at, but it's not easy to set the whole package, to set the steam contract and to set the electricity contract. So it perhaps takes more time than the other assets that we are looking or the other project that we are looking. In the mining case, we are already invested in developing projects, and they are fully funded for this phase of developing, and we are not seeing additional CapEx this year for those projects.

Speaker 2

Okay. Thank you. The last one is, any news on the hydro auctions?

Speaker 3

Well, we are talking with the ORB, and they are moving forward, not as fast as they planned at the beginning. They think that they could have the auction in place on February, but I think they are taking a little bit more. They are confident that they are going to have the auction in place between April, May, and then they can move forward with that. We are not having a specific input about how they are planning to do it. If they are thinking in a PPA with CAMMESA, with the Secretariat of Energy, or they are thinking more in contracts with the demand or distribution companies. We are not ready there. We do not have that information yet. We know that they are willing to move forward April, May this year.

Speaker 2

Okay. Thank you.

Operator

Again, if you have a question, please click on "Raise Hand." Please hold while we poll for questions. This concludes our Q&A session. I would like to turn the conference back over to Mr. Fernando Bonnet for any closing remarks.

Speaker 3

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

This does conclude today's presentation. We wish you a good day.

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