Central Puerto S.A. Form 6-K Summary
Business Context and Reporting Period
Central Puerto S.A. (NYSE: CEPU), the largest private sector power generator in Argentina, reported consolidated financial results for the second quarter (2Q) and first half (1H) ended June 30, 2018. The filing, dated August 13, 2018, covers conventional thermal and hydro energy operations as well as renewable energy projects. All figures are presented in Argentine Pesos (Ps.) unless otherwise noted.
Key Financial Metrics
| Metric | 2Q 2018 | 2Q 2017 | 1H 2018 | 1H 2017 |
|---|---|---|---|---|
| Revenues | Ps. 2,102 million | Ps. 1,375 million | Ps. 3,906 million | Ps. 2,482 million |
| Operating Income (Core) | Ps. 910 million | Ps. 563 million | Ps. 1,764 million | Ps. 882 million |
| Adjusted EBITDA | Ps. 5,628 million | Ps. 701 million | Ps. 15,311 million | Ps. 1,139 million |
| Net Income | Ps. 3,943 million | Ps. 749 million | Ps. 11,445 million | Ps. 1,273 million |
| Gross Profit Margin | 55% | 53% | 57% | 47% |
| Cash & Equivalents (End of Period) | Ps. 2,665 million (as of June 30, 2018) | |||
| Consolidated Net Cash Position | Ps. (1,754) million (Net Debt) |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 53% in 2Q2018 and 57% in 1H2018. This was driven by a 50% increase in the average exchange rate and tariff adjustments (Resolution 19/17) that dollarized prices, partially offset by an 18% decrease in energy generation.
- Generation Volume: Total energy generation decreased 18% in 2Q2018 (3,145 GWh) due to a 37% drop in thermal generation caused by scheduled maintenance at the Puerto Combined Cycle Plant. Hydro generation increased 118% due to higher water flow.
- Adjusted EBITDA Surge: Adjusted EBITDA rose 702% in 2Q2018. This exceptional increase was primarily due to a Ps. 4,456 million gain from foreign exchange differences and interest on US dollar-denominated trade receivables (FONI). In 1H2018, a one-time Ps. 7,959 million gain from the CVO Commercial Operations Approval also contributed significantly.
- Cost Structure: Cost of sales increased 45% in 2Q2018, driven by higher natural gas transportation tariffs and the dollar-denominated cost of natural gas. Administrative expenses rose 53% due to increased professional fees and taxes on bank transactions.
Outlook, Risks, and Management Commentary
- Capacity Expansion: Construction began on Terminal 6 (330 MW) and Luján de Cuyo (93 MW) cogeneration units. The La Castellana I and Achiras I wind farms (147 MW total) completed construction and are in final testing, with commercial operations expected in August and September 2018.
- New Contracts: A 20-year Power Purchase Agreement (PPA) was signed for the La Genoveva I wind farm (87 MW) with CAMMESA; construction is expected to start in 1Q2019.
- Dividends: A cash dividend of Ps. 0.70 per share (US$ 0.28 per ADR) was distributed in May 2018. The company also received US$ 17.4 million in dividends from associates (TGM and DGCU).
- Liquidity and Debt: The company holds Ps. 2,665 million in cash. However, subsidiaries incurred Ps. 4,918 million in debt to finance wind farm construction, resulting in a consolidated net debt position of Ps. 1,754 million. The parent company remains net cash positive.
- Risks: Results are heavily influenced by foreign exchange fluctuations and regulatory changes. The company faces risks related to the collection of receivables from CAMMESA (specifically CVO and FONI) and the timing of commercial operation dates for new projects.
Investor Verification Checklist
- FX Impact: Verify the sustainability of Adjusted EBITDA given the heavy reliance on foreign exchange gains (Ps. 4.5 billion in 2Q) rather than core operational cash flow.
- Receivables Collection: Monitor the status of payments from CAMMESA regarding the CVO agreement and FONI receivables, as these are critical to liquidity.
- Debt Servicing: Assess the ability of the wind farm subsidiaries to service the Ps. 4.9 billion in project finance debt once commercial operations commence.
- Thermal Availability: Confirm the return to normal availability rates for the Puerto Combined Cycle Plant following the extended maintenance period.
- Regulatory Stability: Evaluate the long-term impact of Resolution 19/17 on tariff structures and the potential for future regulatory adjustments in Argentina.