CENTRAL PUERTO S.A. annual report, Q4 FY2020

Central Puerto S.A. — Form 20-F Summary

Reporting period: Fiscal year ended December 31, 2020. The filing is an annual report, not a standalone fourth-quarter filing. Financial statements are audited, prepared under IFRS as issued by the IASB, and restated under IAS 29 for Argentine hyperinflation. Amounts are presented in Argentine pesos in the current measurement unit as of December 31, 2020, unless otherwise stated.

Business context

Central Puerto is an Argentine power-generation company operating five thermal plants, one hydroelectric plant and seven wind farms, with approximately 4,709 MW of installed capacity and 14,329 GWh of 2020 generation. It generated approximately 12.5% of power produced by private-sector generators in Argentina. The company also has investments in natural-gas distribution and thermal plants operated through associates.

Approximately 94% of 2020 revenue came from CAMMESA, creating significant exposure to Argentine regulation, government subsidies, tariff policy and CAMMESA payment performance.

Key financial metrics

Metric	2020	2019	Change
Revenue	Ps.38.11 billion	Ps.48.96 billion	Down 22.16%
Gross income	Ps.21.29 billion	Ps.23.15 billion	Down 8.02%
Gross margin	55.87%	47.29%	Up 858 basis points
Operating income	Ps.27.95 billion	Ps.38.19 billion	Down 26.82%
Net income from continuing operations	Ps.6.96 billion	Ps.11.79 billion	Down 40.99%
Basic and diluted EPS	Ps.4.58	Ps.7.97	Down 42.54%
Operating cash flow	Ps.19.29 billion	Ps.16.30 billion	Up 18.36%
Capital expenditures	Ps.11.45 billion	Ps.37.18 billion	Down 69.19%
Total assets	Ps.158.39 billion	Ps.161.73 billion	Down 2.07%
Total equity	Ps.84.51 billion	Ps.80.53 billion	Up 4.95%

Revenue mix and operating changes

• Energía Base revenue declined 53.12% to Ps.17.47 billion and represented 45.85% of revenue, compared with 76.14% in 2019.
• Sales under contracts increased 83.82% to Ps.18.40 billion, supported by the full-period operation of newer wind farms, Brigadier López and the Luján de Cuyo cogeneration project.
• Steam revenue increased 79.94% to Ps.1.06 billion, primarily due to the new Luján de Cuyo cogeneration unit.
• Generation decreased to 14,329 GWh from 14,849 GWh. Thermal availability declined to approximately 89% from 93%, while total weighted availability for thermal and hydro plants declined to 91.94% from 94.46%.
• Hydroelectric generation at Piedra del Águila declined 12% due to lower water flows. Several thermal units experienced outages or operating limitations, including the Luján de Cuyo combined cycle plant and steam turbines.

Profitability, unusual items and material changes

• Revenue declined primarily because Resolution 31/20 reduced Energía Base remuneration, prices were converted to pesos, and the planned monthly tariff-update mechanism was suspended from March 2020.
• Fuel-remuneration revenue fell to approximately Ps.1.3 billion from Ps.14.9 billion after Resolution 70/18 was repealed and fuel procurement was largely centralized through CAMMESA.
• Cost of sales fell 34.84%, partly because 2019 included substantially higher purchases of materials and spare parts. Gross margin nevertheless improved because costs declined faster than revenue.
• The company recorded Ps.4.02 billion of impairment charges, mainly relating to Brigadier López, the Luján de Cuyo combined-cycle plant and gas turbines. The impairment included approximately Ps.2.18 billion for Brigadier López, Ps.333 million for Luján de Cuyo combined cycle and Ps.1.50 billion for certain turbines.
• Finance expenses were Ps.22.30 billion, including Ps.17.32 billion of foreign-exchange differences on borrowings. The company also recognized a Ps.1.16 billion gain from the net monetary position under IAS 29.
• Net income decreased 40.99% despite higher operating cash flow, reflecting lower operating income, high finance expenses and impairment charges.

Liquidity, debt and cash flow

• Cash and cash equivalents were Ps.278.7 million, while other current financial assets were Ps.14.08 billion.
• Receivables from CAMMESA totaled approximately Ps.43.2 billion, including Ps.34.1 billion of CVO receivables. The company collected Ps.6.3 billion of CVO receivables during 2020.
• Total borrowings were Ps.50.97 billion, including Ps.20.12 billion current and Ps.30.84 billion non-current. Approximately 97.8% of indebtedness was denominated in U.S. dollars.
• Operating cash flow of Ps.19.29 billion exceeded capital expenditures of Ps.11.45 billion, but investing cash outflows and debt service resulted in a net decrease in cash of Ps.1.68 billion.
• The company reported compliance with its debt covenants and identified approximately Ps.8.95 billion of uncommitted bank credit lines as of the filing date.

Guidance, outlook and management commentary

• Management expects future performance to benefit from expanded renewable and cogeneration capacity, including La Genoveva I, Terminal 6–San Lorenzo and existing contracted projects.
• La Genoveva I received full commercial authorization in November 2020 after COVID-19-related delays. Terminal 6–San Lorenzo began open-cycle operations in November 2020, while completion of the combined-cycle project was expected in the third quarter of 2021.
• The Brigadier López combined-cycle expansion and El Puesto solar project had not begun construction as of the filing date. Estimated future capital expenditures were approximately US$120 million for Brigadier López and US$12 million for El Puesto, subject to financing and market conditions.
• The company does not provide a clear quantitative earnings or revenue forecast. It expects to maintain adequate liquidity for working capital, debt service and capital expenditures, but warns that reduced capital-market access could impair this expectation.

Principal risks and contingencies

• Argentina’s inflation, currency depreciation, exchange controls, economic contraction and political or regulatory intervention. The peso depreciated approximately 40.59% in 2020 and Argentine CPI inflation was 36.1%.
• Tariff and remuneration risk from Resolution 31/20, the suspension of the CPI/WPI adjustment mechanism and possible future changes to the electricity-market framework.
• CAMMESA concentration and collection risk. Payments may be delayed or become uncollectible if distributors or the Argentine government cannot fund CAMMESA adequately.
• Foreign-currency mismatch: liabilities exceeded foreign-currency receivables and cash by approximately US$142.7 million at December 31, 2020. The company reported approximately 69.66% of liabilities denominated in foreign currencies.
• Refinancing risk under Argentine exchange controls. The Brigadier López loan was amended in December 2020, increasing interest rates by 200 basis points, restricting dividends during 2021 and limiting 2022 dividends to US$25 million. Negotiations continued to reschedule 2021 installments.
• Operational and construction risk from equipment failures, COVID-19 disruptions, supply-chain constraints, financing limitations and possible contractual penalties.
• Piedra del Águila’s concession expires December 29, 2023 and has no automatic renewal provision. The plant represented approximately 12.34% of 2020 revenue.
• Central Puerto’s interests in the San Martín and Manuel Belgrano operating companies were diluted in March 2021 from 30.8752% to 9.6269% and from 30.9464% to 10.8312%, respectively, following the Argentine government’s subscription of shares.
• LIBOR transition risk affects CVO receivables and several outstanding loans.

Most important facts for investors to verify

• Whether Energía Base tariff indexation is reinstated and whether future tariff changes offset inflation and operating-cost growth.
• The aging, timing and collectability of CAMMESA receivables, including CVO receivables and any payment delays.
• The final refinancing terms for Brigadier López debt and the effect of exchange controls on 2021 maturities and dividend capacity.
• Completion timing, remaining cost and commercial operation of Terminal 6–San Lorenzo and the planned Brigadier López combined-cycle expansion.
• Potential additional impairment from tariff weakness, exchange-rate changes, discount rates or the unsold gas turbines.
• Renewal terms for the Piedra del Águila concession before its December 2023 expiration.
• The financial impact of the dilution of interests in TJSM and TMB and the future dilution risk in CVOSA.
• The comparability of reported peso results, given IAS 29 restatement and the company’s warning that restated figures are not comparable with previously published financial statements.