Central Puerto S.A. — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019. The requested “2019 Q4” period is not separately presented; this filing is an annual report. Financial statements are prepared under IFRS in Argentine pesos and restated for hyperinflation under IAS 29. Amounts are stated in the current measurement unit at December 31, 2019, limiting comparability with previously published figures.
Business context
Central Puerto is an Argentine power-generation company listed on BYMA and the NYSE under CEPU. As of December 31, 2019, it operated five thermal plants, one hydroelectric plant and five wind farms, with approximately 4,273 MW of installed capacity and 14,849 GWh of generation. The company also holds interests in natural-gas distribution affiliates and power-generation associates. Approximately 76.14% of 2019 revenue came from Energía Base sales, and CAMMESA represented approximately 76.14% of total revenue according to the filing’s operating disclosure.
Key financial metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue from continuing operations | Ps.35.96 billion | Ps.21.94 billion | +63.87% |
| Gross income | Ps.17.00 billion | Ps.11.97 billion | +42.10% |
| Gross margin | 47.29% | 54.53% | Down 7.24 percentage points |
| Operating income | Ps.28.05 billion | Ps.46.91 billion | -40.21% |
| Net income from continuing operations | Ps.8.66 billion | Ps.26.01 billion | -66.70% |
| Total net income | Ps.8.66 billion | Ps.26.44 billion | -67.24% |
| Net income per share | Ps.5.85 | Ps.17.91 | -67.33% |
| Operating cash flow | Ps.11.97 billion | Ps.5.70 billion | +110.03% |
| Capital expenditures | Ps.27.31 billion | Ps.10.71 billion | +155.06% |
| Cash and cash equivalents | Ps.1.49 billion | Ps.354 million | Higher year over year |
| Other current financial assets | Ps.7.70 billion | Ps.3.02 billion | Higher year over year |
| Total debt and borrowings | Ps.38.71 billion | Ps.13.37 billion, including CAMMESA borrowings | Significantly higher |
Operating cash flow increased substantially, but investing cash outflows rose to Ps.27.90 billion, primarily for expansion projects and the Brigadier López acquisition. Financing activities provided Ps.17.13 billion, including Ps.20.73 billion of long-term loan proceeds.
Material changes versus the prior comparable period
- Revenue growth reflected higher peso translations of U.S.-dollar-linked tariffs, increased fuel remuneration under the prior Energía Base framework, the Brigadier López acquisition, new renewable projects and the Luján de Cuyo cogeneration project.
- Sales under contracts increased 432.83% to Ps.7.35 billion, while Energía Base revenue increased 40.50% to Ps.27.38 billion. Energía Base’s share of revenue declined from 88.80% to 76.14% as contracted and renewable operations expanded.
- Cost of sales increased 89.97% to Ps.18.96 billion, mainly because of higher gas purchases, amortization of Brigadier López-related intangible assets, maintenance and materials. Gross margin consequently declined.
- 2019 included a Ps.4.40 billion impairment charge, principally related to the Brigadier López cash-generating unit and certain unused gas turbines. No comparable impairment was recorded in 2018.
- 2018 benefited from a nonrecurring Ps.16.95 billion CVO receivables update. No equivalent gain was recorded in 2019, materially affecting operating income and net income comparisons.
- Finance expenses increased 64.30% to Ps.15.92 billion, driven by foreign-exchange losses on U.S.-dollar debt and higher interest expense.
- Generation increased to 14,849 GWh from 14,479 GWh, while company-reported Argentine electricity demand decreased 2.16% in 2019. The company’s weighted average availability for thermal and hydro plants was 94.46%, compared with 92.76% in 2018.
Debt, liquidity and capital resources
- Debt totaled Ps.38.71 billion at year-end, approximately 99.51% denominated in U.S. dollars. Major borrowings included the Brigadier López acquisition loan, project loans from IFC/IIC, the KfW loan and renewable-project financing.
- Cash and cash equivalents plus current other financial assets totaled approximately Ps.9.19 billion, or about US$153 million using the filing’s convenience exchange rate.
- Receivables from CAMMESA totaled approximately Ps.38.05 billion, including Ps.24.25 billion of non-current receivables. Collection timing remains a material liquidity consideration.
- Management stated that liquidity was adequate for working capital, debt service and foreseeable capital expenditures, and disclosed approximately Ps.8.50 billion of uncommitted commercial-bank credit lines.
- Debt agreements contain leverage, interest-coverage, minimum-equity, dividend, additional-debt and asset-sale covenants. Management reported compliance with debt covenants as of the filing date.
Guidance, outlook and unusual items
- Resolution 31/20, effective February 1, 2020, changed Energía Base remuneration: prices were denominated in pesos, thermal capacity prices were reduced approximately 16%, hydroelectric fixed capacity prices were reduced approximately 45%, and a CPI/WPI-based monthly adjustment was introduced.
- Management reported that CAMMESA may have postponed the Resolution 31/20 price-update mechanism. The March 2020 adjustment was not applied, and the company was evaluating the effect.
- COVID-19 reduced electricity demand, delayed payments from customers and disrupted construction and supply chains. Electricity generation was treated as an essential activity, but La Genoveva I and Terminal 6-San Lorenzo were expected to experience delays.
- La Genoveva I had an expected capacity of 88.2 MW, a US$40.90/MWh award price and estimated capital expenditures of approximately US$110 million. Terminal 6-San Lorenzo had an expected capacity of approximately 391 MW and an amended committed COD of September 1, 2020, subject to further delay risk.
- The company acquired Brigadier López in June 2019. Its 280.5 MW gas turbine was operating, but the planned combined-cycle expansion to approximately 420 MW had not begun. Estimated expansion capital expenditures were approximately US$120 million.
- The Piedra del Águila concession expires December 29, 2023 and has no automatic renewal. The company intends to seek renewal, but cannot assure that renewal or a new concession will be obtained.
- Potential dilution of the company’s interests in TJSM and TMB is under dispute with the Argentine Government. The government claimed interests of 68.826% in TJSM and 65.006% in TMB; the company rejected those claims and could not estimate the final dilution.
- Argentina’s 2019 inflation was 53.83% and the peso depreciated approximately 58.86%. The filing recognized a Ps.2.43 billion loss from the net monetary position and a Ps.426 million tax impact from tax inflation adjustments.
Principal risks and contingencies
- High dependence on Argentina, including inflation, peso depreciation, recession, exchange controls, sovereign-debt developments, political changes and possible government intervention.
- High customer and revenue concentration with CAMMESA, including delayed collections and dependence on government subsidies flowing through CAMMESA.
- Regulatory tariff reductions, peso-denominated remuneration and possible delays in tariff indexation may cause revenue growth to lag operating costs.
- Foreign-currency debt, LIBOR-linked borrowings, refinancing risk and restricted access to domestic or international capital markets.
- COVID-19-related demand reductions, payment delays, supply-chain interruptions, construction delays, force-majeure disputes and potential project penalties.
- Potential further impairment of Brigadier López assets and unused gas turbines if tariffs, exchange rates, demand or project assumptions deteriorate.
- Hydrology risk at Piedra del Águila, wind-resource risk at wind farms, fuel availability risk, transmission constraints and mechanical failure of aging thermal equipment.
- Potential dilution of TJSM, TMB and CVOSA interests and reduced income from those assets.
- Legal and tax contingencies, including income-tax refund claims and the pending Argentine Supreme Court review of the 2010 tax refund case.
Investor verification checklist
- Reconcile the large year-over-year earnings decline against the nonrecurring 2018 CVO gain, the 2019 impairment charge, foreign-exchange effects and higher financing costs.
- Verify the collectability, maturity profile and currency exposure of the Ps.38.05 billion CAMMESA receivables.
- Review debt maturities, LIBOR transition provisions, covenant headroom and Central Puerto guarantees for subsidiary project debt.
- Assess the financial effect of Resolution 31/20 and whether the CPI/WPI tariff-adjustment mechanism was restored or remained postponed.
- Track COD revisions, construction spending and potential penalties for La Genoveva I and Terminal 6-San Lorenzo.
- Monitor the Brigadier López combined-cycle expansion, impairment sensitivity and the recoverability of unused gas turbines.
- Determine the final Argentine Government ownership and governance rights in TJSM and TMB, and the resulting impact on associate income.
- Evaluate renewal prospects for the Piedra del Águila concession before its December 2023 expiration.
- Consider the effects of Argentine inflation, exchange controls and restrictions on dividend remittances to non-resident shareholders.