Central Puerto S.A. — Form 20-F Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2018, filed April 30, 2019. Central Puerto is an Argentine electric-power generator with 3,810 MW of installed capacity and 14,479 GWh of continuing-operations generation in 2018. The portfolio includes thermal, hydroelectric and wind assets, plus minority interests in Argentine gas-distribution businesses.
The consolidated financial statements are prepared in Argentine pesos under IFRS as issued by the IASB. Because Argentina became hyperinflationary, 2018 and comparative figures were restated under IAS 29 and are stated in the purchasing-power unit at December 31, 2018; previously published figures are therefore not directly comparable.
Financial performance and key metrics
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Continuing-operations revenue | ARS 14.27bn | ARS 9.64bn | +48.0% |
| Gross income | ARS 7.78bn | ARS 4.44bn | +75.2% |
| Gross margin | 54.53% | 46.06% | +8.47 pts |
| Operating income | ARS 30.50bn | ARS 4.17bn | +630.8% |
| Net income from continuing operations | ARS 16.91bn | ARS 4.47bn | +278.2% |
| Consolidated net income | ARS 17.19bn | ARS 5.26bn | +226.6% |
| Cash flow from operating activities | ARS 3.71bn | ARS 3.66bn | +1.2% |
| Capital expenditures | ARS 6.96bn | ARS 5.73bn | +21.3% |
Reported profitability was heavily affected by the ARS 11.02bn CVO receivables update recognized after Central Vuelta de Obligado received commercial approval. The company also recorded an ARS 4.04bn loss on net monetary position and ARS 6.30bn of finance expenses, including substantial foreign-exchange losses on borrowings. Consequently, operating and net margins are not representative of recurring operating performance.
- Energía Base revenue was ARS 12.67bn, or 88.8% of continuing-operations revenue. Approximately 97.7% of electricity sales by volume were under this framework.
- CAMMESA accounted for approximately 90.9% of continuing-operations revenue, creating substantial customer and sovereign-linked concentration.
- Generation declined to 14,479 GWh from 15,627 GWh, primarily because of the La Plata plant sale and a three-month maintenance outage at the Puerto combined-cycle plant.
- Weighted company availability was 92.76%, compared with 94.97% in 2017; thermal-unit availability was 88.77%.
- At December 31, 2018, cash and cash equivalents were ARS 229.95m and current other financial assets were ARS 1.96bn. Total assets were ARS 57.26bn and equity was ARS 32.93bn.
- Trade and other receivables totaled ARS 27.25bn, including ARS 26.98bn of CAMMESA receivables.
- Total borrowings were ARS 8.69bn, of which approximately 66.2% was denominated in U.S. dollars. The company reported compliance with debt covenants.
Material changes versus the prior comparable period
- Revenue growth reflected higher Energía Base tariffs under Resolution SEE 19/17, peso depreciation on U.S.-dollar-denominated tariffs, fuel remuneration under Resolution SEE 70/18, and the start-up of the Achiras I and La Castellana I wind farms.
- Gross margin improved materially, while reported operating income increased primarily because of foreign-exchange gains on U.S.-dollar receivables and the non-recurring CVO receivables update.
- Finance expenses increased 424.8%, largely because foreign-exchange losses on loans rose to ARS 4.76bn.
- The La Plata plant was sold to YPF Energía Eléctrica for US$31.5m, effective January 5, 2018; its results are presented as discontinued operations.
- Operating cash flow was broadly stable despite higher reported earnings because the CVO receivables update and related foreign-exchange gains were largely non-cash and income-tax payments increased to ARS 4.24bn.
- Investment spending increased as the company developed wind farms and the Luján de Cuyo and Terminal 6 San Lorenzo cogeneration projects.
Guidance, outlook, risks and unusual items
- Management expected the Luján de Cuyo cogeneration project to begin operations in late 2019, and the Terminal 6 San Lorenzo project and La Genoveva I wind farm in 2020. Additional renewable projects included La Castellana II, Manque, Los Olivos, La Genoveva II and El Puesto.
- Management expected 2019 Argentine electricity demand to decline 0.2% and anticipated a further near-term effect from the lower Energía Base remuneration introduced by Resolution SRRyME 1/19. The filing states that future tariff levels remain uncertain.
- The CVO Agreement represented an estimated US$548m of receivables, including VAT, payable over 120 monthly installments. March–December 2018 installments totaling US$78.15m remained unpaid at the filing date, although January and February 2019 installments had been received.
- The company was awarded the Brigadier López plant for a total offer of approximately US$165.4m, but closing conditions were not satisfied by the original April 1, 2019 date. Central Puerto and IEASA failed to agree on an extension, and the company notified IEASA of that failure on April 26, 2019. A US$10m offer guarantee was outstanding until May 31, 2019 and could be drawn if obligations were not honored.
- In March 2019, Central Puerto signed a US$56m KfW loan for the Luján de Cuyo project; disbursement remained subject to conditions precedent.
- The principal risks are Argentine inflation, hyperinflation accounting, peso depreciation, regulatory and tariff changes, exchange controls, CAMMESA payment delays, dependence on natural gas and liquid fuels, transmission constraints, construction and financing risks, plant outages, environmental and legal claims, cyberattacks, and potential dilution of interests in FONINVEMEM companies.
- The Piedra del Águila concession expires December 29, 2023. Non-renewal or early termination could materially reduce generation and revenue.
- The filing disclosed no off-balance-sheet arrangements as defined by Form 20-F and no defaults, dividend arrearages or delinquencies.
Most important facts an investor should verify
- Whether CAMMESA has paid the overdue CVO installments and the related foreign-exchange differences and interest.
- The recurring earnings and cash-flow impact of Resolution SRRyME 1/19 after removing the ARS 11.02bn CVO accounting gain and other foreign-exchange effects.
- Actual progress, financing, costs and commercial-operation dates for the cogeneration and renewable projects.
- The final status, purchase price, financing and potential US$10m guarantee exposure related to the Brigadier López transaction.
- CAMMESA receivables aging, collection timing and any required working-capital financing.
- U.S.-dollar debt exposure, interest-rate sensitivity and compliance with project-finance covenants.
- Renewal prospects and economic terms for the Piedra del Águila concession before its 2023 expiration.
- The effect of IAS 29 restatement and 47.64% Argentine inflation on comparisons with prior filings and on reported margins.