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 third quarter (3Q) and nine-month period (9M) ended September 30, 2018. The filing was submitted on November 12, 2018. All figures are expressed in Argentine Pesos (Ps.) unless otherwise noted.
Key Financial Metrics
| Metric | 3Q 2018 | 3Q 2017 | 9M 2018 | 9M 2017 |
|---|---|---|---|---|
| Revenues | Ps. 3,513 million | Ps. 1,539 million | Ps. 7,419 million | Ps. 4,021 million |
| Gross Profit | Ps. 2,322 million | Ps. 887 million | Ps. 4,543 million | Ps. 2,067 million |
| Gross Margin | 66% | 58% | 61% | 51% |
| Operating Income (Core) | Ps. 2,054 million | Ps. 738 million | Ps. 3,818 million | Ps. 1,620 million |
| Adjusted EBITDA | Ps. 8,808 million | Ps. 974 million | Ps. 24,118 million | Ps. 2,106 million |
| Net Income | Ps. 5,404 million | Ps. 806 million | Ps. 16,849 million | Ps. 2,079 million |
| EPS (Ps.) | 3.79 | 0.53 | 11.53 | 1.37 |
| Energy Generation (GWh) | 4,422 | 3,937 | 11,007 | 11,588 |
| Cash & Equivalents (Sep 30) | Ps. 826 million | |||
| Financial Debt (Sep 30) | Ps. 6,716 million (Subsidiaries) |
Material Changes vs. Prior Period
- Revenue Growth: 3Q2018 revenues surged 128% year-over-year, driven by a 128% increase in tariffs (Resolution 19/17), an 85% increase in the average exchange rate, and a 12% increase in energy generation.
- Operational Expansion: Energy generation increased 12% in 3Q2018, primarily due to a 53% jump in hydro generation (recovery from drought) and the commercial operation of new wind farms (La Castellana I and Achiras I, adding 147 MW).
- Non-Operating Gains: Adjusted EBITDA and Net Income were significantly inflated by non-recurring items. In 3Q2018, a Ps. 6,297 million gain resulted from foreign exchange differences and interest on USD-denominated trade receivables (FONI). In 9M2018, this included a one-time Ps. 7,959 million gain from the CVO Commercial Operation Approval.
- Cost Structure: Cost of sales increased 83% in 3Q2018, largely due to higher natural gas transportation tariffs and the exchange rate impact on dollar-denominated fuel costs, though this was less than proportional to revenue growth.
Guidance, Outlook, and Risks
- Regulatory Changes: Resolution 70/2018 allows generators to procure their own fuel under the Energía Base framework, potentially optimizing dispatch based on variable production costs.
- Hyperinflation Accounting (IAS 29): Argentina is now considered hyperinflationary. While current 9M2018 statements do not apply IAS 29 restatement due to local CNV rules, the Company expects a significant impact on financial statements in the upcoming 2018 Form 20-F. Investors are warned that inflation affects wage costs, raw material prices, and debt servicing.
- Capital Projects: Construction continues on Terminal 6 (330 MW) and Luján de Cuyo (93 MW) cogeneration projects. The solar project El Puesto (12 MW) was acquired with an expected commercial operation date of August 2020.
- Liquidity: The Company maintains a consolidated net cash position of Ps. (4,972) million, heavily influenced by debt taken by subsidiaries to finance wind farm construction. Cash provided by operating activities was Ps. 1,506 million for 9M2018.
Investor Verification Checklist
- Non-Recurring Gains: Verify the sustainability of earnings by excluding the Ps. 6,297 million FX gain (3Q) and Ps. 7,959 million CVO gain (9M) from Adjusted EBITDA analysis.
- IAS 29 Impact: Monitor the upcoming Form 20-F for the quantified impact of hyperinflation restatement on assets, liabilities, and equity.
- Debt Maturity: Review the repayment schedule for the Ps. 6,716 million in subsidiary debt, with quarterly installments beginning in February and May 2019.
- FX Exposure: Assess the sensitivity of future results to Argentine Peso devaluation, given the significant portion of revenues and costs are USD-linked.
- Hydro Dependency: Evaluate the volatility of hydro generation volumes, which drove the 3Q2018 performance but are subject to weather conditions.