Central Puerto: 3Q2020 Results

3Q 2020 Results Analysis

Revenues decreased 14% to Ps. 9,079 million in the 3Q2020, as compared to Ps. 10,616 million in the 3Q2019. The decrease in revenues was mainly affected by the abrogation of Resolution No. 70/2018, on December 30, 2019^[4]. Consequently, fuel remuneration for units under the Energía Base regulatory framework (and other related concepts), amounted to Ps. 218 million during the 3Q2020, compared to Ps. 1,914 million during the 3Q2019, when Res. 70/18 was in force (see “-Factors Affecting Our Results of Operations-Our Revenues-The Energía Base” in the Company’s 20-F filing).

Without considering fuel remuneration, Revenues for the 3Q2020 would have been Ps. 8,862 million, a 2% increase compared to Ps. 8,702 million in the 3Q2019. This increase was mainly due to:

(i) an increase in Sales under contracts, which amounted to Ps. 4,349 million during the 3Q2020, as compared to Ps. 3,463 million in the 3Q2019, mainly due to the revenues related to the new Luján de Cuyo cogeneration unit, which started operations on October 2019, and the wind farms La Castellana II, La Genoveva II, Manque and Los Olivos which started operations during June 2019, September 2019, December 2019, and February 2020, respectively, and;

(ii) an increase in the Steam Sales from the new Luján de Cuyo cogeneration unit, which totaled Ps. 330 million in the 3Q2020, compared to Ps. 98 million in the 3Q2019.

This increase was partially offset by a decrease in Spot Sales/Energia Base (Revenues from Resolution 1, Resolution 31, Resolution 19, SGE Resolution 70/2018 and amendments) which, without considering the remuneration associated to the self-procured fuel under Res. 70/18 mentioned above, were Ps. 3,899 million in the 3Q2020 as compared to 4,898 million in the 3Q2019. This was mainly due to a decrease in prices for units under the Energía Base Regulatory framework established by Res. 31/2020, in force since February 1, 2020, and the suspension Annex VI of such resolution (monthly price adjustment procedure) instructed by the Secretariat of Energy to CAMMESA on April 8, 2020. To a lesser extent, Sales under Energía Base were also affected by the decrease in energy generation from our hydro plant Piedra del Águila and a lower availability for thermal units, mainly related to the combined cycle LDCUCC25 and some of the steam turbines (see B. Main Operating Metrics).

Gross profit was Ps. 5,462 million in the 3Q2020, compared to Ps. 6,251 million in 3Q2019. This decrease was due to (i) the above-mentioned variation in revenues, partially offset by (ii) a 13% reduction in the costs of sales that totaled Ps. 3,617 million, compared to Ps. 4,365 million in the 3Q2019. This decrease in the cost of sales was primarily driven by:

(i) A 56% decrease in the purchase of fuel (and related concepts) used in the units that sell steam, and electricity under contracts or Energía Base (when applicable), which totaled Ps. 742 million during the 3Q2020, as compared to Ps. 1,687 million in the 3Q2019, mainly due to the cost of the self-supplied fuel purchased in accordance to Res. 70/18, which was in force during the 3Q2019, but was abrogated on December 30, 2019, as described above;

This was partially offset by:

(ii) a 7% increase in non-fuel-related costs of production, which totaled Ps. 2,875 million in the 3Q2020, as compared to Ps. 2,678 million in the 3Q2019, mainly due to the increase in the installed capacity from the new thermal and renewable energy plants.

Gross Profit Margin was 60% during the 3Q2020, as compared to 59% in the 3Q2019. In addition to the new installed capacity, this change was also affected by the operation of purchase of self-supplied fuel, that has a lower gross profit margin as compared to the gross profit margin of the rest of the operations of the company, which was in force during the 3Q2019 but not during the 3Q2020.

Operating income before other operating results, net, was Ps. 4,862 million, compared to Ps. 5,443 million in the 3Q2019. This decrease was due to (i) the above-mentioned decrease in gross profits, partially offset by (ii) a 26% decrease (in real terms) in administrative and selling expenses that totaled Ps. 600 million in the 3Q2020, as compared to Ps. 808 million in the 3Q2019, mainly driven by i) a Ps. 141 million reduction in tax on bank account transactions which during the 3Q2019 had been significantly higher due to the capital expenditures and loans received associated to the expansion projects, ii) a Ps. 55 million reduction in fees and compensation for professional services, and iii) a Ps. 51 million reduction in office maintenance expenses, among others.

Adjusted EBITDA was Ps. 7,682 million in the 3Q2020, compared to Ps. 19,314 million in the 3Q2019. This decrease was mainly due to:

(i) the decrease in operating results before other operating income, net mentioned above, which includes an increase in depreciations and amortizations that totaled Ps. 1,198 during the 3Q2020, as compared to Ps. 960 million during the 3Q2019, mainly related to the new renewable and thermal plants, and

(ii) A foreign exchange difference on operating assets, mainly related to FONI trade receivables that generated a Ps. 979 million gain during the 3Q2020, compared to Ps. 8,475 million during the 3Q2019, due to a lower depreciation of the argentine peso and, to a lesser extent, a lower balance of dollar denominated trade receivables during the period 3Q2020. As a reference, during the 3Q2020, the Argentine peso depreciated 8%, compared to 36% during the third 2019 mainly after the Presidential Primary elections held in August 2019.

(iii) a Ps. 4,784 million one-time-gain registered in the third quarter 2019, measured in the current unit of September 30, 2020, associated to the 2013-2016 CAMMESA trade receivables cancelation^[5]. Without considering this effect, interests on trade receivables, mainly from CAMMESA, amounted Ps. 622 million during the 3Q2020, as compared to Ps. 858 million in the 3Q2019 due to a lower trade receivables balance maintained, mainly on FONI receivables, and lower interest rates during the period.

This was partially offset by

(iv) a Ps. 841 million non-cash charge related to the property, plant and equipment impairment registered during the 3Q2019.

Consolidated Net income was Ps. 2,287 million and Net income for shareholder was Ps. 2,272 million or Ps. 1.51 per share or Ps. 15.1 per ADR, in the 3Q2020, compared to Ps. 4,817 million and 5,693 million, respectively, or Ps. 3.78 per share or Ps. 37.8 per ADR, in the 3Q2019. In addition to the above-mentioned factors, net income was negatively impacted by (i) lower financial income which amounted to Ps. 927 million during the 3Q2020, compared to Ps. 1,199 million in the 3Q2019, mainly due to lower FX difference results on financial assets denominated in foreign currency (which excludes FONI and other trade receivables), measured in argentine pesos, partially compensated by a higher mark-to-market gain on financial assets, and (ii) positively impacted by lower financial expenses that amounted to Ps. 4,422 million in the 3Q2020, compared to Ps. 13,269 million in the 3Q2019, mainly due to lower foreign exchange difference on loans, most of which are denominated in US dollars. As a reference, during the 3Q2020, the peso depreciated 8.1%, compared to 35.6%, during the 3Q2019.

Additionally, the share of profit of associates was Ps. 101 million gain during the 3Q2020 compared to Ps. 588 million during the 3Q2019, mainly due to lower results from the operations of Ecogas due to lack of tariff adjustments for the natural gas distribution business during 2020.

Finally, the gain on net monetary position totaled Ps. 322 million during the 3Q2020, as compared to Ps. 954 million in the 3Q2019.

FONI collections totaled Ps. 1,392 million in the 3Q2020, -including VAT, associated to the FONI trade receivables for Vuelta de Obligado Plant.

9M2020 Results Analysis

Revenues decreased 14% to Ps. 25,894 million in the 9M2020, as compared to Ps. 30,054 million in the 9M2019. The decrease in revenues was mainly affected by the abrogation of Resolution No. 70/2018 mentioned above, on December 30, 2019. Consequently, fuel remuneration for units under Energía Base regulatory framework (and other related concepts), amounted to Ps. 794 million during the 9M2020, compared to Ps. 8,912 million during the 9M2019, when Res. 70/18 was in force (see “-Factors Affecting Our Results of Operations-Our Revenues-The Energía Base” in the Company’s 20-F filing).

Without considering fuel remuneration, Revenues for the 9M2020 would have been Ps. 25,100 million, a 19% increase compared to Ps. 21,142 million in the 9M2019. This increase was mainly due to:

(i) an increase in Sales under contracts, which amounted to Ps. 12,250 million during the 9M2020, as compared to Ps. 5,173 million in the 9M2019, mainly due to the revenues related to the Brigadier López Plant, which was acquired in June 2019, the new Luján de Cuyo cogeneration unit, which started operations on October 2019, and the wind farms La Castellana II, La Genoveva II, Manque and Los Olivos which started operations during June 2019, September 2019, December 2019, and February 2020, respectively;

(ii) an increase in the Steam Sales from the new Luján de Cuyo cogeneration unit, which totaled Ps. 740 million in the 9M2020, compared to Ps. 262 million in the 9M2019.

This increase was partially offset by a decrease in Spot Sales/Energía Base (Revenues from Resolution 1, Resolution 31, Resolution 19, SGE Resolution 70/2018 and amendments) which, without considering the remuneration associated to the self-procured fuel under Res. 70/18 mentioned above, were Ps. 11,330 million in the 9M2020 as compared to 14,988 million in the 9M2019, mainly due to the a decrease in prices for units under the Energía Base Regulatory framework established by Res. 31/2020, in force since February 1, 2020, and the suspension of Annex VI of such resolution (monthly price adjustment procedure) instructed by the Secretariat of Energy to CAMMESA on April 8, 2020.

To a lesser extent, Spot Sales/Energía Base where also affected by (i) the unavailability of the combined cycle LDCUCC25 between April 12 and July 16, 2020 mentioned above, which reduced revenues from power availability and the energy generation from this unit, part of which may be mitigated by the Comprehensive Operational Risk and Loss of Profits insurance, (ii) a 620 GWh reduction in energy generation from the rest of the thermal units under this segment, mainly due to the effects of the Quarantine and, (iii) a 203 GWh reduction in energy generation from the Piedra del Águila hydro plant due to less water availability in the Collón Curá and Limay rivers.

Gross profit increased 3% to Ps. 14,871 million in the 9M2020, compared to Ps. 14,468 million in 9M2019. This increase was due to (i) the above-mentioned variation in revenues (without considering fuel remuneration), and (ii) a 29% reduction in the costs of sales that totaled Ps. 11,023 million, compared to Ps. 15,586 million in the 9M2019. This decrease in the cost of sales was primarily driven by:

(i) A 75% decrease in the purchase of fuel (and related concepts) used in the units that sell steam, and electricity under contracts or Energía Base (when applicable), which totaled Ps. 2,075 million during the 9M2020, as compared to Ps. 8,285 million in the 9M2019, mainly due to the cost of the self-supplied fuel purchased in accordance to Res. 70/18, which was in force during the 9M2019, but was abrogated on December 30, 2019, as described above;

This was partially offset by:

(ii) a 23% increase in non-fuel-related costs of production, which totaled Ps. 8,948 million in the 9M2020, as compared to Ps. 7,301 million in the 9M2019, mainly due to the increase in the installed capacity following the acquisition of Brigadier López plant and the COD of the new thermal and renewable energy plants.

Gross Profit Margin totaled 57% during the 9M2020, as compared to 48% in the 9M2019. This change was mainly a consequence of (i) the operation of purchase of self-supplied fuel, which was in force during the 9M2019 but not during the 9M2020, that has a lower gross profit margin as compared to the gross profit margin of the rest of the operations of the company.

Operating income before other operating results, net, was Ps. 12,971 million, compared to Ps. 12,273 million in the 9M2019. This increase was due to (i) the above-mentioned growth in gross profits, and (ii) a 13% decrease (in real terms) in administrative and selling expenses that totaled Ps. 1,900 million in the 9M2020, as compared to Ps. 2,196 million in the 9M2019, mainly driven by a Ps. 310 million reduction in tax on bank account transactions which during the 9M2019 had been significantly higher due to the purchase of the Brigadier López plant, and higher capital expenditures and loans received during the period.

Adjusted EBITDA was Ps. 24,347 million in the 9M2020, compared to Ps. 33,429 million in the 9M2019. This decrease was mainly due to:

(i) the lower operating results before other operating income, net mentioned above, which includes an increase in depreciations and amortizations that totaled Ps. 3,829 million during the 9M2020, as compared to Ps. 2,295 million during the 9M2019, mainly related to the new renewable and thermal plants.

(ii) interests on trade receivables, mainly from CAMMESA, which during the 9M2020 amounted Ps. 2,183 million, as compared to Ps. 7,503 million in the 9M2019, including the 4,784 million one-time-gain in interests associated to the trade receivables and debt compensation with CAMMESA booked during the 3Q2019 mentioned above, and

(iii) lower foreign exchange difference on operating assets, mainly related to FONI trade receivables, which generated a Ps. 7,062 million gain during the 9M2020, compared to Ps. 12,672 million during the 9M2019. As a reference, during the 9M2020, the peso depreciated 27.2%, compared to 52.8%, during the 9M2019.

(iv) a Ps. 1,348 million non-cash loss related to the property, plant and equipment impairment accrued during the 9M2020 on two Siemens branded generating groups stored in the supplier’s facilities and one General Electric branded generating group stored in Central Puerto’s Nuevo Puerto plant, which were valued using the fair value less cost of sale approach, compared to Ps. 841 million during the 9M2019.

Consolidated Net income was Ps. 5,729 million and Net income for shareholder was Ps. 5,693 million or Ps. 3.78 per share or Ps. 37.8 per ADR, in the 9M2020, compared to Ps. 8,965 million and 9,594 million, respectively, or a gain of Ps. 6.37 per share or Ps. 63.7 per ADR, in the 9M2019. In addition to the above-mentioned factors, net income was negatively impacted by a lower gain on share of profit of associates that totaled Ps. 67 million during the 9M2020 compared to Ps. 1,118 million during the 9M2019, mainly due to lower results from the operations of Ecogas due to lack of tariff adjustments for the natural gas distribution business during 2020, as mentioned above.

This was partially offset by lower financial expenses that amounted to Ps. 14,644 million in the 9M2020, compared to Ps. 16,654 million in the 9M2019, mainly due to a lower foreign exchange difference on US dollars denominated loans, which was partially offset by a higher balance of such loans, mostly related to the expansion projects. As a reference, during the 9M2020, the peso depreciated 27.2%, compared to 52.8%, during the 9M2019.

Finally, the gain on net monetary position totaled Ps. 845 million during the 9M2020, as compared to a loss on the net monetary position of Ps. 3,105 million in the 9M2019.

FONI collections totaled Ps. 4,608 million in the 9M2020, -including VAT, associated to the FONI trade receivables for San Martín, Manuel Belgrano, and Vuelta de Obligado Plants.

Financial Situation

As of September 30, 2020, the Company and its subsidiaries had Cash and Cash Equivalents of Ps. 349 million, and Other Current Financial Assets of Ps. 11,564 billion.

The following chart breaks down the Net Debt position of Central Puerto (on a stand-alone basis) and its subsidiaries:

Cash Flows of the 9M2020

Net cash provided by operating activities was Ps. 12,848 million during the 9M2020. This cash flow arises from (i) Ps. 20,519 million from the operating income obtained during the 9M2020, (ii) Ps. 9,825 million due to a decrease in the stock of trade receivables, mainly related to the FONI collections, (iii) Ps. 2,019 million in collection of interests from clients, including the ones from FONI, during the period and (iv) a Ps. 1,348 million non-cash impairment of property, plant and equipment charge included in the operating income, which was partially offset by (v) a Ps. 7,062 million non-cash foreign exchange difference on trade receivables, (vi) Ps. 3,124 million from income tax paid, and (vii) a 6,330 million reduction in trade and other payables, other non-financial liabilities and liabilities from employee benefits mainly due to (a) the payment of the self-procured fuel purchased prior to the abrogation of the Res. 70/18, as mentioned above, and (b) the cancellation of non-financial liabilities associated to the construction of the expansion projects.

Net cash used in investing activities was Ps. 12,459 million in 9M2020. This amount was mainly due to (i) Ps. 8,474 million in payments for the purchase of property, plant and equipment for the construction of the renewable and thermal projects, and (ii) Ps. 4,112 million used for the purchase of short-term financial assets, net, which was partially offset by (iii) Ps. 127 million in dividends collected from TJSM and TMB, the companies that operate the San Martín and Manuel Belgrano combined cycle plants from the FONI program.

Net cash used in financing activities was Ps. 1,938 million in the 9M2020. This amount was mainly the result of Ps. 2,183 million Bank and investment accounts overdrafts paid, net, and (ii) Ps. 2,169 million used interests and other financial costs paid, and (iii) Ps. 1,240 long-term loan principal payments, which were partially offset by (iii) Ps. 3,712 million in long-term loans received from the Green Bonds issuance described above (see A. 3Q2020 Highlights).

D. Tables

a. Consolidated Statement of Income

b. Consolidated Statement of Financial Position

c. Consolidated Statement of Cash Flow

E. Information about the Conference Call

There will be a conference call to discuss Central Puerto’s Third Quarter 2020 results on November 12, 2020 at 9:00 New York Time / 11:00 Buenos Aires Time.

The conference will hosted by Mr. Jorge Rauber, Chief Executive Officer, and Fernando Bonnet, Chief Operating Officer. To access the conference call, please dial:

United States Participants (Toll Free): 1-888-317-6003

Argentina Participants (Toll Free): 0800-555-0645

International Participants : +1-412-317-6061

Passcode: 3516405

The Company will also host a live audio webcast of the conference call on the Investor Relations section of the Company’s website at www.centralpuerto.com. Please allow extra time prior to the call to visit the website and download any streaming media software that might be required to listen to the webcast. The call will be available for replay on the Company website under the Investor Relations section.

You may find additional information on the Company at:

• http://investors.centralpuerto.com/
• www.sec.gov
• www.cnv.gob.ar

Glossary

In this release, except where otherwise indicated or where the context otherwise requires:

• “BCRA” refers to Banco Central de la República Argentina, Argentina’s Central Bank,
• “CAMMESA” refers to Compañía Administradora del Mercado Mayorista Eléctrico Sociedad Anónima;
• “COD” refers to Commercial Operation Date, the day in which a generation unit is authorized by CAMMESA (in Spanish, “Habilitación Comercial”) to sell electric energy through the grid under the applicable commercial conditions;
• “CVP” refers to Variable Cost of Production of producing energy, which may be declared by the generation companies to CAMMESA;
• “CVO effect” refers to the CVO receivables update, and interests triggered by the CVO Plant Commercial Operation Approval;
• “Ecogas” refers collectively to Distribuidora de Gas Cuyana (“DGCU”), Distribuidora de Gas del Centro (“DGCE”), and their controlling company Inversora de Gas del Centro (“IGCE”);
• “Energía Base” (legacy energy) refers to the regulatory framework established under Resolution SE No. 95/13, as amended, currently regulated by Resolution SE No. 31/20;
• “FONINVEMEM” or “FONI”, refers to the Fondo para Inversiones Necesarias que Permitan Incrementar la Oferta de Energía Eléctrica en el Mercado Eléctrico Mayorista (the Fund for Investments Required to Increase the Electric Power Supply) and Similar Programs, including Central Vuelta de Obligado (CVO) Agreement;
• “MATER”, refers to Mercado a Término de Energía Renovable or Term Market for Renewable Energy, and is the regulatory framework that allows generators to sell electric energy from renewable sources directly to large users.
• “p.p.”, refers to percentage points;
• “PPA” refers to power purchase agreements.

Disclaimer

Rounding amounts and percentages: Certain amounts and percentages included in this release have been rounded for ease of presentation. Percentage figures included in this release have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, certain percentage amounts in this release may vary from those obtained by performing the same calculations using the figures in the financial statements. In addition, certain other amounts that appear in this release may not sum due to rounding.

This release contains certain metrics, including information per share, operating information, and others, which do not have standardized meanings or standard methods of calculation and therefore such measures may not be comparable to similar measures used by other companies. Such metrics have been included herein to provide readers with additional measures to evaluate the Company’s performance; however, such measures are not reliable indicators of the future performance of the Company and future performance may not compare to the performance in previous periods.

OTHER INFORMATION

Central Puerto routinely posts important information for investors in the Investor Relations support section on its website, www.centralpuerto.com. From time to time, Central Puerto may use its website as a channel of distribution of material Company information. Accordingly, investors should monitor Central Puerto’s Investor Support website, in addition to following the Company’s press releases, SEC filings, public conference calls and webcasts. The information contained on, or that may be accessed through, the Company’s website is not incorporated by reference into, and is not a part of, this release.

CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION

This release contains certain forward-looking information and forward-looking statements as defined in applicable securities laws (collectively referred to in this Earnings Release as “forward-looking statements”) that constitute forward-looking statements. All statements other than statements of historical fact are forward-looking statements. The words ‘‘anticipate”, ‘‘believe”, ‘‘could”, ‘‘expect”, ‘‘should”, ‘‘plan”, ‘‘intend”, ‘‘will”, ‘‘estimate” and ‘‘potential”, and similar expressions, as they relate to the Company, are intended to identify forward-looking statements.

Statements regarding possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition, expected power generation and capital expenditures plan, are examples of forward-looking statements. Forward-looking statements are necessarily based upon a number of factors and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies, which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

The Company assumes no obligation to update forward-looking statements except as required under securities laws. Further information concerning risks and uncertainties associated with these forward-looking statements and the Company’s business can be found in the Company’s public disclosures filed on EDGAR (www.sec.gov).

Adjusted EBITDA

In this release, Adjusted EBITDA, a non-IFRS financial measure, is defined as net income for the year, plus finance expenses, minus finance income, minus share of the profit of associates, minus depreciation and amortization, plus income tax expense, plus depreciation and amortization, minus net results of discontinued operations.

Adjusted EBITDA is believed to provide useful supplemental information to investors about the Company and its results. Adjusted EBITDA is among the measures used by the Company’s management team to evaluate the financial and operating performance and make day-to-day financial and operating decisions. In addition, Adjusted EBITDA is frequently used by securities analysts, investors and other parties to evaluate companies in the industry. Adjusted EBITDA is believed to be helpful to investors because it provides additional information about trends in the core operating performance prior to considering the impact of capital structure, depreciation, amortization and taxation on the results.

Adjusted EBITDA should not be considered in isolation or as a substitute for other measures of financial performance reported in accordance with IFRS. Adjusted EBITDA has limitations as an analytical tool, including:

• Adjusted EBITDA does not reflect changes in, including cash requirements for, working capital needs or contractual commitments;

• Adjusted EBITDA does not reflect the finance expenses, or the cash requirements to service interest or principal payments on indebtedness, or interest income or other finance income;

• Adjusted EBITDA does not reflect income tax expense or the cash requirements to pay income taxes;

• although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will need to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for these replacements;

• although share of the profit of associates is a non-cash charge, Adjusted EBITDA does not consider the potential collection of dividends; and

• other companies may calculate Adjusted EBITDA differently, limiting its usefulness as a comparative measure.

The Company compensates for the inherent limitations associated with using Adjusted EBITDA through disclosure of these limitations, presentation of the Company’s consolidated financial statements in accordance with IFRS and reconciliation of Adjusted EBITDA to the most directly comparable IFRS measure, net income. For a reconciliation of the net income to Adjusted EBITDA, see the tables included in this release.

^[2] Includes a one-time-gain in interests on CAMMESA trade receivables and an extraordinary FX difference charge due to the high depreciation of the Argentine peso during the 3Q2019 following the presidential primary elections. See the complete explanation in the section 3Q 2020 Results Analysis – Adjusted EBITDA.

^[3] 2Q2020 figures are stated in the measuring unit current as of September 30, 2020, calculated as the results for the 9M2020 minus the 1H2020, measured in such unit.