Jorge Rauber - CEO Fernando Bonnet - CFO.

Frank McGann - Bank of America Merrill Lynch.

Good morning and welcome to the Central Puerto Conference Call following the results for the announcement of the Third Quarter Ended September 30, 2018. [Operator Instructions]. Please note this event is being recorded.

If you do not have a copy of the press release please refer to the investor support section on the company's corporate website at www.centralpuerto.com. A replay of today's call may be accessed by accessing the webcast in the investor support section of the Central Puerto corporate website.

Before we proceed please note that certain statements made by the company during this conference call are forward looking statements and we refer you to the forward looking statements sections of our earnings release and recent filings with the SEC.

Central Puerto assumes no obligation to update forward looking statements except under required under securities laws. In addition all financial figures were prepared in accordance with the IFRS and are stated in the Argentinean pesos unless otherwise noted.

On the call today from Central Puerto is the Jorge Rauber, Chief Executive Officer and Fernando Bonnet, Chief Financial Officer. And now I will turn the call over to Jorge Rauber. Mr. Rauber you may begin..

Okay. Thank you and welcome everyone. We are joining you this morning with our management team from one of Buenos Aires, Argentina to report on our third quarter 2018 results and to answer any questions that you may have.

Regarding our operating figures during the quarter we have reached 4.4 terawatt hours of energy generation, an increase of 12% as compared with the third quarter of 2017.

This increase was well above 3% increase of energy generation of the total market and was mainly driven by 53% increase in hydrogen generation which recovered after 2016-2017 drought and start of operation of the wind farms [indiscernible] on August and September respectively.

Regarding the viability of our thermal units it also improved reaching 94% in the period, 2 percentage points higher than our availability in the third quarter of 2017 and 15 percentage points higher than the average availability of the market during the third quarter of 2018 according to data from [indiscernible].

During this quarter we continue with the construction of our new projects. Regarding the thermal one as you may recall that in 2017 some thermal was awarded with two new co-generation projects to [indiscernible] San Lorenzo that will have more ton forehanded and 20 megawatts to our install capacity.

During the third quarter we continue with the purchase of the main components needed for these projects and the civil works for construction of the two generation units and their equipment and their administrative offices. I am pleased to confirm that both projects are on time and within batches.

As for our renewable projects I would like to give you a brief overview of the operational progress in there.

As we mentioned before going during the quarter we ended the construction of La Castellana I and Achiras I wind farms and we signed the agreement for the purchase of the wind turbines for the project [indiscernible] which will provide energy through the rest of our program to La Castellana II and Achiras II which will provide energy to private offtaker through the markets for renewable energy.

In the period our of support of solar projects are located in the Province of Catamarca which will have 12 megawatt of additional capacity to sell energy into term market. Including the last project we are pleased to announce that we have already signed contracts for 40% of our availability in install capacity to sell energy into term market.

We were pleased with El Puesto's performance and set us ahead and has reaffirmed our position as market leader in terms of capacity generation. We will continue showing the ability to consistently increase our install capacity satisfying the growing demand and quickly adapt to the new rules of the changing environment.

Regarding the last issue November 7th the Secretary of Energy issued the Resolution 17 2018 according to which authorized generators to procure the on fuel for key assessment assets. If the company take this option the fuel cost will be valued and paid to the generators in accordance with the cost of production declared to CAMMESSA.

According to CAMMESSA procedures the machines with lower variable cost are [indiscernible] and consequently have better load factors. Additionally these generations have the opportunity to make profit if the fuel purchase at a price which is lower than the price paid by CAMMESSA.

The agency in-charge of this CAMMESSA will continue to supply for those generation companies that do not take this option.

According to these resolution we have recently made the viable cost of production declaration to CAMMESSA [indiscernible] common cycle and we are currently operating this unit as well as the current generation unit with natural gas purchased by the company. Our objective is to expand this operation to the rest of our units in the coming weeks.

In our view this is a positive move in order to increase competition in the energy generation market. And now I will turn the call over to Fernando Bonnet who will comment on the financial highlights of the quarter. .

Thank you, Jorge. The results achieved during the quarter were very good even when considering the current context mainly due to the benefits of the dollar denominated tariff adopted in the sector last year.

Revenues from continuing operation increased 128% to ARS3.5 billion in the third quarter of 2018 mainly driven by a 12% increase in energy generated from continuing operations to total 4.4 terawatt's hour as Jorge mentioned before. As tariff established in 2017 which set higher prices for energy generation and availability.

The third quarter was fully impacted by the November 2017 tariff increase and finally 85% increase in the [indiscernible] is generated during the third quarter as compared in the same period of 2017.

Our gross profit margin increased 8 points to 66% explained by less than proportional increase in our cost of sale of 83% mainly driven by the increase in the dollar denominated cost of natural gas and natural gas transportation fees among others.

Our adjusted EBITDA was around ARS8.8 billion mainly driven by ARS6.3 billion in interest and foreign exchange difference associated with the similar programs, trade receivables which are denominated in U.S. dollars.

Without taking into account these effect our adjusted EBITDA during the third quarter of 2018 was ARS2.5 billion an increase of 168% as compared to a ARS940 million obtained in the third quarter of 2017.

This increase was mainly driven by the increasing gross profit dimension an increase in other operating results of ARS170 million in the third quarter 2018 mainly driven by higher interest and foreign exchange difference other than the fundamental receivables and similar programs.

This was partially offset by 79 increase in the administrative and selling expenses mainly due to higher labor cost as a result of an increase of number of employees mainly related to the develop of the new thermal and renewable project and as a salary adjust agreement in the collective bargain during this period.

Finally an increase in tax and bank account transaction due to increasing revenues and cost of capital invested and completed during the period. In order to cover more precise estimation of our operational cash flow generated during the period is important to consider the FONI collections.

During the third quarter we collected ARS143 million from FONI collections associated [indiscernible] plants. As for the trade receivables associated with the CVO agreement certain documentation has substantially being finalized by CAMMESA and is ready to be signed by the authorities.

As for our financial position we maintain a solid cash balance with the September 30 totaled approximately ARS1.4 billion for Central Puerto in the legal entity and ARS1.7 billion on a consolidated basis.

On the left side of September 30, financial debt was almost none exist for Central Puerto in the legal entity and was approximately ARS6.7 billion pesos which include $152 million associated with the IFC and IIC facilities for the construction of the wind farm at TS1 and La Castellana I.

Finally during that period we invested ARS1.1 billion for the development of the [indiscernible] project and Terminal 6 and Lorenzo project and ARS2.8 billion for the renewal projects.

Continuing with our expansion our estimated CapEx for our renewal and thermal project are $86 million for the last quarter 2018 to $160 million for 2019 and $10 million for 2020.

These expansion will allow us to add 660 megawatts to our portfolio, an increase of more than 70% of our capacity reaching 4.5 gigawatts of total install capacity by the third quarter of 2020. Well thank you and now we invite you to ask any questions to our team..

[Operator Instructions]. Today's first question will be from Frank McGann with Bank of America Merrill Lynch. Please go ahead..

I was just wondering there's been a lot it's changed over I guess over the last couple of months in terms of perspective for regulatory changes and I was wondering perhaps you could give kind of a broad overview of what you're hearing, what you're thinking and specifically related to the change that you mentioned about being able to purchase your own gas and then opt potentially into the system what your thoughts are on that and what the effects potentially could be or how that could change the competitive dynamics in the sector?.

There is a fierce move that the government has made with a change of regulation they mentioned, its just a first step towards a more broad regulation that has to be in place somehow perhaps in the first quarter next year something like this.

What we have today is the ability to buy fuel which was part of the regulation we expected to be in place by the end of the year so indeed what they promised to do.

What we see today is just part of that in the sense that we are able to buy our own fuel but the whole regulation has not changed yet, what we have today is that we are ready to buy our own fuels and make some margin compare with the prices that CAMMESA is buying fuel basically.

CAMMESA has made a kind of beating process in September this year where they got some prices in terms of natural gas and whenever you are able to get better prices and the prices that CAMMESA was able to get you make some margin and you somehow guarantee your dispatch.

So we don't see these as a huge change, we see these as opportunity to make some profit to ensure our dispatch of our units but it's just a small change in fact what we need the last week was to ensure the dispatch of one of our plants and make how $0.5 million in terms of profit or expected profit basically but this is not the whole regulatory change.

We have some meetings with the government what they are working on is a change of regulation in the sense that they plan to reduce somehow the payments in terms of capacity prices and to increase the margin that the most efficient units of the system can make through the operations.

So its basically giving back I mean the efficiency and market condition to the operation of the generator. So we don't know exactly when they're going to change the regulation they expect that to finish by the first quarter next year and then we will have a better perspective of how the new relation looks like.

Part of that regulation would be to have again a term market for generation not just for the renewable that is what we have today is for the whole market and if that is put in place for sure the regulatory framework will change completely.

I mean perhaps the most important thing would be to have a term market again because that way that insures that oil prices will be we have a competitive factor, the price will be reduced and we will have the opportunity to buy not just fuel but also to change completely the structure of the system buying new units to the supply the demand and all of those measures that are needed by the market..

Okay, and if they do that how do you see Puerto position to compete in that kind of a market?.

Generally speaking Central Puerto has an efficiency which is higher than the average of the markets, so if you think of a regulation which basically keep the total payments to the market and is just a shift between inefficient generators to more efficient generator for sure Puerto will see these as a very good opportunity because we have units that are more efficient than the average of the market but we really don't have the details of that regulation.

Perhaps the most important thing here is the transition, I mean how to change from the system that we have today where we have probably an excess of installed capacity, a lot of renewable I mean entering the market one after the other, a lot of cogeneration projects and an excess of capacity which is what I mentioned.

So perhaps the transition will be the most difficult thing to do and we don't have the details. In the long term for sure that will be good for us..

[Operator Instructions]. Today's next question will be from [indiscernible]. Please go ahead..

I've three questions, one follow up regarding potential changes on regulatory framework for energy. You mentioned one alternative would be change the fixed payment and increase the viable payment. I would like to check the heat rate of combined cycle plans for Central Puerto.

The second question was regarding to the acquisition of the solar project, you can disclose the amount of the transaction and some [indiscernible] that you are expected for the project and the last question is regarding the CapEx. Just to double check the CapEx for 2020 I'm not sure if I listened well 10 million and 264, in 2019. Thank you..

The first question was regarding the heat rate of the common cycle of Central Puerto in turbines?.

Yes..

Okay well the heat rate for our common cycles is around 1068 kilo calories per kilowatt hour considering I mean an hour of operation that means because it's not a fix number in the sense that whenever you are operating at a lower load factor you tend to have a higher heat rate so you consume more fuel than normal and when you are operating a full capacity your heat rate is lower but as an average a 1068 kilo calories per kilowatt hour.

As for our steam turbines we have a different efficiency for the different units, the most efficient one are around 2200 and the most inefficient is the number five here in Central Puerto which is around 2400.

So when you think of a competitive market for sure the common cycle is very well positioned and all steam turbines are probably out of this batch. If you compare with cogeneration plans those plans are clearly the most efficient one. The heat rate is 1500 kilo calories per kilowatt hour. So those units will be dispatched all the time at full capacity. .

Regarding your question about the CapEx, the CapEx for the -- I think you asked for the CapEx of 2020 or 2019?.

2020. I'm not sure if you mentioned $10 million or--.

No for the 2020 its $10 million it is a remaining CapEx for the last project enter into 2020 which is the Terminal 6 on co-generation [ph]..

Okay, perfect.

And regarding the appreciation of the solar project how much are you expecting to invest?.

Well this is a small project 10 megawatts only, so we expect to invest around $15 million..

[Operator Instructions]. With no other questions we will conclude today's question and answer session. I would like to turn the conference back over to Mr. Rauber for any closing remarks..

Well thank you to everyone for your interest in Central Puerto and your continued support to our company. We encourage you to call us at any time for any information you may need. Thank you and have a good afternoon..

The conference is now concluded. We want to thank everyone for attending today's presentation and at this time you may now disconnect..