Empresa Distribuidora y Comercializadora Norte SA (EDN) 2023 Q3 法說會逐字稿

Good day, ladies and gentlemen, thank you for joining us today for Edenor's Third Quarter 2023 Earnings Conference Call. We extend a warm welcome to each of you. This event is being recorded. (Operator Instructions)

Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Edenor's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Edenor and could cause results to differ materially from those expressed in such forward-looking statements.

Now it's my privilege to introduce Mr. German Ranftl, Edenor's CFO, who will guide us through the presentation. Thank you.

Good morning, everyone. Your presence here is important to us, and we hope to provide you with a good understanding of Edenor performance during the third quarter of 2023. After the call at any time, our team is available to address any inquiries or provide further information on this period results or other questions you may have on Edenor.

Slide #3, highlights. Edenor remains steadfast in its commitment to providing top quality electricity distribution to our large and expanding customer base of close to 3.3 million clients, which collectively impact and estimated of 11 million individuals. Our mission is to deliver a socially responsible electricity distribution service. Our vision extends beyond mere distribution. We aspire to lead the energy transition, positively impacting the quality of life business and community development for both stakeholders and bondholders. Of vital importance is our dedication to environmental, social and governance best practices to manage our operations. Among the most important of this quarter achievements, we are proud to announce several key milestones. The tariff adjustment applied in April, June of 107.8% and 73.7%, respectively, results in an increase in the back distribution value-added and had a positive impact on our gross margin, but were not sufficient to cover an increasing in operating cost, mainly due to inflation adjustments. As a result, the operating results still show negative figures before including positive impact of the agreements signed with CAMMESA for the energy purchase debt.

Edenor saw a sharp of 52% increase year-over-the-year rising in investments for the 9-month period of 2023, ARS 281 billion in real terms. This has allowed us to maintain our commitment to quality services and (inaudible) critical indicators of service reliability, SAIFI and SAIDI, achieving our best historical global records of a frequency of 3.3x per year per customer and 7.7 hours per year per customer, which represents a 12% and a 15% improvement compared to the same period of last year, respectively. Likely wise, client satisfaction has raised to record levels in the most recent survey. The indicators exceed regulatory requirements, underscoring our unwavering commitment to superior service standards.

The integral tariff review process that will impact the next 5 years period from 2024 to 2028 started in June 2023. The company has created multidisciplinary working groups to prepare the request information according to the schedule published by the regulatory entity, including the appointment of 2 external experts as consulting terms. We expect to receive pending definitions from the regulatory entity after the upcoming general elections on November 19, (inaudible).

The working groups have moved forward analyzing of the key assumptions from the basis of the tariff review process, including OpEx, demand quality standards and asset valuations. We believe that the successful completion of the integral tariff review process will enable the company to achieve a healthy financial position.

Energy season prices were also updated effectively from August 1, 2023, to October 31, 2023, with the average increases for each of the type of customers as shown in the table, these increases affected the energy purchases costs, which is a pass-through to customers, but do not increase our distribution revenues. Since November 1, the Secretary of Energy established a new energy season price. The effect is to lower energy prices on some levels of our customers. This is also a pass-through, which should not affect our distribution revenues.

CAMMESA debt. On December 29, 2022, an agreement was signed by the company with the Secretary of Energy and the regulatory entity and was notified to CAMMESA in order to raise the pending balance as of August 2022 with a payment plan, which was settled in July 2023. The origin of the debt was the partial payment of -- from March 2020 when the COVID pandemic started and the delays in the tariff adjustments. With this agreement, the company committed to pay off the debt in 96 installments -- in 96 monthly installments with an interest rate of 50% of the market rate. This schedule of payments is the first 20% of the theoretical installment rate -- sorry, installment -- theoretical installment, for the second and to the fifth year, there will be a 20% increase per year of the theoretical installment rate and the previous year's amount of installments 6 -- in the 6 years is the French amortization system.

On July 28, a new plan was agreed in order to pay pending obligations calculated by megawatts for the period from September 2022 to February 2023. The company committed to pay off the debt in 96 monthly installments, updating each installment with megawatt current value at each payment. The agreement established a suspension condition for the payment in terms of its obligation, that is the granting of -- by the regulatory entity, the sufficient value-added distribution rate, sufficient to pay and to be able to pay the installments of both plants. The total positive impact is ARS 129 billion, ARS 71 billion and ARS 78 billion, respectively, reducing the debt balance from ARS 248 billion to ARS 95 billion.

The quarter results reflect progress in improving our financial performance and increasing the level of strategic investments. For the first 9 months of 2023, EBITDA shown a sharp swing to a profit of ARS 125 billion versus a loss of ARS 16.2 billion for the first 9 months of 2022.

Driving the improvement were the following: Positive impact by the ARS 125 billion from the revaluations of the amount due of the CAMMESA debt related to past unpaid energy purchase costs, the above mentioned tariff adjustments, further reductions in energy losses, we came from 15.29% in the third quarter of 2023 versus 16.1% in the second quarter of 2022. The positive impact of offset higher operating costs, which were affected by inflation and a new energy season prices.

In the third quarter of 2023, EBITDA also saw a major improvement in total EBITDA of ARS 144.4 billion versus the last year loss of ARS 4.7 billion for the same reason as explained before.

Edenor saw a sharp 52% year-to-year rise in investments for the first 9 months of the 2023 to ARS 61 billion in real terms and in the third quarter of 2023 increased by 46%. Investment during the third quarter of 2023 are established as follows: ARS 19.2 billion in electricity-related activities, ARS 2.4 billion in systems and other initiatives and ARS 3.1 billion in project staff costs. Our investment program spending allocation is made to fulfill our commitment to meet rising demand, further improvement service quality and reduce nontechnical losses. These investments are predominantly geared towards a human capacity, implementing remote control infrastructure in the medium-voltage network, connecting new supplies and installing self-managing energy meters. Throughout this process, we remain steadfast in our goal to prioritize an environmental protection and public safety.

Revenue from sales and energy purchases. Revenue surges by 22%, reaching ARS 138.4 billion in the third quarter of 2023 in real terms. This growth is primarily due to the positive impact of the net of the new tariff and the new season energy in effect during the quarter. Energy purchases experienced a 6% uptick amounting to ARS 82.5 billion in the third quarter of 2023, reflecting higher energy prices.

Energy sales evolution, energy volumes rose 2% to 6,100 gigawatts during the third quarter of 2023, peaked by 1.1 rise in our customer base compared to the prior year. The number of customers reached almost 3.29% million customers. This increase is predominantly attributed to the rise in residential and small commercial patterns, fueled by our market discipline initiatives and the installments of integrated energy meters.

Gross margin and financial performance. During the first 9 months, our gross margin rose 22%, both of which reflect mostly the positive tariff adjustments. Higher financial losses were predominantly due to our interest expense, and our remaining covenants at debt for the energy purchases and the financial costs related to inflation adjustments.

Financial results. Financial results for the 9 months were a net of ARS 171 billion, which was up 38% versus last year. For the third quarter, financial expenses were a net expense of ARS 65.6 billion in the third quarter of 2023, which was 33% higher versus the prior year. In both cases, the increases were due mainly to higher interest accrued and debt incurred by CAMMESA, which was partially offset by the positive onetime effects of the agreement with CAMMESA.

Net income. Now reported a net income of ARS 76 billion for the first quarter of 2023 -- for the third quarter of 2023, which was a swing of ARS 19.6 billion compared to a loss of ARS 14.4 billion in the last year of the third quarter. The improvement reflects first, the 2 tariff increases mentioned earlier, 107.8% in April and 73.7% in June; and second, higher inflation adjustments RECPAM, which more than offset the rise in operating costs due to inflation and higher energy purchase costs.

Mitigating energy losses. We achieved a reduction in energy losses to 15.8%, 29% compared to 16.1% in the last third quarter of last year. This underscores our continuing efforts to find solutions to this difficult problem. Our multidisciplinary teams are consistently focusing on finding innovations -- innovative ways to combat energy losses. These efforts are completed by our market discipline initiatives aimed at covering inefficiencies and irregularities. Analytical tools powered by artificial intelligence may also help in improving this inspection efficiency and demand actions persist in detecting and rectifying irregular connections.

This is our presentations on Edenor results and progress. We thank you all for your support and your engagement as investors and bondholders. The floor is now open for written questions on our chart.

We have first question that is in the chart. It's only written because there is a hand there that you should write to us in the chat if you want to ask us something. So I will read the first one.

With regard to the CAMMESA agreement, should we expect any additional accounting adjustments in the following period (inaudible) recognition, payables, [cleaning], etc...

No. The answer is no. We have already done all the adjustments necessary according to the CAMMESA agreement that we have signed in July this year.

The second, could you share some color in the company's position towards RTI? Do you expect a rough framework similar to the one established in 2016 in the meantime? Do you see any new adjustments before year-end?

Regarding the integral tariff review, we are working hardly internally jointly with the regulatory entity to be able to comply with the timetable that we have established joining with them. And we don't have yet a final decision of how they will implement the new Integrated Tariffs Review, but probably it's going to be something that will be done progressively. It's not going to be something that has been done in the past. And the other -- no, that's the one?

Yes. We have a separate question regarding energy losses. It's nontechnical energy losses that will reach 15.29% this quarter. They are asking if there is a possibility to reduce that?

We think that we're going to still be the same pace as we are today, we will start to maintain and even improve that a little bit more. But you have to consider that the technical losses of a company like a distribution company like Edenor is close to 10%, 11%, which is the real technical loss that we will have in our system. So there is some room still to improve, but not too much room to improve in that ratio.

We don't have any more questions.

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