Empresa Distribuidora y Comercializadora Norte SA (EDN) 2021 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Edenor's 2Q '21 results conference call. (Operator Instructions)

Before proceeding, let me mention that forward-looking statements are based on the belief and assumptions of Edenor's management and on information currently available to the companies. 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 I'll turn the conference over to Mr. German Ranftl, CFO of Edenor. You may begin your conference.

Thank you, Silvana. Thank you for joining us in this call. Good morning, everybody, and welcome to the Edenor's earnings webcast for the second quarter 2021. I truly hope that you and your family are safe and healthy, and we really expect the vaccination process to continue to be successful and help us to return to normal life.

First, we will focus on the main events that recently took place and then briefly review the results of the quarter. As you know, you can always call any member of our team for more details on the results of the period or any doubts you may have.

I'd like to first acknowledge the extraordinary efforts of our staff to continue providing service to our users while maintaining high-quality and security standards, given the unique circumstances we face, and we are still facing in Argentina and in particular, in our operating area with the COVID-19 second-wave outbreak.

With that said, we will focus on the relevant events taking place lately. Change of control, sales of Class A shares and change of control in relation to the contract for the sale of controlling shares of Edenor, which was announced on December 28, 2020, the operation was authorized by the ENRE on July 23, 2021. Subsequently, on June 30, 2021, the transfer of all Class A shares representing of the shares, capital and votes of the company owned by Pampa Energia S.A. was made in favor of Empresa de Energia del Cono Sur S.A., EDELCOS.

New board and main officers. Within this context, new officers were appointed, being the most prominent Mr. Neil Bleasdale as President and General Director; myself, Mr. German Ranftl as Chief Financial Officer; and Silvana Coria as Investor Relationship manager. We would like to also thank Ricardo Torres, former CEO; and Leandro Montero, former CFO, for the contribution to the company.

9.75% senior notes due 2022, waiver of the change of control clause. Clause 10.3 of the issue perspective of Class 9 notes, established that each holder of this instrument shall have the right to demand the company to repurchase all or part of them up on a change of control in the company. On July 16, 2021, the company's Board of Directors approved the launch of the consent solicitation to the holders of 2022 senior notes, and the market were duly notified of it.

The aforementioned solicitation expiring on July 30, 2021, was subject to the receipt of the respective consent by the holders of 2022 notes. The solicitation offered a cash payment equivalent to $20 per $1,000 principal amount on the notes for those who accepted the proposal. On July 30, Edenor obtained the support of the majority of 2022 notes holders and reached the waiver of the change of control clause. With this approval, all maturities and conditions of the notes remain unchanged for the original terms and conditions of issues. Edenor is grateful to those holders who supported the consent for the trust placed in the company. On July 16, 2021, such holders of senior notes who have submitted consent in a timely manner, received the consent payment.

[Go to] public offering of acquisition. In relation with the approval of sale of Class A shares on July 29, EDELCOS announced the launch of a mandatory tender offer to all holders of Class B and Class C common shares issued by the company. Including the holders of IDRs in accordance with the provision of General Resolution number 779 of 2018 of the National Security Commission.

National electricity regulatory entity on ordinary proceedings, case file #16-2020. On May 4, 2021, the company was notified of a lawsuit filed by ENRE in relationship to the compliance by Edenor of points 9.21 and 9.22 of the contract renegotiation agreement in respect of differences with cost on the date of payment of certain penalties included therein. As of the date of issues of this condensed interim financial statements, the company has answered the lawsuit and the process followed its course. The company understands that it has sufficient arguments under the framework agreement to sustain the payment made under such condition and are in accordance with the law, have the nature of our repayment and did not imply any damage to users. In this regard, the company and its legal advisers understand that they have solid and sufficient arguments to make their position prevail in court. Therefore, as of June 30, 2021, it has not recorded any liabilities for this concern.

Framework agreement. As of June 30, 2021, the company received under the agreement described in note 2.F to the financial statements as of December 31, 2020, a fair disbursement of ARS 1,500 million, which as indicated in such agreement, must be used specifically to comply with the preventive and corrective work plan of the electric distribution network. The company may be able to dispose the aforementioned funds once the ENRE certifies compliance with the progress of the execution of the works included in the aforementioned plan and the respective financial highlights.

As of the date of issue of this condensed interim financial statements, the company has drawn down a total of ARS 808.9 million corresponding to the presentation of works advance that have been carried out.

Contingency and legal proceedings. As of the date of issue of these condensed interim financial statements, there are no significant modifications regarding the situation disclosed by the company in the financial statements as of December 31, 2020, except for the following: Federal administration of public revenues, AFIP, differences in contribution rate to the unified social security system, [SUIS], decree number 814-201 for fiscal period 12/2011 to 11/2019.

On July 6, 2021, the company filed an appeal before the National Court of appeals and social security matters against resolution 1740-2021 issued by AFIP, which resolved to dismiss. The presentations filed by Edenor in relationship to the determination of the debt contribution to the Argentina integrated pension system in respect of differences detected by the use of the rate established in Section 2 subsection B201. In example, 17% corresponding to the period January 2017 to June 2019. According to the AFIP, the rate to be applied is the one mentioned in Section 2 clause A, in example, 21% of the decree, number 814.

Additionally, on April 8, 2021, the company was notified by the AFIP of a new resolution that has determined another debt for the same concept corresponding to the period July 2019 to November 2019. This new notice is added to the one received on July 12, 2018, corresponding to the period from December 2011 to December 2016. These claims are still in administrative instance.

The company's management understands that the application of the 17% rate is correct. In this regard, according to the analysis made, it is admissible to understand that partially state-owned corporations, governed by the law 19,550 shall refer to all party state-owned corporations with minority interest, whatever the reason for which such interest has been acquired. Therefore, the interest at the National Social Security administration and says, reports to onus in certain corporations, among which the company is included enters there.

On July 3, 2018, December 23, 2019, and April 21, 2021, the company has challenged the 3 resolutions in such conditions and in relationship to the aforementioned determination of the AFIP, the company and its legal advisers believe that they are solid on sufficient arguments to make their position prevail in court. Consequently, the company has not recorded any liabilities for this matter as of June 30, 2021.

Termination upon default of the real estate asset. In relationship to the real estate asset that was going to be built, which was acquired by the company in November 2015, the subsequent termination of the contract for breach of RDSA in August 2018 and the legal actions filed by the company against the seller and the insurance company. And in reference to the transaction agreement dated September 30, 2019, entered into the (inaudible) S.A.

As of the date of this condensed interim financial statements, there are no significant modification regarding the situation disclosed by the company and the financial statements as of December 31, 2020, except for the following: During the month of April and July 2021, the company received an additional payment of $200,000 corresponding to the [crate] of $1 million in virtue of the agreement with (inaudible) S.A., thus leaving a remaining balance of $430,000, which be collected in 3 quarterly installments according to the new payment schedules agreed between the company and the insurance company.

In addition, as of June 30, 2021, our recovery gains of ARS 482 million was recognized, which is disclosing other financial results as a result of acceptance of the continuous credit assignment offer made by (inaudible) SA. Please note that the ENRE has requested an administrative investigation on this matter, notified in the resolution, we've approved the sale of Pampa's controlling interest to EDELCOS.

Seasonal price update. On August 3, by means of the resolution 748-21 effective as of August 1. And based on the MEMs winter season program, the Secretary of Energy established the incorporation of the seasonal price increase for GUDI clients, large distribution users. These increases reflect changes in the season prices of energy that is passed to final tariff without affecting Edenor's income.

Now we're going to start describing second quarter results. Now moving to our results on the second quarter 2021, revenues from sales decreased by 12%, reaching ARS 23,838 million in the second quarter of 2021 due to the fact that the company's renegotiation, the tariff of the distribution value-added on the one hand and for energy seasons prices purpose in an inflationary context, which entitle a decrease in revenues in real terms. Partially offset by an increase in demand driven by a recovery in commercial and industrial activity between the comparison periods, and the tariff adjustment applied as from May 1.

Despite adjusted EBITDA has a positive increase in the second quarter of 2021, in the first semester, it decreased 41% compared to the first semester of 2020. The difference on the second quarter of 2021 can be explained by a decrease in revenues from sales, which was offset by a decrease in operating costs and improvement in energy losses and recognition income under the framework agreement for investments and an increase in the tariff since May 1, 2021.

Net results accumulated losses for ARS 10,909 million in the second quarter of 2021, increasing losses by ARS 7,076 million compared to the same period of last year. The major impact of ARS 7,473 million may be explained by the higher income tax rate recorded in the period due to the adjustment generated by the change in the tax rate. In addition, there was a lower loss in the operating income, higher financial losses, mainly due to the deferred of the payment of obligations with the wholesale electric market and higher results for exposure to change in the purchase of power.

The volume of energy sales increased by 10.1%, reaches 5,277 gigawatts in the second quarter of 2021 against 4,791 gigawatts for the same period of 2020. It is worth highlighting that the second quarter of the previous year was affected by the COVID-19 crisis. We generated strong changes in energy consumption due to the restriction imposed by the preventive and mandatory social isolation, ASPO in Spanish. And likely, the preventive and compulsory social distance, DISPO in Spanish, enforced during the same period this year, where a recovery in commercial and industrial activity was evidenced in relation to the previous years.

Electricity consumption by residential customers decreased by 0.4% whereas commercial small and medium and industrial customer increased their consumption by 24.8% and 24.4%, respectively. The residential demand decreases by 9 gigawatts mainly because people spend more time at home during the second quarter of 2020 due to the more severe restrictions and movement at the beginning of the pandemic. This effect was partially offset by an average temperature for May and June of 0.8 Celsius lower than the previous years. They are mainly due to the increase in commercial and industrial activities as a result of flexibility of restrictions and the normalization of production compared to the second quarter of 2020.

The abrupt decline in activity evidences at the beginning of the restriction imposed last year has been decreased and reversing. And a recovery in the industrial production index can be observed in the quarter compared to the first month of the ASPO. Additionally, the recovery in sales volume may be partially explained by the tariff lack.

Furthermore, Edenor customer base rose by 1.8%, mainly on account of the increase in residential customers as a result of the market discipline actions and the installation over the last year of more than 29,650 integrated energy meters that were mainly intended for the regularization of clandestine connections.

Adjusted EBITDA. Despite adjusted EBITDA has a positive increase in the second quarter of 2021, in the first semester, it decreased 41% compared to the first semester of 2020. The difference can be explained by a decrease in revenues from sales, which was offset by a decrease in operating cost, an improvement in energy losses and a recognition of income under the framework agreement for investments and an increase in the tariff since May 1, 2021. There have been no EBITDA adjustments between the comparison periods.

Capital expenditures. During the first semester of 2021, investment reaches ARS 6,170 million, representing a 4% increase in the real terms compared to the same period of the previous years. Despite the decrease in the second semester that is mainly due to the impact of extraordinary registrations of ARS 1,385 million of the 500-2020 kilowatts. And the 800 MVA transformer bank, General Rodriguez Transformer Station registered in the second quarter of the year. Without this activation, increases in events would have been higher.

Then the investment highlights for the second quarter of this year was the installation of 40 MVA out of the 80 MVA projected for the extension of Nordelta substation. The investment plan executed in the recent years continues to show results that are reflected in a continuous improvement in the quality of service by reducing the duration and frequency of outages since 2014. And thus exceeding the regulatory requirements set forth in the last comprehensive tariff review. And even exceeding this year, the quality indicators required by the regulator for the end of the tariff period in February 2022, the quality standards.

Quality standards are measured based on the duration and frequency of the services outages uses by SAIDI and SAIFI indicators. SAIDI refers to the duration of outages and measures the number of outages hours a user experience per year. SAIFI refers to the frequency of outages and measures the number of times a user experience an outage during a year. At the closing of the second quarter of 2021, SAIDI and SAIFI indicators were 11.9 hours and 4.4 outages per year over the last 12 months, showing a 10.9% and 18% improvement, respectively, compared to the same period of the previous years. In turn, these indicators are 13.1% and 27.4% lower than target values required by the [erete] for the end of the 2021. This recovery in service levels is mainly due to the investment plan devices by the company since 2014. The different improvements implemented and the operating process and the adaptation of technologies applies to the grid operations and management.

Energy losses. In the second quarter of 2021, energy losses experienced a 17.2%, decrease against an 18.7% for the same period of the previous years. Costs associated with these losses remained stable. Experiencing a 64.5% decrease in real terms. This result in a ARS 954 million improvement in real terms. The works of multidisciplinary teams to develop new solutions to the energy losses continue as well as market discipline, [DMA], action aimed to reduce them. Analytical and artificial intelligence tools were used to enhance effectiveness in the routing of inspections and DMA actions, continue with the objective of detecting and normalizing irregular connections, fraud and energy theft.

Over the last year, approximately 428,000 inspectors of tariff one meters were conducted by a 57% efficiency and more than 29,650 integrated energy meters, MIDE, were installed. Regarding the recovery of energy, besides the normalization of the customers with MIDE meters, Clandestine customers with conventional meters were also put back to normal. Moreover, a new energy balance system was implemented as well as the development of micro-balance in private neighborhoods. In all cases, a tricking rate of resilience in fraud has been observed.

This concludes my revision on Edenor, and I would like to thank you for the support shown by our investors and bondholders and your interest in participating today. We are now open for questions through our chat.

There are no questions. So thank you for joining this conference call, and please keep you and your family safe and healthy as far as you can. Have a nice day. Thank you. Bye-bye.