Empresa Distribuidora y Comercializadora Norte SA (EDN) 2021 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for joining. At this time, we would like to welcome everyone to Edenor's Fourth Quarter '21 Earnings Conference Call. We would like to inform you that this event is being recorded. (Operator Instructions)

Before proceeding, let me mention that forward-looking statements are based on the belief and assumptions of Edenor's management and 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. Thank you.

Good morning, everyone, and thank you for joining. Welcome to Edenor earnings webcast for the fourth quarter 2021. I truly hope that you and your family are safe and healthy. As you know, you can always call any member of our team for more details on the results of the period and any doubts you may have.

First, we will focus on highlights. Edenor continues to guarantee the electricity distribution services to all its 3.2 million customers, representing a population of approximately 11 million people. Our mission is to provide a social responsibility electricity services, leading the energy transition to contribute to improve people's quality of life, business and community development as well as our employees and shareholders.

We are committed to our community, which is why we have adopted the best environmental, social and governance practice. Edenor was able to improve its quality service as well as a better management of its resources. The key indicators, SAIDI and SAIFI, represents the duration and frequency of energy cuts for the last 12 months, showing an improvement of 13% and 11% compared to the same indicators as of December 2020. Revenues from sales were 11% lower than the fourth quarter 2020 in real terms, mainly due to the fact that the company is still renegotiating the tariff of Distribution Value Added.

Investment reaches ARS 16,246 million in the 12 months of the year with no material changes for the same period of the previous year, 3%.

Regulatory framework. Public Hearing Resolution No. 25 / 2022. The ENRE arranged to convene a public hearing for February 17, 2020 (sic) [February 17, 2022], in order to inform and hear opinions regarding the following: a treatment of the determination of the seasonal references prices of power, stabilized energy in the wholesale and electric market, MEM, as well as established prices of transportation PET and for the wholesale electricity market of Tierra del Fuego System; and second, the proposal of the concessionaires of the public services of transport and distribution of electrical energy aimed at obtaining a transitory adjustment of tariffs.

In addition, the ENRE requested the company to submit an update of the financial projections and investment plan for the year 2022, already sent in January 19, 2021 for the years 2021 and 2022, respectively. In relationship to the investment, the ENRE requested a detailed presentation of the works investment plan consisting with the new projections of -- financial projections of the company.

Decree 88/2022, complementary provision for the general budget of the National Administration 2022, February 22, 2022. The National Executive Authority extended until December 31, 2022, the implementation of the special regime for the regularization of obligations for debt held with CAMMESA by the electrical power distribution and the special credit regime established by the Secretary of Energy with the framework of Article 87 of the Law No. 27,591 and Resolution 40-21 and 370-21 (sic) [371-21].

Approval of tariff tables of Resolution of ENRE 67 -- 76, sorry, 2022 in February 25, 2022. The ENRE approved new values of Edenor tariff tables effectively as of March 1, 2022, in which increases of 8% in VAD was established -- in the value-added service was established. It also incorporates an increase in the reference prices of power and the stabilized prices of energy of 34% for the residential categories and 50% for the nonresidential categories as well as an increase in 20% in the stabilized prices of transportation.

Thus, the average tariff for the residential category varies by 19% with respect to the previous tariff category and the general category by 22%.

Approval of tariff table resolution of ENRE 41 / 2022, March 2, 2022. Effectively, as of February 1, 2022, the ENRE approved the new values of Edenor tariff chart. With such approval, only the energy prices for Tariff 3 customers and contracted power of 300 kilowatts changes for the -- which the average energy prices went from ARS 6,813 per megawatt to ARS 8,080 per megawatt, which implies an increase of 19%.

Third quarter results. The gross margin corresponding to the fourth quarter '21 was ARS 1,065 million, which represents a fall of 13% compared to the same period of the previous years. Gross profit value are mainly explained by the decrease of revenues from sales of 11%, reaching ARS 24,480 million in the fourth quarter of 2021, against ARS 27,557 million in the fourth quarter of 2020.

At the same time, this is explained since the company is renegotiation the tariff of Distribution Value Added and the effect of energy seasonal prices purposes in an inflationary context. Beside this, last effect was partially offset by an increase in demand driven by a recovery in commercial and industrial activities between the comparison periods, and the tariff adjustments applies as from May 1.

EBITDA had a 94% increase in the fourth quarter of 2021. And during the 12 months of the year, it increases 126% compared to the same period of the previous year. However, adjusted EBITDA accumulated a drop of 20% in the annual terms compared to 2020. This is due to the fact that during 2020, a strong depreciation of assets was recognized, which had a direct impact on the financial statements and the decrease in sales revenues. Besides, it was offset by a decrease in operating costs, an improvement in energy losses and recognized income under the framework agreement for investments and an increase in the tariff since May 1, 2022 -- 2021, sorry.

The volume of energy sales increases by 10%, reaching to 5,241 gigawatts in the fourth quarter of 2021 against 4,752 gigawatts in the same period. As regards the annual accumulated, it also mean an increase of 8%, reaching 21,710 gigawatts.

Furthermore, Edenor customer base rose by 2% compared to the same period of the previous years, reaching more than 3.2 million customers, mainly on accounts of the increases in residential customers and small commercials as a result of the market discipline action and the installation over the last year of more than 40,862 (sic) [41,862] integrated energy meters that were mainly intended for the regularization of clandestine connections.

Financial results experienced a 71% increases in losses, reaching ARS 8,292 million in the fourth quarter of 2021 against a loss of ARS 4,850 million in the same quarter of 2020. This difference is mainly due to the higher interest accrued on the debt incurred by CAMMESA, which to date accumulated interest for ARS 23,879 million. These results were partially offset by the lower losses from exchange differences in the amount of ARS 659 million (sic) [ARS 629 million] due to the lower devaluation of the peso in the quarter and the lower debt in foreign currency, and changes in the fair value of financial assets in the amount of ARS 181 million.

To summarize, net results accumulated losses for ARS 6,650 million in the fourth quarter of 2021, decreasing losses by ARS 16,980 million compared to the same period of the last year. This can be explained why the impact of the impairment of the property, plant and equipment in 2020 and was offset by the decrease in income from the sales of services and the increase in financial expenses.

In addition, there was a lower loss in the operating income, higher financial charges due to the deferral of the payments of obligations with the wholesale electricity market price and higher results from exposures to changes in purchasing power.

Let's go into capital expenditures. During 2021, investments reached ARS 16,247 million, representing a 3% decrease in real terms compared to the same period of the previous year. Despite the annual decrease, it can be mainly explained due to the impact of extraordinary registration of ARS 1,395 million (sic) [ARS 1,385 million] of the 500 and 220 kilowatts and 800 megawatt transformer bank at General Rodriguez transformation station registered in the second quarter of the last year, which has affected our comparison of 12 months.

Among the most outstanding investments of the fourth quarter, we can highlight the following: start of operations of the new ARA San Juan 160 megawatts substation; construction of 6.6 kilometers of high-voltage network of Puerto Nuevo Electroduct – Austria; construction of 1.4 kilometers of high-voltage network as part of a high-voltage connection in Puesto de Interconexion Martínez Electroduct – Edison Substation; construction of 2 kilometers of high-voltage network as part of the high-voltage connection of the ARA San Juan substation.

The investment plan executed in recent years continues to show results that are reflected in a continuous improvement in the quality of services by reducing the duration and frequency of the outages since 2014, and thus exceeding the good regulatory requirements set forth in the last comprehensive tariff review, and even exceeding this year the quality indicators required by the regulators for the end of the tariff period in February 2022.

Services quality standards. Quality standards as measured based on the duration and frequency of the outages using SAIDI and SAIFI indicators. SAIDI refers to the duration of outages and measures the number of outage hours and users experience per year. And SAIFI refers to the frequency of outages and measures the number of times a user experience an outages during a year.

At the closing of the fourth quarter of 2021, SAIDI and SAIFI indicators were 10.7 hours and 4.1 outages per year over the last 12 months, evidencing a 13% and 11% improvement, respectively, compared to the same period of the previous year.

In turn, these indicators are 22% and 31% lower than the target value required by the RTI for the end of 2021. This recovery in services levels is mainly due to the investment plan devised by the company since 2014, the different improvements implemented in the operating processes and the adoption of technology applied to the grid in terms of operations and management.

Energy losses. In the fourth quarter of 2021, energy losses experienced a decrease of 17% against 18% of the same period of the previous years. Costs associated with these losses remain stable, experiencing a 45% decrease in real terms. This results in ARS 681 million of improvements in the real terms.

The works of multidisciplinary teams to develop new solutions to energy losses continues as well as market discipline actions aiming to reduce them. Analytical and artificial intelligence tools were used to enhance effectiveness in the routing of inspections, and DIME actions continues with the objective of detecting and normalizing irregular connections, fraud and energy theft.

In addition, during 2021, 413,000 inspections of Tariff 1 residential users were conducted with a 52% efficiency, while for the same period of the previous years, 446,000 inspections were conducted with 57% efficiency. This means a 7% fall in inspections and a 5% fall in efficiency. Moreover, 41,862 integrated energy meters, MIDE, were installed during 2021 and 13,303 of which were installed during the last quarter.

Regarding the recovery of energy, besides the normalization of customers with MIDE meters, clandestine customers and conventional meters were also put back to normal. Moreover, a new energy balance system was implemented as well as the development of micro-balances in private neighborhoods. In all cases, a striking rate of recidivisms in fraud has been observed.

Finally, regarding the outstanding debt, its highly unlevered company with a debt outstanding of $98.1 million in corporate bonds and which maturity is October 2022.

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

(Operator Instructions)

The question is, do you expect any other increases in VAD for the remaining of the year? The answer is yes. We are in the process of negotiating that with the regulatory entity, and we are working very close to them to find a solution for that and able to have another increase in our VAD.

So if there are no further questions, I would like to thank you for joining this conference call, and please keep you and your family safe and healthy, and have a nice day. Thank you very much, everybody.