Earnings Call: Q3 2023

Nov 9, 2023

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, and participants will be in listen-only mode during the presentation. After the company's remarks are completed, there will be an interactive question and answer section where you may send your questions through the WebEx chat. 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 Lan, 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's 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 number 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 impacts an estimated 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. Sorry. The tariff adjustment applied in April, June of 107.8% and 73.7%, respectively, results in an increase in the VAD, distribution value added, and had a positive impact on our gross margin, but were not sufficient to cover an increase in operating costs, 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 52% increase year-over-year rising in investments for the nine-month period of 2023 to ARS 81 billion in real terms. This has allowed us to maintain our commitment to quality services and bolster critical indicators of service reliability, SAIFI and SAIDI, achieving our best historical global records of a frequency of 3.3 times 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. Likewise, 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 five 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 two external experts as consulting firms. We expect to receive pending definitions from the regulatory entity after the upcoming general elections on November 19, the ballotage. The working groups have moved forward analyzing the key assumptions that from the basis of the tariff review process, including OpEx, demand, quality standards, and assets 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 cost, which is a passthrough 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 for 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 regularize 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 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 monthly installments with an interest rate of 50% of the market rate. This schedule of payments is the first 20% of the theoretical installment. For the second 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. In the sixth year 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 the 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 Distribution Value Added rate sufficient to be able to pay the installments of both plans. 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 nine 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 nine months of 2022. Driving the improvement were the following. Positive impact by ARS 125 billion from the regulation of the amounts 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 impacts offset higher operating costs, which were affected by inflation and new energy season prices. In the third quarter of 2023, EBITDA also saw a major improvement in the total EBITDA for 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 nine months of 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 start costs. Our investment program and spending allocation is made to fulfill our commitment to meet rising demand, further improvement service quality, and reduce non-technical losses. These investments are predominantly geared towards augmenting capacity, implementing remote control infrastructure in the medium voltage network, connecting new supplies, and installing self-administered energy meters. Throughout this process, we remain steadfast in our goal to prioritize 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, beat 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 patrons, fueled by our market discipline initiatives and the installments of integrated energy meters. Gross margin and financial performance. During the first nine months, our gross margin roses 22%, both of which reflect mostly the positive tariff adjustments. Higher financial losses were predominant due to our interest expense and our remaining CAMMESA debt for the energy purchases and the financial costs related to inflation adjustments. Financial results. Financial results for the nine months were a net of ARS 171 billion, which was 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 years. In both cases, the increases were due mainly to higher interest accrued and debt incurred by CAMMESA, which was partially offset by the positive one-time effects of the agreement with CAMMESA. Net income. Edenor reported a net income of ARS 76 billion 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 third quarter of last year. The improvement reflects, first, the two tariff increases mentioned earlier, 107.8% in April and 73.7% in June. Second, higher inflation adjustments RECPAM, which more than offset the rise in operating costs due to inflation and higher energy purchases cost. Mitigating energy losses. We achieve a reduction in energy losses to 15.29% compared to 16.1% in the 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 innovative ways to combat energy losses. These efforts are completed by our market discipline, demand 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 chat. Evelyn. Okay. We have a first question that is in the chat. It's only written because there is a hand there, but you should write to us in the chat if you want to ask us something. I will read the first one. With regard to the CAMMESA agreement, should we expect any additional accounting adjustments in the following period? Gains, recognition, payables, cleaning, et cetera. No. The answer is no. We have already done all the adjustment necessary according to the CAMMESA agreement that we have signed in July of this year. The second, could you share some color in the company's position towards the RTI? Do you expect a RAB framework similar to the one established in 2016? Do you see any new RAB adjustments before year-end? Regarding the Integral Tariff Review, we are working hard internally, jointly with the regulatory entity, to be able to comply with the timetable that we have established jointly with them. We do not have yet a final decision of how they will implement the new Integral Tariff Review, but probably it is going to be something that will be done progressively. It is not going to be something that has been done in the past. The other, no, that is the one, no? Yes. We have a separate question regarding energy losses, non-technical energy losses, that we reached 15.29% this quarter. They are asking if there is a possibility to reduce that. We think that we are going to still be in the same phase as we are today. We will try to maintain and even improve that a little bit more. 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 ratios. Do you have any more questions? No. Okay. Thank you for participating in this webinar. Please follow us if you have any additional questions with our team. We hope you have a productive remaining and enjoy your day. Thank you very much.