Earnings Call: Q1 2023

May 11, 2023

Good morning, ladies and gentlemen, and thank you for joining. At this time, we would like to welcome everyone to Edenor's first quarter 2023 earnings conference call. We would like to inform you that this event is being recorded, and all participants will be in listen-only mode during the presentation. After the company's remarks are completed, there will be a question and answer section through the webcast 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, I turn the conference over to Mr. Germán Ranftl, CFO of Edenor. Thank you. Good morning, everyone, and thank you for joining. Welcome to Edenor's earnings webcast for the first quarter 2023. 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. Edenor continues to guarantee the electric distribution services to all its 3.2 million customers, which represent a population of approximately 11 million people. Our mission is to provide a socially responsible electricity distribution service, leading the energy transition that contributes to improve people's quality of life, business and community development, as well that of our employees, bondholders, and shareholders. We are committed to our community, which is why we have adopted the best environmental, social, and governance practices. First of all, we will focus on the highlights. Edenor has exceeded the investment levels of the previous quarter by 82%. As a result, the company was able to maintain its quality of services for all its clients, which shows our record results in our customer perception of services quality. This was part of our summer plan implemented for our network in service, reaching our best historical records in our key indicators, SAIDI and SAIFI, representing the duration and frequency of energy cuts. At the closing of the first quarter shown an improvement of 19% and 13% compared to the same period of the last year, and extreme below the requirements applied by the regulatory entity. ENRE authorized an increase in VAD in two tranches, being 108% as of April 1st. This has been implemented already and Edenor is collecting these revenues. An additional 74% from June 1, 2023, Resolution 241-23. Start of the RTI process. ENRE Resolution Number 363 of 2023 approved to start the process as of January 1. The ENRE will prepare the guidelines on the development schedule that will govern the process. It will convene public hearings to evaluate distribution and transporters proposals and to listen to the interest sector's opinions. It will carry out the technical economical assessment necessary to specify for the five-year period 2024-2028, the service quality parameters, the adjustments of current procedures and regulations, and the investments to be done by the concession companies. Winter season energy resolutions. Resolution Number 323 of 2023 approved the winter season's schedule for the MEM submitted by CAMMESA for the first period between May 1, 2023, and October 3, 2023. Regarding our corporate debt, additional senior notes Class 2 were issued on March 7 for $30 million hard dollars maturing in November 2024. We would like to thank you, our bondholders and investors, for the trust in our company, considering that the company received orders for more than $50 million for the last issuance. Regarding rating, there is a summary of our rating agencies. In March 2023, Fitch maintained the long-term issue rating and that of the existing bond A minus, improving the negative outlook to stable. Given the downgrade of Argentina's country rating, S&P Global Ratings downgraded Argentina long-term foreign currency rating from CC plus to CC minus. At the same time, the rating in the national scale was lowered by BB minus to CCC with a negative trend. In May 2023, Moody's Local Argentina confirmed the BBB. Our Argentine rating changes the negative outlook to stable. The gross margin corresponding to the first quarter of 2023 was ARS 19,319 million, which represents a fall of 24% compared to the same period of the year. This is mainly due to a tariff delay in an inflationary context, partially offset by the volumes levels of the energy, which were increased due to record temperatures registered in the first quarter of this year, especially during March. on February 28, 2023, as mentioned, the ENRE approved the new tariff scheme being 108% as of April 1, and an additional 74% for June 1 of 2023. EBITDA shown a decrease of ARS 7,890 million, reaching a negative result of ARS 5,175 million in the first quarter of 2023. This fall is mainly explained by the tariff freeze offset by an improvement in energy losses and a higher operating cost. The new tariff approved on February 28 applied only in April and June of 2023. Energy sales evolution. The volume of energy sales increased by 16%, reaching 6,480 gigawatt hours in the first quarter of 2023, against 5,470 gigawatt hours for the same period of 2022, due to the record of temperatures. Furthermore, Edenor customer space rose by 1% compared to the same period of the previous year, reaching more than 3.2 million customers, mainly on account of the increase in residential customers and small commercials as a result of the market discipline actions and the installation over the last year of more than 565 integrated energy meters that were mainly intended for the regularization of clandestine connections. Financial results were a loss of ARS 34,826 million for the first quarter of 2023, increasing its losses by 73%. This difference is mainly due to the higher interest accrued on the debt incurred with CAMMESA, which as a result of March 31, 2023, accumulated an overdue principal balance of ARS 70,533 million, plus interest and surcharges in the amount of ARS 111,597 million. It is important to highlight that CAMMESA invoices due on March and April 2023 were paid in full, so not generating new debt with CAMMESA. As explained before, an agreement with CAMMESA was signed on December 2023, and the remaining balance of ARS 38,650 million will be canceled in 96 installments with 6 months of grace period and at an interest rate of 50% of the market interest rate. Net income decreases by 51%, reaching losses for ARS 9,961 million in the first quarter of 2023, against ARS 5,757 million for the same period in 2022. There was a higher loss in the operating income, higher financial charges due to deferral of the payment of obligations with the wholesale electricity market and a higher positive result for exposures to change in purchasing power, RECPAM. Capital expenditures. During the first 3 months of 2023, Edenor capital expenditure totalizes to ARS 9,986 million against ARS 5,448 million in 2022, an increase of 92% in real terms compared to the same period of the previous years. The higher investments were in the line of our summer plan to improve our services and network reliability. Investments in the first quarter of 2023 were as follows: ARS 7,956 million in electricity-related activities, ARS 682 million in systems and others, and ARS 1,346 million in project staff cost. In order to meet demand, improve services quality, and reduce non-technical losses, most of the investments were assigned to the increase in capacity installations of remote control equipment and medium voltage network, connections of new suppliers, and installations of self-managing energy meters. All investments are made prioritizing the protect the environmental and safety of our public roads. Energy losses. In the first quarter of 2023, energy losses experienced a 16% decrease against 13.8% for the same period of the previous years. The works of multidisciplinary teams to develop new solutions to energy losses continues, as well as a market discipline, DIME, actions aiming to reduce them. Analytical and artificial intelligence tools were used to enhance effectiveness in the routing of inspections, and DIME actions continued with the objective of detecting and normalizing irregular connections, fraud, and energy theft. In addition, during the first period, January to March 2023, 79,433 inspections of Tariff 1 were conducted with a 50% efficiency, while the same period of the previous years, 757 and 80,330 inspections have been conducted with 54% efficiency. More than 565 integrated energy meters were installed during 2023. Regarding recovery of energy, besides the normalization of customers with energy meters, clandestine customers with conventional meters were also put back to normal. Moreover, a new energy balance system was implemented, as well as a development of micro balances in private neighborhoods. In all cases, a rate of recidivists in fraud has been observed. To conclude, let me summarize the principal events occurred since the change of control. On June 30, 2023, Edelcos acquired the control of Edenor. In July 2021, consent for the changes of control acceleration clause was reached successfully. Between April and October 2021, the bond of $98 million was exchanged and canceled, issuing a new bond of $55 million due in May 2025 and listed in BYMA and as a social bond. On September 2022, a new issue of Class B notes for $30 million issued in 1975 Argentine law is due in November 2024. As a result of the debt has been clarified all the maturities horizon for the coming years. By the year-end, we reached our best historical records in services quality regarding frequency and duration of power outages, as well as customer satisfaction index. We also signed the agreement to cancel and compensate credits with CAMMESA, according to the law approved by the Congress, with a remaining debt to be paid in installments, as explained below. Recently, the new tariff approval will help to reach a path of normalization of the sector. Finally, last March 7, the company issued an additional $30 million bond outstanding, receiving orders for more than $50 million. All of the above show our management KPIs reaching as well as a look to give again trust to our investors and bondholders. This conclude my review on Edenor, and I would like to thank you for your support shows 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 have a nice day. Thank you, everybody for hearing our conference.