Empresa Distribuidora y Comercializadora Norte Sociedad Anonima (EDN) Management on Q2 2022 Results - Earnings Call Transcript

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Empresa Distribuidora y Comercializadora Norte Sociedad Anonima (NYSE:EDN) Q2 2022 Results Conference Call August 8, 2022 2:00 PM ET

Company Participants

German Ranftl - Chief Financial Officer

Operator

Good afternoon, ladies and gentlemen, and thank you for joining. At this time, we would like to welcome everyone to Edenor's 2Q 2022 Earnings Conference Call. We would like to inform you that this event is being recorded. [Operator Instructions] 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'll turn the conference over to Mr. German Ranftl, CFO of Edenor. Thank you.

German Ranftl

Good morning, everyone, and thank you for joining. Welcome to Edenor earnings webcast for the second quarter 2022. As you know, you can always call any member of our team for more details on the results of the period or any jobs you may have.

First, we will focus on the highlights. Edenor continues to guarantee the electricity distribution services to all its 3.2 million customers, which represents 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 developments as well as to the -- to our employees, bondholders and shareholders. We are committed to our community, which is why we have adopted the best environmental, social and government practices.

Edenor was able to maintain its quality services for all its clients. The key indicators, SAIDI and SAIFI, represents the duration and frequency of energy cuts for the last 3 months shown an improved of 16% and 8% compared to the same period of the last year. Revenues from sales were 6% lower than second quarter of 2022 in real terms, mainly due to the inflation differences and the tariff that has been frozen. Edenor was able to refinance its financial debt and the new issue of $52 million has been rated as a social bond according to Fitch Argentina.

As of June 1, 2022, it applies the updated of the seasonal prices of energy and instructed Edenor to carry out the corresponding adjustment of the tariff table. The rates had an average increases, which represents to a tariff rate stable of 14% in residential category and 15% in general category. This has not been any adjustment for the value-added distribution service.

As of June 2022, a subsidy segmentation regime for residential users of electricity and gas public services with the aim of achieving reasonable energy values that can be applied with criteria of justice and distributive equity. The segmentation system is made up of the following levels: Level 1, higher income; Level 2, lower income; and Level 3, average income. Users that integrated Levels 2 and 3 will not have new increases in build for the year 2022. While those included in the Level 1 segmented will pay the full cost gradually and it's by monthly third. So at the end of the current year, are paying the full cost of an energy bill to them.

Ratings. In May 2022, credit rating agencies, Standard & Poor's and Moody's updated Edenor's ratings. Standard & Poor's Global confirmed the institutional rating of the company as well as the rating of the global program of the corporate bond for up to $750 million and a Class 9 senior notes rated CCC+ changing the credit watch from special review with positive implications to special review with development implications. Moody's local Argentine lowered the classification of Class 9 senior notes to BB+, Argentine rating, maintaining the downward review.

First quarter results. The gross margin accumulated as of 30th of June 2022 was of ARS 24,212 million, which represented a fall of 16% compared to the same period of the previous years, mainly due to the tariff freeze. The under established new tariff scheme, which are effective as of March 1, setting a VAT increase of 8%. EBITDA decreases to a loss of ARS 5,503 million, mainly due to the increase in operating costs, an increase in unrecognized losses and seasonal prices that were not proportionally to the increases in the VAT.

The value of energy sales increases by 8.3%, reaching 5,919 gigas in the second quarter of 2022 against 500, 463 gigas gigawatts for the same period of 2021. Furthermore, Edenor customer space rose by 2.1% compared to the same period of the previous years, reaching more than 3.2 million of customers, mainly on account of the increase in residential customers and small commercials as a result of the market disciplined actions and the installation over the last year of more than 6,416 integrated energy meters that were mainly intended for the regularization of clandestine connections.

Financial results were a loss of ARS 25,637 million during the first 6 months, which represents an increase of 64%. This difference is mainly due to the higher interest accrued and the debt incurred by -- with CAMMESA. As of June 30, the overdue principal balance accumulated is ARS 38,937 million plus interest and penalties. Net results recorded a loss of ARS 6,549 million, a 63% lower losses recorded in the second quarter of 2021. There was a higher loss in the operating income and a higher financial charge due to the deferral of the payment of obligations with the wholesale electricity market, offset by a higher positive result for exposures to change in the purchasing power.

Capital expenditures. During the first 6 months of the 2022, Edenor's capital expenditures totalized ARS 8,655 million against ARS 10,131 million in the same period in 2021, with a decrease in 15% in real terms, but still maintaining its quality services for all its clients. Investments for the periods were as follows: ARS 674 million in new connections, ARS 1,638 million in grid enhancement, ARS 1,329 million in maintenance, ARS 52 million in legal requirements, ARS 217 million in communication and telecontrol and ARS 582 million in other investment projects.

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

At the closing of the second quarter of 2022, SAIDI and SAIFI indicators for the last 3 months were 10 hours and 4 outages on average per client per year, evidencing a 16% and an 8% improvement, respectively, compared to the same periods of the previous year. This recovery in service levels is mainly due to the investment plan devices by the company since 2014. The different improvements implemented in the operating process and the adoption of technologies applies to the grid operations and management. This number of SAIDI and SAIFI indicators are the lowest that the company has had in all its history.

Energy losses. In second quarter of 2022, energy losses experienced a 17.6% decrease and against 18.3% for the same period of the previous years. The work of multidisciplinary teams to develop new solutions to energy losses continued as well as a 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 tap.

In addition, during the 3 months period, April, June -- to June 2022, 82,058 inspections of tariff 1 residential and general users were conducted with a 60.6% efficiency. While for the same period of the previous years, 148,178 inspections have been conducted with a 52.2% efficiency. Moreover, 6,416 integrated energy meters were installed during this first 6 months of 2022.

Regarding the recovery of energy, besides the normalization of customers with mini 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 balances in private neighborhoods. In other cases, a rate of recidivism and fraud has been observed.

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

Question-and-Answer Session

German Ranftl

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