Empresa Distribuidora y Comercializadora Norte Sociedad Anónima (EDN) Earnings Call Transcript & Summary

Good morning. On behalf of Edenor, we would like to thank everybody for participating in this conference call to discuss the results of first quarter ending March 31, 2024. We will also highlight important recent developments and advances in our efforts to strengthen our position as an energy leader. If you would like to receive our earnings release or presentation, you can now load them easily from the Investor Relations section of our website located at www.edenor.com or contact our Investor Relations team to request the document. This event is being recorded. After the company's remarks are completed, there will be a question-and-answer session, for which you may submit questions 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 operational factors could also affect the future results of Edenor that could cause results to differ materially from those expressed in such forward-looking statements. Now let me pass the call to German Ranftl, our CFO, who will guide us through the presentation.

Thank you, Solange. Good morning to everybody, and welcome to this conference. Your presence here is very important to us, and I hope to provide you with a good understanding of Edenor performance during the first quarter of 2024. The agenda is the highlights, regulatory framework. Highlights, relevant events. Before moving to the discussion of our financial performance during the first quarter 2024, I would like to take a few minutes to highlight some very relevant positive recent developments as shown on Slide #5. This has substantially improved our financial outlook and enable us to focus on further transformation of the company. The positive and relevant events took place on 4 fronts. One, the regulatory side. New tariffs became effective on February 16 and are reflected since then in our first quarter 2024 results. The improvement in tariff has restored the economic equilibrium of Edenor. For the first time in many years, the auditors' comments do not include a concern about the company's continuing to operate as a going concern. We also continue to work together with regulatory on our advisers on the 5 years full tariff review. Related to our capital structure, our debt profile and capital structure have improved notably post the exchange and issuance of $124 million in Class 3 and Class 4 announced during the first quarter. Related to the credit profile, the events just mentioned contributed to an improvement in our debt credit ratings from Standard & Poors, Fix and Moody's. Each of the rating agencies raises its argument on Edenor's debt. And finally, the shareholders meeting that has been held on April 25, 2024 shareholders approved the change in our corporate purpose, including in our bylaws that will enable us to venture into a new business linked to the energy transition. We expect all these events highlighted here will lead to a more dynamic company and with substantially more favorable financial results going forward. This will also enable us to continue our strong investment program and further improve our service level. Regulatory framework, with the recent changes in government, the activity on regulatory front has become more active. As you know, the new tariffs were approved and became effective as of February 16, 2024. We should be established the economic equilibrium of the company as reflected in the independent auditor's opinion. The government also studying ways to make changes through the subsidy program. As mentioned, we continue to work together with our advisers and the regulator to advance on a 5-year full tariff review expected as planned to be completed by year-end in 2024. Resolution, the Secretary of Energy 58/'24 and modifications instructed CAMMESA to establish the amounts owned by the distributors so as to agree how to cancel them, including a planned payment. Integral tariff review process, this is the new schedule recently approved by the regulatory entity ENRE on May 8 with the detailed steps necessary to complete as planned, the 5-year term review by the year end 2024. We are working with our external advisers and the regulator has chosen theirs in order to achieve this goal. Integrated tariff review process, the process involved as a series of objectives needed so to define the key variables that will be used by the regulator to determine the final tariff. It is important to mention that the ENRE, the regulatory entity has created a working group for smart grid and smart meters process. Amendment of the bylaws, new activities in the corporate purpose. Our move to change our corporate purposes in our bylaws is consistent with our goal to transform the company and transition from its current strong position as the leading in electricity distribution company in Argentina into a broader energy company. In our distribution business, we continue to work to develop and expand the smart grid using technologies and innovation. Now the bylaws changes will allow us the company to participate in investment in broader range of business. This includes the generation of both renewal and conventional electricity energy plus critical minerals, particularly those in great demand in the energy transition. The bylaws were also amended to incorporate digitalization and artificial intelligence where this can be applied to further our corporate purpose. These changes which are in line with the incipient regulation process in the economy in Argentina, with the national government has announced and will undertake and include in the energy sector. We expect this to be positive for the shareholders' returns. Now let's turn to Slide 11 to discuss our financial performance for the first quarter 2024. Financial results, revenues. As you can see on Slide 12, revenue rose 2% in real terms in the first quarter of 2024 to ARS 276 million versus ARS 270.8 million in the prior year. Two key factors drove the sales performance. First, sales were positively impacted by the tariff increases that is in place since February 16, 2024. And the second was the volume soften in year-to-year due to a lower temperature in the first quarter against the right the record high temperatures that we saw during the first quarter of 2023. I would highlight again that the tariff increases that were put in place are being built to clients and collected from clients since February 16. Energy sales evolution. In the first quarter of 2024, energy sales evolution declined 7.8% year-to-year to 5,981 gigas, led by an 11.1% drop in demand by residential customers, mainly because of unusually high demand during the heat wave in the first quarter of 2023. With extreme temperature growth peak consumption volumes. And our customer base rose 1% versus the prior year to 3.3 million customers. This was mainly due to an increase in residential and industrial customers because of market discipline measures, including the installation of increased number of LNG meters in the first quarter, which were mostly intended to convert plant and connections into registered customers. Distribution margin. For the first quarter, our distribution margin rose 54% year-to-year to ARS 115.7 million, mainly due to the benefit from the tariff increases implemented in mid-February and lower volumes, which more than offset the effect of net fire energy costs due to reduced subsidies. EBITDA. Looking at the EBITDA for the first quarter of 2024, EBITDA rose sharply in real terms to ARS 4.4 million versus a loss of ARS 20.1 million for the same period of last year. The main factor driving the improvements were a positive impact from the tariff adjustment as of February 16, 2024, and a further reduction in energy losses to 14.5% in the first quarter of 2024 versus 15.9% in the first quarter 2023. And it's important to highlight that in March, which was the first completed month that reflected the new tariff. EBITDA totaled around ARS 30 million. Net financial expenses. Net financial expenses of ARS 214 million in the first quarter of 2024 were higher than the same period of the previous year 58% higher versus the first quarter, mainly due to higher interest expenses related to higher financial debt was the recent issuance. Net results. On the net income line reported a net profit of ARS 50.9 million in the first quarter of 2024 versus a loss ARS 38.6 million in the same period of last year, mostly reflecting the better operating results. CapEx, for the first quarter of 2024, we invested ARS 49.1 million, which was a 27% increase versus the first quarter of 2023. Our investment program remains strong reflecting our unwavering commitment to improve service quality, which is evident in the strong improvements that have been achieved in our service indicators. Our investment program spending allocation is made to fulfill our commitment to meet rising demand, further improve service quality and reduce nontechnical losses. We continue to work to transform our network into a smart network by installing increasing number of remote control points, tele supervision points as well as smart meters. This allow us to solve problems that arise in the network remotely and quickly. We have installated 3,347 remote control points and 2,724 tele supervision points as well as 324,000 smart meters. This allows us to solve problems by isolating any part of the system experience, service program and established service without sending a team physically to the location within a few minutes. We have the ability to restore services to customers when there are interruptions in less than 3 minutes 44% of the time and in less than 50 minutes, 64% of the time. We have also transformed the way in which we relate to our clients. We modernize the service in our commercial offices while cutting edge technologies and development in edenordigital, a cutting edge service, which is already used by more than 2.4 million customers. This allows customers to resolve procedures, make payments, generate electronic bills or receive from home or from the telephone, optimizing clients' time and reducing the current footprint. We're not traveling to commercial offices or we are not printing emojis for example. Operating Indicators, energy losses. We achieved an important reduction in energy losses to 14.4% in the first quarter of 2024, down to 15.9% in the last first quarter of last year. This underscores our continuing efforts to find solutions to this difficult problem. Our multidisciplinary teams are consistently focusing on finding innovation ways to combine energy losses. These efforts are completed by our market discipline initiatives that are aimed to curbing inefficiencies and irregularities. Also analytical tools followed by artificial intelligence, have augment inspection efficiencies in our market discipline accounting continues to detect and rectify irregular connections. It is important to remember that of the 14.5% total losses, 9.7% are technical losses, which are recognized by the regulatory in our target. Quality of service, as mentioned earlier, our investment plan is continuing to contribute to improve in service quality. We reduced the duration and frequency of outages, which have been done -- sorry, which have been on a downward path since 2014. These levels are and have been comfortably exceeding the levels required by the regulatory entity. For the first quarter, the SAIDI and SAIFI service quality indicators show continued strong performance of 8.6 hours and 3.5 hours average outages per client in the quarter. At a record low level and down 74% and 63%, respectively, compared to the 2014 levels. This recovery in services is mainly due to the strong level of investment that the company has made since then. Investment has been focused on implementing improvements in operational processes and the adoption of technical applied to the operations and management of network. Financial debt. On the first quarter of 2024, Edenor completed 2 note issuance in the local Argentine market for a total amount of $124 million, which enabled us to improve our debt profile and extended the average maturity of our debt. Total capital debt outstanding after the issuance is now $207 million. Maturity schedule. On Slide 14, you can see the maturity schedule of the debt as of December 2023, and the debt after the recent transactions in which we issued $124 million in Class 3 and Class 4 notes. Rating agencies. With the improvement in our risk profile due to a large part to important changes in the regulatory front, the 3 rating agencies that cover us, Standard & Poors, Fix and Moody's, each made specific moves related to our debt. Standard & Poors and Fix raised their ratings and Moody's improved their outlook. We view these changes as a very positive signal. Closing remarks. To close, I would like to reiterate that we remain focused on future transformation now growth opportunities. The change to our corporate purpose in our bylaws will allow us to open the spectrum of growth opportunities to other segments like energy generation, critical minerals adopting our distribution business, changes of the energy transition. We are an industrial leader in Argentina with a leading 20% market share in electricity distribution. The tariff changes will lead to material improvements EBITDA and net income as well to keep making investments to further improve the quality of service, continues to transform the grid into a smart with technology and innovation. The integral tariff review program is going as expected to be completed as planned by year-end 2024. These improvements have restored the economic equilibrium of Edenor. For the first time in many years, the auditors comments you not to include a concern about the company's ability to continue to operate as a going concern. With this, now we would like to open the call to your questions. To ask questions, please send a written message to IR Edenor through the questions and answers menu. Identifying yourself and stating that you have a question. We thank you again for your support and your engagement as shareholders and bondholders.

Okay. Thank you very much. So the first question comes from Gustavo Faria from Bank of America. Will the document of the full [indiscernible] in the date set by the regulator of only the final document? Will the investor have access to the documents based on the timeline?

No. Unfortunately, only the final documents will be available and will be published for the investors and the community of investors. So we can give you some colors within the process, but we cannot release the document. And it's going to be a public hearing to discuss and approve the outcome of the negotiations.

The second question from Gustavo is, could you provide an additional color on how do you think a regulator [indiscernible] for that in the regulatory [indiscernible]. Can we expect a higher regulatory work versus 2016 time review [indiscernible]?

That's something also in the process that we are discussing and negotiation with the regulatory entity. So we cannot give you any additional information on that...

Related to the third question of Gustavo. We saw a good improvement in energy losses in the quarter versus third quarter 2023, do you have concerns on the energy losses and delinquency performance of the higher tariff for the end consumers, also evaluate the performance of energy losses and delinquency for the end consumers in April and May after the increase in tariff perception for the final consumer.

We don't foresee any big increases in the levels of delinquency. We are very well prepared in order to fight against delinquency on that respect. So we don't foresee many changes on what we have done historically.

Now we have another from [indiscernible]. After the changes in the bylaws, are we realizing any specific investor, what further measures will be taken to increase the customer base [indiscernible]?