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 ended March 31, 2025. We will also highlight important recent developments and advances in our effort to strengthen our position as an energy leader. If you would like to receive our earnings release or presentation, you can download them easily from the Investor Relations section of our website located at www.edenor.com. or contact our Investor Relations team to request the documents. 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 the 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 let me pass the call to German Ranftl, our CFO, who will guide us through the presentation.

Thank you, Solange. Good morning, and welcome to everyone. Your presence here is very important to us, and we hope to provide you with a good understanding of Edenor's performance during the first quarter of 2025. Before moving on the discussions on the details of our financial performance, I would like to show you during the first quarter of 2025, all the updates on the news. I would like to take a few minutes to highlight some of the very relevant and positive recent developments shown in Slide 5. First of all, the quarter of 2025 that resulted arose sharply and reflects an impact of a transitory transition increase and operational and financial improvements. The EBITDA for the first quarter of 2025 was ARS 63.2 billion compared to ARS 6.9 billion of last year, which reflects a sharp improvement in our operating results as a consequence of the tariff increases, starting with the 319% adjustment of February of 2024 and follow adjustments of average monthly of 4% since August of last year. The 5-year tariff review process that has defined the tariff for the next 5 years, 2025 to 2030 is already completed and is notified as of April 30 of this year. Our capital structure has improved with the cancellation of principal and interest and Class 4 notes on March 7 of ARS 24.4 billion. And additionally, we are today, canceling the remaining principal outstanding of Class 1 notes plus accrued interest for $9 million. Our improved earnings cash flow have allowed us to continue making the necessary investments to maintain and improve the quality of our service, utilizing technology and innovation and promoting responsible and efficiency energy users. This is reflected in the continued improvements in our SAIDI and SAIFI indicators, which have been reflecting in our customer satisfaction. Regulatory framework. The regulatory environment has been very active. As I already highlighted, the transition tariff increases with the 319% increase in February of 2024 and the average monthly increases of 4% since August of 2024 have driven a sharp rise in operating results within the first quarter of 2025, as I said, EBITDA has rose to ARS 63.2 billion from ARS 6.9 billion in the first quarter of 2024, nearly ARS 10x compared the previous year. Resolution 304 of 2025 was notified on April 30. We've contained the outline of the 5-year tariff review decisions for 2025 to 2030, which granted Edenor a tariff increases of 14.34%. To limit the inflation effects on the broader economy in Argentina, which is in line with the government's stated policy, the increase will be applied gradually, 3% granted as of May 1, 2025, which will follow by a monthly adjustment of 0.42% starting in June 2025 until November 1, 2027. This will be in addition to the continued monthly adjustments for inflation, which are scheduled to continue with the inflation index polynomial formula weighted 33% of the customer price index and 67% on the wholesale price index. The efficiency incentive E factor was also approved. In addition, the company's concession agreement was updated, effective May 1, 2025. This includes new approved tax related to the electricity rate system, the electricity rate setting procedures, quality regulations and penalties and supplies regulations. The approved VAD was ARS 619,397 million as of December 2023 currency, which adjusted to May 2025 currency is ARS 1.2 billion. The company is analyzing the details and impact of the increases, which as you understand, is highly complex. For our part, we remain optimistic about the outlook of the company. Completing the full tariff review is a major milestone that should help further reduce regulatory uncertainty and provide more confidence to our investors. The transitional tariff increase that we have received since February of 2024 have been a key driver to improve earnings and cash flow, which have allowed us to pay 100% of the current monthly invoices from energy purchase from CAMMESA since April of 2024 and honor our 2 financial plans with CAMMESA which are made of our 96% installment payments plan. Over the last months, there have been some new developments relating to include CAMMESA pending balances in payment plans. In March and April, the government issued a decree 186-2025 and directively first 2025 that had several provisions. First, the regularization of the debt, not included in payment plans existing prior to November 30, 2024, the principal amount is ARS 128 billion. The term is 72 monthly installments, the grace period is 12 months. The interest rate is 50% of the MEM interest rate. And the second realization program is the conversion to pesos of the current payment in megawatts, Article 89 of the law. The book value is ARS 122 billion, and it is very important because as the government is taking up subsidies, with this, we're going to be able to adjust the plans with an interest rate and not with the -- taking out subsidies from the government that will increase more than the interest payments. Conversion of the outstanding balance the date of signing of the agreement. Megawatts with prices of the payment as of October 2024. And same condition as the subscribed plans, maintaining the number of remaining installments. There is no grace period and the interest rate is 50% of the MEM with semiannual review. All these agreements are not yet formalized. We are discussing and consolidating with the CAMMESA all the numbers in order to be able to sign these agreements in the coming weeks. The regulatory asset claim is still pending, and the company is working hard to discuss that with the Secretary of Energy. Financial results. Revenues rose 48% in real terms in the first quarter of 2025 to ARS 638 billion versus ARS 430 million for the prior year. This was mainly due to the impact of the February 2024 tariff adjustment and the subsequent monthly adjustments since August of 2024 that averaged 4%. The tariff adjustments implemented offset the effective or the slightly lower of sales that were only 0.6% year-to-year. Energy sales evolution. As mentioned in the first quarter, the energy sales volume declined 0.6% year-to-year to 5,946 gigawatts, led by the effect of the economy and demand on the commercial and industrial segments. Edenor customer base in the first quarter of 2025 reached 3.34 million people, 1% higher versus the first quarter of 2024. This rise was mainly due to an increase in residential and medium-sized commercial clients. The rise was helped by the market discipline measures, including the installation of 4,683 (sic) [4,783] energy meters, in the first quarter of 2025, which are designed to convert informal and unreportable connections into fully transparent connections in the electricity distribution system. Distribution margin. The first quarter of 2025, our distribution margin rose to ARS 258.4 billion, mainly due to the increase in the tariff implemented February of 2024 plus the periodic adjustment since August, partially offset by higher energy costs due to the reduction in subsidies and lower sales volume. EBITDA for the first quarter of 2025. EBITDA reflects a significant improvement in real terms to ARS 63.2 billion from ARS 68.6 billion in the same period of last year. The main factors driven the first quarter EBITDA were a positive impact to earnings from the adjustment on February of 2024 and the 4% monthly tariff adjustments implemented since August of 2024, which were partially offset by the increase in energy purchase costs due to the reduction of subsidies, which established a limit of 204 kilowatts (sic) [250 kilowatts] per month for N4, our middle-income clients and 350 kilowatts per month for N2, our low-income clients. Net financial expenses. Net financial expenses are ARS 68.3 billion in the first quarter of 2025 were lower than the same period of the previous year, 80% lower. The main reason of this reduction is the impact of interest being paid to CAMMESA and penalties and fines. On the net income line, Edenor posted a profit of ARS 35.9 billion compared to the profit of ARS 113 billion in the first quarter of 2024. The difference is mainly due to a much lower accounting gain related to inflation due to the sharp drop year-to-year in inflation trends of the country. Not including these adjustments, result shows a significant improvements due to improving operating results and the lower financial expenses. CapEx. For the first quarter of 2025, we invested ARS 79.4 billion, which was up 4% versus the first quarter of 2024. Our investment spending reflects our firm commitment to improve service, which is reflected in the significant improvement in our operating indicators. We have been able to go through the summer without really big incidents. We continue to work to transform our network into a smart network by installing increasing number of remote control points, tele-supervision points and wealth of smart meters. This allow us to solve problems in our high and medium tension networks remotely and quickly. We do by isolating any part of the system experienced a problem and establishing the services without sending people to the ground. Operating indicators. Now let's look at a few of the operating indicators. Our energy losses for the last 12 months were 15.5% as for the first quarter, in line with the 15.2% in the fourth quarter of 2024. Reducing energy losses is a top priority and our multidisciplinary teams are working constantly to find innovation ways to combat energy losses. These efforts are completed by our market discipline initiatives that are aimed at covering inefficiencies and irregularities. Also analytical tools powered by artificial intelligence have improved inspection efficiencies, and our market discipline actions continue to detect and rectify irregularity connections. It is important to remember that the 15.5% total losses, a full 9.61% are losses recognized by the regulator in our tariffs. Quality of service. As mentioned earlier, our investment plan has continued to contribute improvements in service quality by reducing the duration and frequency of outages, which have been a downward path since 2017. These levels are and have been comfortably extended the levels required by the regulatory entity. For the first quarter, the SAIDI and SAIFI services quality show a continued strong performance, 7.9 hours and 3.2 average outages per client in the quarter at record levels and down 61% (sic) [71%] and 65%, respectively, compared to 2017 levels. This recovery in services is mainly due to the strong level of investments that the company has been made since then. Investments have been focused on implementing improvement in operational processes and adopting the technology applied to the operations and management of the network. Financial debt. On the first quarter of 2025, Edenor's capital structure was further improved by the cancellation of March 7 ARS 24 billion in the principal and interest Class 4 notes and the cancellation of the remaining $9 million in the principal and accrued interest of Class 1 notes. The total capital debt outstanding after such payment is now $308 million (sic) [$388 million]. Maturity schedule. On Slide 22, you can see the maturity schedule of the debt as of March 2025. Our maturities are well spaced over the coming years, with only $18 million scheduled for the remaining of 2025 post the recent cancellation of $9 million in principal of the Class 1 just mentioned. Closing remarks. To close, I would like to reiterate several key points. First quarter results were strong and reflect the benefits of the sustainable positive adjustments that we have received since 2024 and another monthly adjustments that we have received since 2025. The 5-year tariff review process has been completed. We are an industrial leader in Argentina with leading 20% of market share in the electricity distribution. We are remaining focused on the future transformation, growth opportunities as we take advantage of opportunities to benefit from the energy and transition in our distribution business and potential growth opportunities in the other segments of non-regulatory business such as energy generation, storage and critical minerals. Edenorte, a subsidiary that was created to perform such activities. So far, there are no projects that we can share with you, but we are analyzing many of them and we'll come back to you in the future. With this, I now would like to open the call for questions. To ask questions, please send 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 a shareholder and bondholder.

Thank you very much. Now so we will start with a Q&A session and first question from Gustavo Faria from Bank of America. How are the results of the tariff review versus the company's previous request? Do you plan to change the CapEx plan after the result of the tariff review versus the ARS 200 million per year? Do we have access to the RAB and regulated OpEx assumptions? Let me pass the call to Silvana Coria who will answer the question.

Good morning. Thank you very much for joining -- our assumptions, considering the guidelines that the regulator has requested on February 2027 -- sorry, February 27 of 2025. We have the target because -- sorry, I apologize. I just started to being... Hello. Thank you very much, Gustavo for you question. I'm going to summarize the process just to everybody has the same information. By the end of January 2025, we have submitted the final report according to the guidelines of the regulator. By the end of February, we have the public hearing and now on April 30, we were notified of the final resolution of the regulator. However, the information containing the RAB, the OpEx and all the calculations were not included in the resolution that was public. So the information that Gustavo is requesting is not public. We have requested to have access to the file. The access to the file was at the end of last week. So at this moment, we are analyzing all the information. The idea is that we will probably have to submit a claim because the numbers are different from us. I can remind you which were the numbers that we requested. The VAD ,so the requested remuneration for us was ARS 893,000 million as of December 2023. The RAB, the final -- the new replacement value calculated according to the guidelines were ARS 7,310,000 million. And the technical depreciated value is [ ARS 3,304 million. ] The OpEx was ARS 362,000 million. It's important to highlight that we are analyzing everything, and we will probably call you, we can organize another call where we can discuss all the information once this is analyzed.

So now let's go to the second question also from Gustavo. How are the discussions with the government to renegotiate part of the debt with CAMMESA? What is the total amount of the debt on balance? Do you have any of balance debt with CAMMESA? Is there any possibility about a reversal of part of the debt?

As we explained in the call, this regularization has not been signed yet, but we are working in order to sign this as soon as we can in the next week. The plan that is in megawatts that will be converted into pesos. The book value as of the 31 of March of 2025 is ARS 122,000 million. This is the book value that will be converted into megawatts as of the price of applicable of October 2024. And we will continue with the same amount of installments that we have now. And considering the rest of the debt, the principal is ARS 128,000 million or ARS 128 billion, that is the principal, then you have to add the interest that is something we are consolidating with CAMMESA, and that will be included in a payment plan of 72 installments with 12 months grace period. The rest of the debt you see in our financial statements is current debt, which corresponds to the monthly invoices of CAMMESA. There was one part of the question, Gustavo that I didn't answer, which is related to how much it will be our CapEx plan. It's important to remember that in the past, we are investing about $221 million in average per month in the last 3 years. Yes. And that in our presentation in the public hearing, it was ARS 1 million for the next 5 years as of December 2023. The final answer will be done after we finalize all the analysis we are doing considering that we have access to the information in the last few days.

So next question came from Daniel Guardiola from BTG Pactual. What he says, considering the new tariff framework, can you provide an indication of what is the expected annual EBITDA and free cash flow generation? What are you planning to do with the free cash flow?

At this point, we prefer not to do any assumption of how much it will be our EBITDA. As we said, we are analyzing all the effects of the new tariff review. And of course, you know we cannot make forward-looking statements.

The second question came from [ John Morro ] who says, do you anticipate being able to recover the commercial liability via specific charge?

We are analyzing what we call the regulatory asset base. We are analyzing that with the government. It's a possibility, of course, it's something it happened in the past, in March '19 we have some compensations of the amount we owe to CAMMESA at that time, but there is nothing we can share now.

Second question is from Daniel again -- Guardiola. Have you considered to distribute dividends?

We -- once we have all the plan, the EBITDA and the cash flow, we can start thinking about a policy in order to distribute dividends once everything is in the process to do that. We cannot say what we are going to do next year because it will be done if we -- done since 2026, not this year. [indiscernible] Shareholder, but it have to be done after this year.

Then there is a question from Gustavo Faria again, what she says about local news mentioned about the potential interest of Edenor acquired the government's stake in [ Transnet ]. Can you share more details about the potential interest?

I don't make any comments on this. Sorry.

What about the mining initiatives. Edenor has a target to reachieve new business?

As we said previously in some of the previous calls, we have created Edenorte in order to acquire renewable energy or generator -- conventional generation, storage or critical minerals. It's one of the Edenorte's new business. We are analyzing different projects. We cannot share more information at this point.

There's another question from Daniel, but I believe Silvana already answered about that related on CapEx because he said, can you provide details on a year-on-year basis on your CapEx for the next 5 years?

As we said, the information that is public that is available is what we requested in the public hearing, which is ARS 1 million as of December 2023 and all the detail is in the presentation we made to the regulator at that time.

Well, the following question is when analyzed -- from Daniel again -- when analyzing new projects, what is the minimum rate threshold you're required to move forward?

That is something we don't have defined yet. We are analyzing different projects and we cannot share anything at this point. Sorry.

And at this point, we don't have more -- any further questions. So with this, we finalize the call, and please be able to contact the IR team if you have further questions in the future, of course, we are always open to answer any questions. So have a very nice day. Thank you.

Thank you very much. Goodbye.