Empresa Distribuidora y Comercializadora Norte SA

NYSE:EDN

Earnings Call Transcript 2021-Q3

[Operator]

Buenos Aires, November 11, 2021. This is Edenor Third Quarter 2021 Conference Call. Good morning, ladies and gentlemen, and thank you for joining. At this time, we would like to welcome everyone to Edenor's three quarter 2021 earnings conference call. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the presentation. After the company’s remarks are completed, there will be a question-and-answer session through the webcast’s 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 experienced in such forward-looking statements.

Now, I'll turn the conference over to Mr. German Ranftl, CFO of Edenor.

[German Ranftl, Chief Financial Officer]

Good morning, everyone, and thank you for joining. Welcome to Edenor earnings webcast for the third quarter 2021. I truly hope that you and your family are safe and healthy. 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.

First, we will focus on the highlights. Edenor continues to guarantee the electric distribution services to all its 3.2 million customers, which represents a population of approximately 9 million people.

Edenor was able to improve its quality services as well as better management of its resources. The key indicators SAIDI and SAIFI represents the duration and frequency of energy cuts for the last 12 months, showing an improvement of 14% and 16% compared with the same period indicators as of September 2020.

Revenues from sales were 16% lower than the third quarter 2020 in real terms, mainly due to the fact that the company is still in the process of renegotiating the tariff of distribution value added. Investment reached ARS 10,347 million for the first nine months of 2021, with no material changes for the same period of the previous years.

Commercial offices were opened in September 2021, considering the regulatory request. The ENRE established the procedure through which the company must demand the debt at the time of discontinuance of services or cancellation of title.

The first disbursement for ARS 1,500 million received was disposed, an ENRE certified compliance with the progress of the execution of the works included in the framework plan under respective financial highlights.

On October 15, 2021, the ENRE instructed the company to return ARS 76.4 million in excess of the corresponding amount approved. On October 18, 2021, the company made the payment under trust receiving the right to recovery.

The gross margin corresponding to the third quarter 2021 was ARS 12,197 million, which represented a fall of 8% compared to the same period of this year -- of the previous year. Gross profit values are mainly explained by a decrease of revenues from sales of 16% reaching ARS 29,236 million in the third quarter against ARS 34,961 million in the third quarter of 2020.

At the same time, this is explained since the company is renegotiation the tariff of the distribution value added and the effect of energy seasons prices purpose in an inflationary context. Besides this last effect was partially offset by an increase in demand, driven by the recovery in commercial and industrial activity between the comparison periods and the tariff adjustments applied as from May 1.

EBITDA has a positive increase of 3% in the third quarter of 2021. However, during the first nine months of 2021, it decreases 22% compared to the same period of 2021. The difference in the third quarter 2021 can be explained by a decrease in revenues from sales, which was offset by a decrease in operating cost and improvement in energy losses, and recognized income under the framework agreement for investment and an increase in the tariffs since 1st of May 2021.

Regarding adjusted EBITDA, there have been no adjusted between the comparison periods. The volume of energy sales increases by 7% [ph] reaching 5,795 gigawatts in the third quarter 2021, against 5,434 [ph] gigawatts for the same period of 2020. It is worth highlighting that the third quarter of the previous year was affected by the COVID crisis, which generated strong changes in energy consumption due to restrictions imposed by the preventive and mandatory social isolation ASPO in Spanish. And likely, the preventive and compulsory social distance DISPO in Spanish enforced during the same period this year, where a recovery in commercial and industrial activities was evidenced in relationship to the previous years.

Increase in volume and energy sales can be explained since Edenor customers base increases by 2%, mainly on account of the increases in residential and commercial customers, because of the market discipline actions and the installation over the last year of more than 29,650 integrated energy meters that were mainly intended for the regularization of clandestine connections. Electricity consumption by residential customers increases by 2%, where small and medium commercial and industrial customers increases their consumption by 16%, 17% and 14% respectively. They are mainly due to the increase in commercial and industrial activities, because of our flexibility of restrictions and a normalization of production compared to the third quarter 2020.

The abrupt decline in activity evidences at the beginning of the restrictions imposed last year has been decreased and reversing, and a recovery in the industrial production index can be observed in the quarter compared to the first month of the ASPO. Additionally, the recovery in sales volume may be partially explained by the tariff lag.

To summarize, net results accumulated losses of ARS 618 million in the third quarter 2021 increasing losses by ARS 771 million, compared to the same period of last year. Besides was a higher operating income, higher financial losses, mainly due to deferred of the payment of obligations with the wholesale electric market and higher results for exposures to change in purchasing power RECPAM.

During the first nine months of 2021, investments reached ARS 10,347 million, representing a 3.5% decrease in real terms compared to the same period of the previous years. Despite the decrease in the first nine months of the current year, it can be mainly explained due to the impact of the extraordinary registration of ARS 1,345 million of the 500/220 kilowatts and 800 MVA transformer bank at the General Rodriguez transformer station registered in the second quarter of the last year, which is affecting our nine-month period comparison.

Then the investment highlights for the third quarter of this year was construction of 0.6 kilometers of high-voltage network that allow high voltage at the José C. Paz substation. The investment plan executed in recent years continues to show results that are reflected in the continuous improvement in the quality of services by reducing the duration and frequency of outages since 2014 and thus exceeding the regulatory requirements set forth in the last comprehensive tariff review.

And even exceeding this year the quality indicators required by the regulatory for the end of the tariff period in February 2022. Quality standards are measured based on the duration and frequency of service outages using SAIDI and SAIFI indicators. SAIDI refers to the duration of outages and measures the number of outages hours, a user experiences per year. SAIFI refers to the frequency of outages and measures the number of times a user experience and outage during the year.

At the closing of the third quarter of 2021, SAIDI and SAIFI indicators were 11.2 hours and 4.3 outages per year over the last 12 months. Evidence a 14% and a 16% improvement respectively, compared to the same period of the previous years.

In turn these indicators are 18% and 29% lower than the target values required by the RTI for the end of 2021. This recovery in services level 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 technology applied to the grid operations and management.

In the third quarter 2021, energy losses experienced 18.8% decrease, against 22.5% for the same period of the previous years. Costs associated with the losses remain stable, experiences of 53% decrease in real terms. This result is ARS 1,390 million improvement in the real terms. The works of multidisciplinary teams to develop new solutions to energy losses continues as well as the Market Discipline, DIME action aiming to reduce them.

Analytical and artificial intelligence tools were used to enhance effectiveness in the routing of inspections. And DIME actions continue with the objective of detecting and normalizing irregular connections fraud and energy theft.

In addition, over the first nine months of 2021, 301,137 inspections of Tariff one residential users were conducted with a 53% efficiency. While for the same period of the previous year, 345,364 inspections were conducted with a 57% efficiency. This means a 13% fall in inspections and a 4% fall in efficiency. Moreover, 34,958 integrated energy meters MIDE were installed. Regarding the recovery of energy, besides the normalization of customers with MIDE meters, clandestine customers with conventional meters are always put back to normal. Moreover, a new energy balance system was implemented as well as the development of micro balances in private neighborhoods. In all cases, a striking rate of recidivism in fraud has been observed.

In Edenor, we are committed with occasional employment, we strengthened our ties with the community. Regarding the scholarship and mentoring program, we are committed with technical and university programs, women with energy programs. About relationship with education institutions, we are committed with a GCOS program education workshop energy that inspires, theater play the super energy due to representation family changes. And concerning COVID-19 actions Edenor supported the scientific research and supported the hospital and health care centers. Then about Edenor voluntary, we are engaged with centralizing the action and necessary action voluntary groups and clothing work.

About sustainability, we are committed with sustainable development goals, global compact Argentine network and sustainable report. Finally, regarding electricity inclusion and smart consumption programs, we work on direct actions with neighborhood developers for example, accompanying contractors in installation and the realization and direct actions such as painting and lighting of schools. Installation of intelligence electricity meters as a tool of inclusion that allows the access to education work entertainment and financial inclusion.

This concludes my review on Edenor and I would like to thank you for the support showed by our investors and bondholders and your interest in participating today. We are opening the questions through our chat. Okay. There are no questions. So thank you for joining us this conference call and please keep your family and yourself safe and healthy. Have a good day. Thank you very much.