Edenor Q1 FY2021 Earnings Call

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Edenor's First Quarter 2021 Results Conference call. We would like to inform you that this event is being recorded. 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. At that time, further instructions will be given. 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.

Thank you very much. Good afternoon – good morning, everyone, and welcome to Edenor's Earnings Conference Call for the First Quarter 2021. I truly hope that you and your family are safe and healthy, and we really expect the vaccination process to continue to be successful and help us return to normal life. As we usually do first, we will focus on the main events that recently took place and then briefly review the results of the quarter. As you know, you can always call a member of our team for more details on the results of the period or any doubts you might have. I'd like to first acknowledge the extraordinary efforts our staff has made to continue giving service to users while managing high-quality and security standards, given the unique circumstances we face, and we are still facing in Argentina and in particular in our operating area with the COVID-19 second wave outbreak. With that said, we will focus on the relevant events that took place lately. First, on March 31, pursuant to ENRE Resolution number 78, the regulator issued the new tariff schemes effective from April 1, based on the wholesale electric market's winter seasonal programming. The new tariff scheme reflects the incorporation of the last increase of 5% with the exception of residential users in August 2019, as provided by Resolution number 14 of that year of the Secretary of Renewable Resources and Electricity Market, which have not been passed to tariffs and was being burdened by Edenor. In turn, the seasonal price increase for large distribution users is also incorporated, making them equal to the rest of the large wholesale electric market users. These increases reflect changes in the seasonal price of energy that are transferred to the final tariff without affecting Edenor's income from the value-added by distribution or VAD. Regarding VAD, on March 30, Edenor filed its presentation in the public hearing, addressing the distribution's transitory tariff update. Later on April 13, and pursuant to resolution number 107, the regulatory entity established a new tariff scheme including a 9% tariff update applicable to users for regions as of May 1 this year. This partial update involves a 20.9% VAD increase for Edenor generating higher estimated revenues in the amount of ARS 5 billion for the May to December period. In other matters, on April 30, 2021, and pursuant to resolution number 371, the Secretary of Energy moved forward with the regulation of Section 87 of the 2021 budget. This resolution provides for the application of the Special Liabilities Regularization Regime approved in resolution number 40 earlier this year, which set a limited number of credits to be applied to compensate CAMMESA bill according to the following criteria.

Thank you. The floor is now open for questions. Our first question comes from Ezequiel Fernandez with Balanz. Please go ahead.

Hi. Good morning, everybody. Ezequiel Fernandez from Balanz. Thank you for the materials and congratulations on the work on lowering losses and the quality of service. I have two questions. The first one is related to the seasonal price. I know that it does not impact your operational results directly, but it's helpful for us to know about the update in April for the GUDIs. What was the percentage increase for the overall average seasonal price? And my second question is related to the regularization of the payables with CAMMESA. Right now, Edenor has approximately $400 million in pending payables including different components too. Where do you think you should go, maybe till year-end? And at what pace, if it's possible, to comment a little bit on that? Thank you.

Hi, Ezequiel. Thank you very much for your words about the quality of service and energy losses. We are trying to control. First, regarding the seasonal price in the case of Edenor, the seasonal price had an impact of almost 11% average on the whole purchase of energy of Edenor to CAMMESA. But this increase, as you mentioned before, will include two components. The first one is for all the demand for consumptions higher than 300 kilowatts, they are impacted by 5%. This increase is the remaining increase or an increase that has been included in the CAMMESA bill since August 2019, but it has not been passed through to the tariff. So it was being burdened by Edenor. The other components of the seasonal price increase are for Goodies, as you mentioned before. For Goodies, it's almost a 100% increase in the cost of energy included in their tariff. Can you repeat the second question, sorry? About initial debt.

Yeah. On the amount – yeah, the amount of account payables in the Edenor balance sheet at the end of March is around $450 million. That includes different components. And considering that you will have to start normalizing your payables with CAMMESA, we were wondering from these levels to where you could go by year-end, if it's possible for you to give us any indication at this moment?

Well, it's not so simple. First of all, I can say that during the first quarter this year, we paid CAMMESA on average 83% of the bill. So we just increased our debt with CAMMESA for around ARS 2.4 billion, which is this remaining 17% average. Now to make an estimation on how much we will have at the year-end, we should expect or we should wait to see what other measures the government will take. By the moment, they approved an increase for the VAD of about 21%, which means that for the period May to December this year, we will collect approximately ARS 5 billion or more. This increase, of course, doesn't cover the full cost of the company. Just to have an idea, according to the internal tariff review, we should have received an increase of almost 137% applicable from May 1. But instead, we received an increase of 21%. So we are still waiting for another 122% increase in VAD. We know that this will not happen during this year or at least not for the full amount. So we are discussing with the government what the following steps will be. Maybe we are trying to get to an agreement in order to complete the remaining amount of money we need to operate and to complete the CapEx plan. So it depends on this agreement we are trying to reach with the government. It depends on another agreement we are trying to reach with the government according to shantytown consumption that could mean ARS 1.5 billion in addition to our revenue, or at least to cover the cost of energy we delivered in the shantytowns that for 2021 is not being paid still by the government. In addition to that, we should reach an agreement regarding the debt or with the amount owed to CAMMESA because of the past. So we have these three different agreements we are discussing with the government, but we have no clue on timing or even the amount that this agreement could involve.

That’s right. I would just like to go back to my first question regarding the Goodies. If we go to page 7 of your presentation where you have the energy sales breakdown for the first quarter of 2021. On that pie chart in the bottom left, you have 17% marked in purple as industrial clients. Are those the Goodies or do the Goodies make up for more or less than that?

They are the Goodies.

Yeah, those are the Goodies? Okay, perfect. That’s it. That’s all from my side. Thank you very much.

You're welcome.

This concludes our question-and-answer session. At this time, I would like to turn the floor back to Mr. Montero for any closing remarks.

We have some questions from the web that we would like to address. We will read one or two questions we received, which are about the same topic. Could you provide us with an update on the change in control of the company? Is there a realistic timeline for when the regulator could approve the transaction? Okay. Well, regarding the sale of the controlling stake of the company as you mentioned is under the approval of the regulator. They have 90 days since the last information is provided to the regulator and they can ask any information they want during the period they want. But all the information asked by the regulation till now has been answered on time. So according to that information, maybe they have more than 60 days from now to approve the sale of the controlling interest in Edenor. But we have no idea or no timeline at least from the regulator in order to know when the sale could be approved. It could be this week or it could be in two months or three months.

So we have no more questions.

At least from the web page.

We have no more questions from the phone side as well. This concludes our question-and-answer session. At this time, I would like to turn the floor back to Mr. Montero for any closing remarks.

Okay. Thank you very much, and thank you all for joining this conference call. Please keep safe you and your family and healthy as far as you can. Have a good day. Bye-bye.

Thank you. This concludes today's presentation. You may now disconnect your lines at this time and have a nice day.