Edenor Q4 FY2021 Earnings Call

Good morning, ladies and gentlemen, and thank you for joining. At this time, we would like to welcome everyone to Edenor fourth quarter 2021 earnings conference call. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the presentation. 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 belief and assumptions of Edenor's management and information currently available to the companies. They involve risk, 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.

Good morning, everyone. And thank you for joining. Welcome to Edenor earnings webcast for the fourth 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 and any doubts you may have. First, we will focus on highlights. Edenor continues to guarantee the electricity distribution services to all its 3.2 million customers, representing a population of approximately 11 million people. Our mission is to provide socially responsible electricity services, leading the energy transition to contribute to improving people's quality of life, business and community development as well as our employees and shareholders. We are committed to our community, which is why we have adopted the best environmental, social and governance practices. Edenor was able to improve its quality of service as well as a better management of its resources. The key indicators, SAIDI and SAIFI, represent the duration and frequency of energy cuts for the last 12 months, showing an improvement of 13% and 11% compared to the same indicators as of December 2020. Revenues from sales were 11% lower than the fourth quarter 2020 in real terms, mainly due to the fact that the company is still in negotiations over the tariff of distribution value added. Investment reached ARS 16,246 million in the 12 months of the year, with no material changes for the same period of the previous year, at 3%. Regarding the regulatory framework, Public Hearing Resolution No. 25/2022, the ENRE arranged to convene a public hearing for February 17, 2020 in order to inform and hear opinions regarding the following: The treatment of the termination of the seasonal reference prices of power, stabilizing energy in the wholesale electric market, as well as establishing prices for transportation and the wholesale electricity market of Tierra del Fuego System. Additionally, the proposal of the concessionaires of the public services of transport and distribution of electrical energy aimed at obtaining a transitory adjustment of tariffs. In relation to the investment, the ENRE requested the company to submit an update of the financial projections and investment plan for the year 2022 already sent on January 19, 2021 for the years 2021 and 2022, respectively. The ENRE asked for a detailed presentation of the works and investment plan consistent with the new financial projections of the company. Regarding Decree 88/2022, complementary provisions for the general budget of the National Administration 2022, it was extended until December 31, 2022, the implementation of the Special Regime for the Regularization of Obligations for debts held with CAMMESA by the electric power distribution and of the Special Credit Regime established by the Secretariat of Energy within the framework of Article 87 of Law No. 27,591 and Resolutions No. 40/21 and 370/21. Approval of tariff table of resolution of ENRE 76/2022 on February 25, 2022. The ENRE approved new values of Edenor's tariff table, effectively from March 1, 2022, in which increases of 8% in VAD was established in the value-added service. It also incorporates an increase in the reference prices of power and the stabilized price of energy of 34% for residential categories and 50% for non-residential categories, along with an increase in the stabilized price of transportation by 20%. Thus, the average tariff for the residential category varies by 19% with respect to the previous tariff category and the general category by 22%. Approval of Tariff Table resolution of ENRE 41/2022 on March 02, 2022. Effectively, as of February 1, 2022, the ENRE approved the new values of Edenor tariff chart. With such approval, only the energy prices for tariff 3 customers with contracted power over 300kW changed, for which the average energy prices increased from ARS 6,813 per megawatt to ARS 8,080 per megawatt, which implies an increase of 19%. The gross margin corresponding to the fourth quarter 2021 was ARS 1,065 million, which represents a fall of 13% compared to the same period of the previous year. Gross profit values are mainly explained by the decrease of revenues from sales of 11%, reaching ARS 24,480 million in the fourth quarter of 2021 against ARS 27,557 million in the fourth quarter of 2020. This is due to the company renegotiating the tariff of distribution value added and the effect of energy seasonal prices in an inflationary context. This loss effect was partially offset by an increase in demand, driven by a recovery in commercial and industrial activities between the comparison periods. The tariff adjustments apply from May 1. EBITDA saw a 94% increase in the fourth quarter of 2021, and during the twelve months of the year, it increased 126% compared to the same period of the previous year. However, adjusted EBITDA accumulates a drop of 20% in annual terms compared to 2020. This is due to the fact that during 2020, a strong depreciation of assets was recognized, which had a direct impact on the financial statements and a decrease in sales revenues. This was offset by a decrease in operating costs, an improvement in energy losses, recognized income under the framework agreement for investments and an increase in the tariff since May 1, 2021. The volume of energy sales increased by 10%, reaching 5,241 GWh in the fourth quarter of 2021 against 4,752 GWh in the same period. In regard to the annual accumulated, it also meant an increase of 8%, reaching 21,710 GWh. Furthermore, Edenor's customer base rose by 2% compared to the same period of the previous year, reaching more than 3.2 million customers, mainly due to the increase in residential customers and small commercials as a result of market discipline actions and the installation over the last year of more than 40,862 integrated energy meters that were mainly intended for the regularization of clandestine connections. Financial results experienced a 71% increase in losses, reaching ARS 8,292 million in the fourth quarter of 2021 against a loss of ARS 4,850 million in the same quarter of 2020. This difference is mainly due to higher interest accrued on the debt incurred by CAMMESA, which to date accumulates interest for ARS 23,879 million. These results were partially offset by the lower losses from exchange differences in the amount of ARS 629 million due to a lower devaluation of the peso in the quarter and the lower debt in foreign currency and changes in the fair value of financial assets in the amount of ARS 181 million. To summarize, net results accumulated losses for ARS 6,650 million in the fourth quarter of 2021, decreasing losses by ARS 16,980 million compared to the same period of the last year. This can be explained by the impact of the impairment of property, plant and equipment in 2020 and was offset by a decrease in income from the sales of services and an increase in financial expenses. Additionally, there was a lower loss in the operating income and higher financial charges due to the deferral of the payments of obligations with the wholesale electricity market price and a higher result for exposure to changes in purchasing power. Let's go into capital expenditures. During 2021, investments reached ARS 16,247 million, representing a 3% decrease in real terms compared to the same period of the previous year. Despite the annual decrease, it can be mainly explained due to the impact of the extraordinary registration of ARS 1,395 million of the 500/220 kW and 800 MVA transformer bank at the General Rodriguez transformer station registered in the second quarter of last year, which has affected our annual comparison of 12 months. Among the most outstanding investments of the fourth quarter, we can highlight the following: Start of operations of the new ARA San Juan 160 MVA substation; construction of a 6.6 km high voltage network of Puerto Nuevo Electroduct – Austria; construction of 1.4 km of high voltage network as part of the high voltage connection of Puesto de Interconexion Martínez Electroduct – Edison Substation; construction of a 2 km high voltage network as part of the high voltage connection of the ARA San Juan substation. The investment plan executed in recent years continues to show results that are reflected in a continuous improvement in the quality of services, by reducing the duration and frequency of the outages since 2014, and thus exceeding the regulatory requirements set forth in the last comprehensive tariff review, even exceeding this year the quality indicators required by the regulator for the end of the tariff period in February 2022. Services quality standards. Quality standards are measured based on the duration and frequency of outages using SAIDI and SAIFI indicators. SAIDI refers to the duration of outages and measures the number of outage hours a user experiences per year. SAIFI refers to the frequency of outages and measures the number of times a user experiences an outage during a year. At the closing of the fourth quarter of 2021, SAIDI and SAIFI indicators were 10.7 hours and 4.1 outages per year over the last 12 months, evidencing a 13% and 11% improvement, respectively, compared to the same period of the previous year. In turn, these indicators are 22% and 31% lower than the target value required by the RTI for the end of 2021. This recovery in service levels is mainly due to the investment plan devised by the company since 2014, the different improvements implemented in the operating processes, and the adoption of technology applied to the grid in terms of operation and management. In the fourth quarter of 2021, energy losses experienced a decrease of 17% against 18% of the same period of the previous years. Costs associated with these losses remained stable, experiencing a 45% decrease in real terms. This results in ARS 681 million improvements in real terms. The works of multidisciplinary teams to develop new solutions to energy losses continue, as well as market discipline actions aiming to reduce them. Analytical and artificial intelligence tools were used to enhance effectiveness in routing inspections, and DIME actions continued with the objective of detecting and normalizing irregular connections, fraud and energy theft. Additionally, during 2021, 413,000 inspections of Tariff 1 residential users were conducted with a 52% efficiency, while for the same period of the previous year 446,000 inspections were conducted with 57% efficiency. This means a 7% fall in inspections and a 5% fall in efficiency. Moreover, 41,862 Integrated Energy Meters were installed during 2021, 13,303 of which were installed during the last quarter. Regarding the recovery of energy, besides the normalization of customers with Integrated Energy Meters, clandestine customers and conventional meters were also regularized. 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. Finally, regarding the outstanding debt, Edenor is a highly unlevered company with a debt outstanding of $98.1 million in corporate bonds, which matures in October 2022. This concludes my review on Edenor and I would like to thank you for the support shown by our investors and bondholders and your interest in participating today. We are now open for questions through our chat.

We are waiting for the questions in the chat.

The question is, do you expect any other increases in VAD for the remaining of the year? The answer is yes, we are in the process of negotiating that with the regulatory entity and we are working very closely with them to find a solution for that and to be able to have another increase in our VAD. So, if there are no further questions, I would like to thank you for joining this conference call. Please keep you and your family safe and healthy, and have a nice day. Thank you very much, everybody.