Empresa Distribuidora Y Comercializadora Norte S.A. (Edenor) American Depositary Shares

Good afternoon, ladies and gentlemen, and thank you for joining. At this time, we would like to welcome everyone to Adenauer's third quarter 2022 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 beliefs and assumptions of Adenauer'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 I'll turn the conference over to Mr. Germán Lab, CFO of Adenor. Thank you.

Good morning or good afternoon, everyone, and thank you for joining. Welcome to Adenor Earnings webcast for the third quarter 2022. 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. ENOR continues to guarantee the electric distribution services to all its 3.2 million customers, which represents a population of approximately 11 million people. Our mission is to provide a social responsible electricity distribution service leading the energy transition that contributes to improve people's quality of life, business and community development, as well as to our employees, bondholders and shareholders. We are committed to our community, which is why we have adapted the best environmental, social and governance practices. Revenues from sales were 11% lower than in the third quarter of 2021 in real terms, mainly due to the effect of the lack of adjustment, of the lack of VAT adjustment, the part of the bill that represents the income of the distributors. Since 2019, there have been just two small tariff increases in March 2021, 21%, and in May 2022, 8%, against an inflation of 222% over the same period. Revenues from sales decreased was partially offset by an increase in volume of levels of energy sold. Despite the lack of VAD adjustment, Enor was able to maintain its quality of services for all its clients. The key indicators SAIDI and SAIFI represents the duration and frequency of energy cuts for the last three months, showing an improvement of 19 and 13 percent compared to the same period of last year. Both indicators show the best historical record. On October 25, 2022, Edenor completed its cancellation and voluntary exchange of the financial debt of class nine negotiable obligations of the coupon 975% for a total of $98.5 million. The operation includes a debt exchange which was supported by 77.35% of the bondholders, representing $75,855,000. in two steps, by which the new Senior Notes Class 1 New York law were issued for the exchange for a total of $55,244,538, maturing in May 2025. They were listed on CBS as Social Green and Sustainable Panel in FEMA as a social bond. In addition, a senior note class two were issued for $30 million hard dollar under the Argentine law completed on September 22, 2022, maturing in November, 2024. Regulatory framework. Stabilize prices of energy in the wholesale electricity market resolution 627-2022 issued by the Secretary of Energy on August 25, 2022. The Secretary of Energy approved modification in the stabilized price of energy for the period between September 1st and October 31st, 2022, by means of which the subsidies of the public health and educational bodies, non-residential level one residential users were reduced by 20%. For this type of users, which are consumption greater than 300 kilowatts, will have a variation of 41%. That of non-residential users will have a variation of 45%. And that's corresponding to level one residential users will have a variation of 70%. Rating. Due to the success exchange process of the debt, the credit rating agencies Moody's and Standard & Poor's improved Adenauer's ratings. Moody's Investors Services affirms Adenauer's CAA3 corporate family rating and senior unsecured rating and changed the outlook from negative to stable. Standard & Poor's International raises to CCC+, from CCC-, maintaining the negative outlook. Standard & Poor's raises the local rating of existing nodes from CCA+, with special review with implications in development to BB-, negative outlook. Operating, the gross margin corresponding to the third quarter 2022 was 14,730 million pesos, which represents a fall of 34% compared to the same period of the previous years, mainly due to the lack of VAD adjustments. EBITDA decreases to a loss of 2,703 million pesos, mainly due to decrease in revenues of 11%, increase of 3% in operating costs, and decrease in unrecognized losses of 17.7%. The volume of energy sales increases by 3.2%, reaching 5,979 gigawatts in the third quarter of 2022, against 5,795 gigawatts for the same period of 2021. Furthermore, the announced customers amount rose by 1.5% compared to the same period of the previous years, reaching more than 3.2 million customers, mainly on account of the increase in small commercials and industrials as a result of the economic recovery. Financial results were a loss of 20,615 million pesos in the third quarter of 2022, which represents an increase of 130%. This difference is mainly due to higher interest accrued on the debt incurred with CAMESA. Net results recorded losses of 6,082 million pesos, which is 450% higher in comparison to the third quarter of 2021, mainly due to the deterioration of the operating results and greater financial charges caused by the deferral of payment of obligations with Jamesa. a necessary situation to continue operating, offset by a higher positive result from exposures to exchange in the purchase power. Capital expenditures. During the first nine months of 2022, Elenor's capital expenditures totalized 16,802 million pesos against 1,935 million pesos in the same period in 2021, with a decrease of 11% in real terms, but still maintains its services for quality of its clients. At the closing of the first quarter of 2022, SAIRI and SAIFI indicators for the last three months were 9 hours and 3.7 outages on average per year per client, showing a 19% and 13% improvement, respectively, compared to the same period of the previous years. Both indicators show the best historical record. This recovery in the services is mainly due to the investment plan devices by the company since 2013. The different improvements implemented in the operating processes and the adoption of technology applies to the grid operations and management. Energy losses. In the third quarter of 2022, energy losses experienced a 17.7% decrease against an 18.8% for the same period of the previous year. This happened as a result of the successful measures taken by the company against clandestine customers, together with the lack of tariff adjustments, which discouraged the fraud. This concludes the review on Edenor, and I would like to thank you for your support by our investors, bondholders, and shareholders, and the interest of participating today in this call. We are now open to questions through the chat.

We have one question from Christian. Good morning. I'm Christian Ferrer from BALANCED. Thank you for the earnings material and congratulations on maintaining service quality indicators at good levels despite the lack of adequate tariff support. I have three questions. According to the 2023 budget law being discussed in the Senate, the NRA should perform the internal tariff review for power distributors no later than 90 days following the budget approval. Two sub-questions here. First, does this mean that the internal tariff review should be launched or that the new distribution tariff should be already calculated and implemented? Second, how do you expect this study revision to work? Should it be a RAP-based methodology similar to the 2017 ones, with a new asset base, a new regulatory work, new volume curve, and so forth? Or would it be something simpler and more ad hoc? My second question? Wait, let's go for that. Okay, sorry, it's too large.

For the first question, we don't have an answer yet. We have to wait until the senator approves the budget of 2023, and then we will start discussing how we will do the process of this short process of RTI in 90 days be implemented. We don't have all the indications and the methodology and mechanisms in which we will, how we will make this process being able to discuss with the regulatory entity. That's for the first.

Okay, the second one. My second question is related to the agreement with Kamesa regarding the regularization of the US $1 billion commercial debt. Could you give us a bit more specifics on the calendar of potential payments and the possibilities of seeing dedicated tariff hikes to take care of this debt? This is the second question.

For the second question, what we can say is that in this article of the law also specifies that it's going to be six months of grace period and 96 months of payment installments to regularize the debt of Kamesa. So we have to wait until that it's approved to discuss further further discussions with Camis at that point.

And the last one is, when do you think that the tariff segmentation and the elimination of the subsidy of the energy component for the more wealthy consumers could be effectively implemented in household bills? December, January?

This is already implemented. And all this segmentation doesn't have any effect in the value-added distribution of Edenor. It's just a path through mechanisms of reducing subsidies for the government. But it doesn't affect the value-added distribution of Edenor.

Are there any other questions?

Thank you for joining this conference. Have a nice day. Thank you, everybody.

Bye. Thank you.