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

Good morning, ladies and gentlemen. Thank you for joining us today to Adenauer's second quarter 2023 earnings conference call. We extend a warm welcome to each of you. This event is being recorded and participants will be in listen-only mode during the presentation. We eagerly anticipate your questions and insights during the interactive question and answer that will follow the presentation. Before proceeding, let me mention that forward-looking statements are based on the belief and assumptions of Eleanor's management and on information currently available to the company. 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 NNR and could cause results to be far materially from those expressed in such forward-looking statements. Now, let me introduce to Germán Ranz, our CFO, that will follow the presentation. Thank you.

Good morning, everyone. Your presentation here signifies your dedication to understanding Adenor performance during the second quarter of 2023. Our team is available to address any inquiries or provide further information in this period results. Highlights. Adenor remains steadfast in its commitment to providing unwavering electricity distribution services to our expansive customer base of 3.2 million clients. which collectively impacts an estimates of 11 million individuals. Our mission, simply put, is to deliver a social responsible electricity distribution service. Our vision extends beyond mere distribution. We aspire to lead the energy transition positively impacting the quality of life, business, and community developments for both stakeholders and bondholders. It's imperative to note our dedication to environmental, social, and governance best practices that govern our operations. In the limelight of this quarter achieves where we are proud to announce several of key milestones. Adenor has exceeded the investment levels of previous quarters by 49% as a result. It recorded 49 increases over the previous quarter. This has allowed us to maintain our commitment to quality services while blustering services reliability indicators, SIFI and SAIDI, achieving our best historical records of a frequency of 3.4 times per year customer and 7.7 hours a year customer, which represents a 23 and a 60% improvement compared to the same period of last year, respectively. These indicators exceeded regulatory requirements, underscoring our unwavering commitment to superior service standards. The tariff, the integral tariff review process has commenced in June, 2023 and slides for completion in the first quarter of 2024 is well underway. As part of this process, the NRE will use guidelines, conduct public hearings and undertake a thorough technical economical assessments to define service quality parameters. Procedural adjustments and necessary investments for the next five years, 2024 to 2028. The compounded VAT increase implemented in two stages, 108% in April and 74% in June, has started to be reflected in our financial statements, leading to a positive adjustment. After the closing of the quarter, Evenor agreed with Kamesa the cancellation of the debt for energy purchases in 96 monthly growing installments with a 50% of market rate interest. This was informed as a larger fact in our financial statements. With this, the company has regularized its commercial and financial debt, fulfilling its obligations in a timely manner. The agreement is subject to the regulatory authority granting a BAT sufficient to cover these payments. New energy season freeze prices were published effective from August 1st, 2023 to October 31, 2023. The average increase for this type of customers is shown in the table. This increase affects the energy costs, but do not increase our distribution revenues. So it doesn't affect our BID. In the domain of financial resilience and strategic investments, we have made measured progress. Our EBITDA witnesses a positive shift. with losses decreasing to 4,486 million pesos, leading to a negative result of 7,415 million pesos in the second quarter of 2023. This improvement can be attributed to the gradual reflection of tariff adjustments in our income. alongside a reduction in energy losses from 16% to 15.39%. However, these gains were partially offset by increasing operating costs due to the inflation and reduced sales due to the higher temperature during this period. Capital expenditures have been strategically allocated, totaling 27,709 million pesos for the first half of 2023, representing a 49% increase over the previous year. This investment aligned with our summer and winter plan emphasizes our service reliability and network performance. Strategic investments overview. Investments during the second quarter of 2023 are delineated as follows. 21,174 million pesos in electricity related activities. 2,949 million pesos in systems and other initiatives. And 3,586 million in project staff's costs. Our allocation strategy is rooted in the drive to meet heightened demand, elevated service quality, and mitigate non-technical losses. The investments are predominantly geared towards augmented capacity, implementing remote control infrastructure and medium voltage network. connecting new suppliers and installing self-managing energy meters. Throughout this process, we remain steadfast in prioritizing environmental protection and public safety, revenues from sales and energy purchases. Revenues from sales have surged by 16%, reaching 91,940 million pesos in the second quarter of 2023. In real terms, this growth is primarily attributed to the impact of the new tariff structure in effect during the quarter, despite a reduction in sales volume due to the elevated temperatures. Energy purchases have experienced a 6% uptick amounting to 61,755 million pesos in the second quarter of 2023, reflecting energy prices escalations. Energy sales evolution. The trajectory of energy sales witnesses a modest decline of 3.9%, totaling 5,696 gigawatts during the second quarter of 2023. This dip is largely influenced by record temperatures. Concurrently, our customer base expanded by 1% compared to the prior years, encompassing over 3,280,000 million customers, sorry, 3.28 million customers. This increase is predominant attributed to the rise in residential and small commercial patterns, fueled by our market discipline initiatives and the installation of integrated energy meters. Gross margin and financial performance. During the first six months, we recorded a 4% upsurge in the gross margin, attributed this growth to the tariff adjustments that have lead a 13% reduction in operating income costs. It's important to highlight that augmented financial losses were predominant due to the commercial remaining debt for energy purchases and our exposure to inflation driven flotation in purchasing power. Financial results and outlook. Our financial results for the second quarter of 2023 provide valuable insights. Our report loss of 35,096 million pesos reflects a 16% increase in losses, primarily driven by escalating interest accrued on the debt owned by Kamesa. As of June 30th, 2023, this debt accrues an over principal balance of 71,705 million pesos. Accompanying by interest and purchasing total of 142,488 million pesos. It's not worthy that Kamesa's invoice has been pulled in full since March, 2023. Net income for the second quarter of 2023 shows a loss of 4,819 million pesos, significantly a decrease of 9,282 million pesos compared to the same period in the previous years. This variance is chiefly attributed to the tariff adjustment in April and June, tempered by a 20% increase in operating costs driven by inflation and purchasing power. Mitigating energy losses, a reduction of 15.29% in energy losses compared to 16.8% in the previous periods, underscores our continuous pursuit of solutions. Our multidisciplinary teams presently innovating to combat energy losses, completed by our market discipline DIME, initiated aimed at curve of inefficiency and irregularities. Analytic tools powered by artificial intelligence have uncounted inspection efficiencies, and DIME actions persist in detecting and rectifying irregular connection sprouts and energy thoughts. Our unwavering commitment to sustainability remains paramount. We issued our 2022 report under global reporting initiatives with an external review from our auditors, PricewaterhouseCoopers. These are the main indicators that show our commitments of ESG issues and keep KPIs aligned with the sustainable development goals. In the environmental performance, we continue with our environmental quality management system to reduce the impact of our operations in environment, including recycles, reduce and reuse programs, as well as using electrical vehicles. In terms of governance, It's important to highlight the increasing participation of female executives and board members, alongside ongoing improvements to our compliance and risk analysis department. In the realm of social initiatives, we have expanded the reach of our electricity inclusion program, increasing the number of scholarships offered, achieving a 16.9% representation in women's staff, increasing the frequency of recordable accidents, and elevating training hours for our people for our employment. We invite you to review the report in our web page. Esteemed investors, the achievements highlights here are the testament that our commitment and our strategy accrue. We express our helpful gratitude for your unwavering trust and partnership. This mark the culmination of our presentation of Adenauer Progress. We extend our gratitude for your support and your engagement as investors and bondholders. The floor is now open for questions via our chat interface.

Hi, we have a question from Christian Ferrer and Ezequiel Fernandez from Balance. Thanks for the presentation. Can you provide us some detail in the Argentinian pesos 307,000 millions debt with Camisa? How is this composed and what is your 12M target value for this account? The balance that is shown in our financial statements has our current CAMESA invoice plus the debt that we exposed that after the closing, we have agreed to pay in 1996 formats. The rate of part of the interest that were agreed will be shown in this quarter, the third quarter. It's not shown yet in our financial statements. We have another question from Ezequiel Fernandez. Could you please tell us which is the allowed regulatory limit on losses and how much you estimate that Eleanor is losing monthly due to excess losses?

The limit of access losses is 10%, which is the one that is recognized in our VAD when we have full VAD recognition. And we are expecting to load that and we are Our target is to go up to that amount in terms of energy losses. We don't have the monthly losses amount, but we will send it to you after we finish this call.

The percentage that we have reported is 15.39%.

Which is the historic lowest percentage of energy losses in the last 15 years.

I have another question from Francisco Schumacher regarding the Art Directories Review. How much do the teams you are negotiating with in the government change so as not to start?

So as not to start, I cannot see the whole question. So as not to start the administration changes.

No, that's the reason we started the process as it was established in... in the agreement with the regulatory entity and with the Secretary of Energy. We are doing all the process of analyzing the cost of the company, the ideal cost of the company for the integrated tariff review. And in the first quarter of next year, we will determine the amounts that we will agree with the Secretary of Energy and the regulatory entity. That's why we make the the chronogram and the T&Rs of the process when it's finished in the first quarter of next year. So it's gonna be done and decided by the new government.

It's important to highlight that we have already engaged our financial advisors that will help us to prepare that. We're already preparing all the information because there are tasks that are under the regulator and tasks under the distribution and tasks that will be done jointly. But we are working heavily with this.

It's one of our priorities in the company to work hard on the on the entire tariff review. Okay, thank you very much for your participation in this webcast and wishing you a productive day ahead. Thank you very much, everybody.

Bye-bye. Thank you.