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Empresa Distribuidora y Comercializadora Norte Sociedad Anónima (NYSE:EDN) Q2 2019 Earnings Conference Call August 12, 2019 10:00 AM ET
Empresa Distribuidora y Comercializadora NorteSociedadAnónima（纽约证券交易所代码：[EDN]）2019年第二季度收益电话会议2019年8月12日美国东部时间上午10:00
Leandro Montero - CFO
- Leandro Montero - 首席财务官
Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Edenor's Second Quarter 2019 Results 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. At that time, further instructions will be given. [Operator Instructions]
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.
Now, I'll turn the conference over to Mr. Leandro Montero, CFO of Edenor. Mr. Montero, you may begin your conference.
- 女士们，先生们，早上好，谢谢你们的等待。在这个时候，我们欢迎大家参加Edenor 2019年第二季度业绩电话会议。我们想通知您，此活动正在录制中，所有参与者将在演示期间处于仅限收听模式。在公司的评论完成后，将会有一个问答环节。那时，将给出进一步的指示。 [操作说明]
- 现在，我将把会议转交给Edenor首席财务官Leandro Montero先生。蒙特罗先生，您可以开始您的会议。
Thank you very much. Good morning, everyone, and thanks for showing in our second quarter 2019 earnings conference call. 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 the members of our team for more details on the results of the period or any doubts you might have.
First, and as we disclosed in our last conference call, on May 10, 2018, we executed an agreement for the implementation of the transfer of tariff fixing of the electricity division utility service from the federal government to the province of Buenos Aires and the autonomous city of Buenos Aires, as well as a liability for regularization agreement with the secretary of energy acting on behalf of the national government that's terminating the pending reciprocal claims originated in the 2006-2016 transition period. That we voluntarily dismissed a complaint for the breach of the obligation under the contractual regularization [ph] memorandum of understanding or assessment agreement, as we usually refer to it, agreed to settle debt for work [ph] loans originating in the transition period, and committed our folks to pay users certain penalties and compensation corresponding to such period.
Lastly, we undertook to execute investments additional to those committed under the federal tariff review to help improve their reliability and [technical difficulty]. This agreement involves disbursement for an approximate total amount of ARS 7.6 million, including the payment of the generated income tax. In consideration, the federal government partially recognized our claim by fully offsetting outstanding liabilities within the wholesale electricity market for the electricity purchases made during the transition period, as well as the partial settlement of investment loans guaranteed by CAMMESA and the cancellation of penalties collectable by the national treasury, all of this for an approximate amount of ARS 6.9 billion, and in addition, the implementation of this agreement imply for the only time in this quarter an additional ARS 6.2 billion profit assessment after replicating the same conditions applied to [indiscernible] the sector to value their liabilities including the agreement. Both affect of this agreement are disclosed in the financial statement, as of June 30, 2018, in the liabilities regularization agreement line of the income statement.
Within this framework, [indiscernible] the shareholders extraordinary share meeting of the company proceeded to ratify the actions taken by the Board of Directors in the negotiations and signing of the implementation agreement for the transfer of tariff fixing and the liabilities regularization agreement, as well as to approve the withdrawal of right, actions, and claims against the national state with drop [ph] in the transition tariff period, and the withdrawal of the losses filed against the national state initiative in 2013. It is worth noting that this agreement marks the completion of the normalization under the federal government, and entails -- and you begin to focus on the specific problems and opportunities of the business.
首先，正如我们在上次电话会议上所披露的那样，在2018年5月10日，我们签署了一项协议，用于实施电力部门公用事业服务从联邦政府到布宜诺斯艾利斯省和自治区的关税转让。布宜诺斯艾利斯市，以及与代表国家政府行事的能源部长达成的正规化协议的责任，该协议正在终止2006 - 2016年过渡期内发生的未决互惠索赔。我们自愿驳回了违反合同正规化[ph]谅解备忘录或评估协议义务的投诉，正如我们通常所说的那样，同意解决源于过渡期的工作[ph]贷款的债务，以及承诺我们的人员向用户支付一定的罚款和相应的补偿期限。
在此框架内，[音频不清晰]公司股东特别股东大会开始批准董事会在谈判和签署关税转让和负债正规化协议转让实施协议时所采取的行动，以及批准撤销对国家的权利，行动和索赔，在过渡关税期间下降[ph]，并在2013年撤回对国家国家倡议的损失。值得注意的是，该协议标志着完成联邦政府的正常化，并且需要 - 并且您开始关注业务的具体问题和机会。
Moving to our ratings, on July 16, moving to Latin America issues a report affirming Edenor's corporate rating at B1, and its domestic rating at AA3. In turn, it changed the ratings outlook from same to negative. This variation mainly reflects the negative outlook on the summer in debt rating since the company is subject to the domestic operating environment and regulations. Finally, on June 12, our Board of Directors respond to end and terminate the share buyback program and [indiscernible] on April 8, 2018, due to cash effect the sharp decrease in our demand have. Under this program, 1.9 million own shares were acquired for a total amount of ARS 74 million at an average price of $17 per ABR. That as of today, the company holds, say, 1.6 million own portfolio share, representing 3.5% of the capital itself.
Now, moving on to our result in the second quarter of 2018, net sales increased by 21% to ARS 18.2 billion in the second quarter this year, against ARS 15.1 billion in the same period last year. This ARS 3.2 billion increase in mainly due to higher billings as a result of the increase in the electricity seasonal price, with an ARS 1.5 billion impact and the application of the distribution fee or distribution value added assessment in the amount of ARS 1 billion. Furthermore, during the quarter, revenues from the federal government were recognized for consumptions by shanty towns under the federal agreement and the recovery from an application of caps on certain users' categories benefiting from the social tally which receivables were recognized under the liabilities regularization agreement for a total amount of ARS 1.4 billion.
Furthermore, in the second quarter, 2019, revenues from the installment under the tariff referral for the August 2018-Februray 2019 period was recognized in the amount of ARS 825 million. This effect were partially offset by the impact of the larger physical electricity size volumes in the amount of ARS 1.6 million, and LIBOR collections on account of the 48 [ph] common deferrals of income accrued during the first year after tariff implementation for ARS 215 million. We feel our collections work out because the update applied by the regulatory agency, this is not fully reflect the cost increase, and that's why an appeal was filed [indiscernible] to resolve this, and the impact of this drop in the demand which will be recovered in the next tariff update. Finally, within the comparison period, CPD assessments were applied for a total 42.5% corresponding to the 2018 cost increases, and the tariff being fully updated as from March, 2019.
Furthermore, the capital is intensified between the CPD measurement and its [indiscernible] which in an inflationary scenario has a negative impact on the distribution fee. Adding to the fact that the composition of the CPD formula with replicated in our cost structure has a greater weight on the salary index, and was below the consumer and wholesale indexes' evolutions. Taking into consideration our operation was strong.
此外，在2019年第二季度，2018年8月至2019年2月的关税转介下的分期收入确认为825万ARS。这一影响部分被更大的实物电量规模的影响部分抵消了，因为在ARS 2.16亿的ARS关税实施后的第一年累计收入的48 [ph]普通推迟收入的数量超过160万ARS的数量和LIBOR收款。我们认为我们的收藏工作是因为监管机构采用的更新，这并不能完全反映成本增加，这就是为什么提出上诉[音频不清晰]来解决这个问题，以及这种需求下降的影响。在下一次关税更新中恢复。最后，在比较期内，对2018年成本增加的CPD评估总共应用了42.5％，并且从2019年3月开始全额更新资费。
The volume of energy sales decreased by 9.3% within 4.8 terawatt hour in the second quarter this year, against 5.3 terawatt hour for same period last year. This decline is mainly explained by decreases amounted to 11.7% for residential customers, 10% for medium and small commercial customers, and 8.2 for large users. The residential demand decreased mainly as a result of the higher average compared to, especially in the month of June this year, where average in pesos were 3.7 higher than the same mark of 2018, that's what impact of economic recession on the tariff increase. As more on medium commercial customers were adversely affected by the level of commercial activity levels resulting from the economic situation whereas large users were affected by the leveling of selectivity which is reflected in the fall in the production index.
Moreover, Edenor customers base rose by 3.6% mainly on account of the increasing residential customers which have risen to levels above the historical growth as a result of implemented market discipline actions and installations during the last year of more than 100,000 integrated energy meters that were most to regularized from same connections. By contrast, the number of small and medium commercial customers experienced a decrease due to the leveraging the levels in the last year.
Electricity power purchases increased in pesos by 19% to ARS 7.2 billion in the second quarter 2019 against ARS 8.6 billion for the same period last year. This ARS 1.6 billion increase is mainly due to the 30% real-term increases, in the average purchase price. We generated an impact of ARS 2.5 billion as a result of the increase due to effect of the new references in our prices, electricity applicable from August 2018 and February this year. This increase was partially offset by an 8.4% decrease in energy volumes due to the drop in demand with what valued at approximately ARS 1 billion. Despite this increase, the electricity references in our budgets still subsidized by the national government especially in the case of residential customers where the subsidy risen 40% of the system output generation cost in the second quarter this year.
Additionally, the energy loss rate increased from 18.6% in the second quarter this year to 19.2% in the same period this year and was mainly generated by an increase in incentive to pro as a result of the economic recession and the impact of tariff increases. In-turn, costs associated with this losses increased by 11%, considering [indiscernible] or 72.5% in nominal terms mainly in account of the application of the new seasonal price determination.
Meanwhile, operating expenses increased by 18% reaching ARS 5.9 billion in the second quarter against ARS 5 billion in the same period last year, this is mainly accounted for increase in depreciation in the amount of ARS 258 million, a ARS 182 million increase in fees and remuneration for services, higher supplies consumptions were ARS 183 million as well as increase in synergies in the amount of ARS 178 million. This loss increase is mainly explained by new finances on commercial services quality issued for ARS 302 million and were partially offset by finances for technical service quality issues in the amount of ARS 77 million as a result of the impact of investments on service quality improvements and available user demand.
Regarding our financial results, we experienced a 67% improvement with almost ARS 900 million losses in the second quarter this year against ARS 2.7 billion losses in same period last year. The main impact corresponds to the valuation in the exchange rates with which were used exchange differential losses in the amount of ARS 2 billion, considering that in the second quarter last year there was 43% evaluation of the Peso against the U.S. dollar whereas in the second quarter this year, a slight appreciation of the Peso was recorded. This profit compared terms were partially offset by the ARS 161 million higher commercial interest on debt held CAMMESA due to higher applicable rate -- interest rate and increase in interest paid for ARS 114 million and lower changes in the fair value of financial assets for ARS 59 million. It should be noted that the previously mentioned liability regularization agreement will discontinue interest charges generated from debts with CAMMESA in the upcoming quarters.
Finally, net results increased by ARS 10.5 million, recording profits for ARS 10.7 million in the second quarter of 2019 against profits for ARS 129 million for the same period in 2018. This increase is mainly due to the implementation of the liabilities regularization agreement that implied for one time only, the partial recognition of the claim made by Edenor for a an amount of $6.9 million in compensation for the breaches of the National State during the 10 years of tariff transition period as likewise the adjustment of the liability recorded at the time of the agreement replicating the conditions applied to all distributors in the sector generated a profit of ARS 6.2 million totally an amount ARS 13.1 billion.
Additionally, the increase is also due to a higher gross margin resulting from the offsetting of revenues from social tariff cut under Framework agreement under the above-mentioned liabilities settlement. The collection of installments corresponding to August 2018 and February 2019 tax deferral and a higher average sales price. This effect was partially offset by a decrease in sales volume and higher average purchase price. Furthermore, losses from financial results experienced a considerable decrease as a result of a ARS 2 million improvement on account of exchange rate difference against the same period of the previous year.
Finally, it should be noted that the income tax for the period includes impact of the liability regularization agreement and the provision for the possible application of inflationary tax adjustment. Talking about Edenor's adjusted EBITDA, it showed ARS 2.9 million profit in the second quarter of 2019, ARS 581 million higher than the same period in 2018. Adjustments correspond to penalties for meter reading frequency and extraordinary service interruption from pervious periods as well as commercial interest.
Regarding Edenor capital expenditures during this quarter our investments totaled ARS 2.2 million compared to ARS 1.9 million in the same quarter last year, from which a 44% -- 64% corresponds to network infrastructure and expansion and the remaining 36% for maintenance. The increase in investment result from the ambitious plan devised by Edenor for the 2017-2021 period, which focuses on investments optimizing service quality level in accordance with the quality curves required in integral traffic review by the regulatory agencies.
关于我们的财务业绩，我们在今年第二季度的ARS减少了67％，而去年同期的损失为27亿ARS。考虑到去年第二季度比索对美元的评估为43％，而在第二季度，主要影响对应于使用汇率差异损失的20亿阿联酋汇率的汇率估值。今年第四季度，比索略有升值记录。由于更高的适用利率 - 利率和增加的ARS支付利息增加以及ARS金融资产公允价值变动的更低，所以此次利润比较条款部分抵消了由于更高的适用利率和利息增加所带来的债务所增加的1.61亿美元的商业利息。百万。应该指出的是，前面提到的责任正规化协议将在未来几个季度中止与CAMMESA债务产生的利息费用。
关于本季度的Edenor资本支出，我们的投资总额为220万ARS，而去年同期为1900万ARS，其中44％-64％对应于网络基础设施和扩建，其余36％用于维护。投资增加源于Edenor在2017 - 2021年期间制定的雄心勃勃的计划，该计划侧重于根据监管机构的整体交通审查所要求的质量曲线优化服务质量水平的投资。
The total amount invested for 2018 amounts to ARS 10.8 million at June 2019 [indiscernible] year being the highest investment level for the company since its creation. Regarding quality standard these are measured based on the duration and the frequency of service outages. This is SAIDI and SAIFI indicator. SAIDI refers to the duration of outages and is measured by the number of outage hour per year. SAIFI refers to the frequency of outages and measure the number of time the user experiences an outage during a year.
In the second quarter of 2018, SAIDI and SAIFI indicators were 18.6 hours and 6.4 outages per year during the last 12 months, evidencing a 30% and 21% decrease respectively compared to the same period of the previous year. This improvement in service level is mainly due to the fulfillment of ambitious plan devised by the company since integral tariff review is effect. Its success is also evidenced by the fact that this indicators exceed the established quality improvement past difference by the regulator entity.
Regarding our energy losses, there is 19.2% in the second quarter this year against 18.6% for the same period in 2018. The drop in the demand by large users which have substantially lower loss level adversely affects this indicator in percentage term. However, the level of losses in physical units remain constant. Likewise, the rise in the average energy purchase price also increases the value in pesos of this losses. Furthermore, the company has implemented the creation of multi-disciplinary team to work on new solutions to energy losses and leverage learnings from successful experiences from other distributors.
In terms, the company further increased this activity to reduce energy losses on two fronts. On the one hand, market disciple actions were intensified aiming to detect and normalize regular connection and electricity theft and frauds. And on the other hand, there was an increase in the installation of inclusion meters to foster consumption self-management and integration of users not having a regular income; at the same time, encouraging consumption reduction and the prevention of irregular connections having an impact on the safety of customers.
The company expects to intensify this actions until reaching expected levels with the purpose of meeting the outlined losses reduction goals. Finally, as far as financial debt concerned, the outstanding principal of our dollar-denominated financial debt amounts to $201 million while net debt amounts to $127 million. Financial debt consists of $164 million from our senior notes 2022 and $38 million from the bank loan taken out with the ICBC Dubai Branch. Currently, both liabilities bear interest at a fixed rate.
So, this concludes my review on Edenor. Now we are open for questions.
2018年的投资总额为2019年6月的ARS 1,080万，这是该公司自成立以来的最高投资水平。关于质量标准，这些是根据服务中断的持续时间和频率来衡量的。这是SAIDI和SAIFI指标。 SAIDI是指停电的持续时间，以每年的停电时数来衡量。 SAIFI是指中断的频率，并衡量用户在一年中遇到停机的时间。
Well, thank you very much for joining this conference call, and have a nice day. Bye-bye.
Thank you. This concludes today's presentation. You may disconnect your line at this time, and have a nice day.
谢谢。 今天的演讲结束了。 你可以在这个时候断开你的线路，祝你有个愉快的一天。
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