Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Edenor's Third Quarter 2018 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 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.

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..

first, by a ARS 586 million increase in penalties, mainly as a result of changes in the calculation methodology introduced by the ENRE in 2017, which means certain adjustments last year and the application of new penalties set by the regulator as Resolution No.

170, which set a fine for deviating from the 2017 Annual Investment Plan in relation to that presented in the Comprehensive Tariff Review for a total amount of ARS 105 million.

Second, by a ARS 280 million increase in fees for third-party services, mainly explained by a higher number of market discipline works associated with the losses reduction plan; higher expenses in pruning, changes of posts, street safety works and the repair of sidewalks as well as higher expenses associated with the distribution of bills, physical surveillance costs and new hired IT services related to new applications implemented at the workforce management project and success factors.

Third, by a ARS 233 million increase in the allowance for the impairment of trade and other receivables due to a change in accounting standards resulting from the application of IFRS 9 and higher bad debt; fourth, by a ARS 204 million increase in payroll and social security charges on account of salary increases totaling 29% quarter-over-quarter; fifth and lastly, by a ARS 191 million increase in taxes and charges.

Regarding our financial results, we experienced a 7% decrease mixed loss due to a ARS 350 million loss in the third quarter this year against a ARS 340 million loss for the same period last year.

The positive effects were mainly the update in the value of the receivable associated to the real estate asset in the amount of ARS 1.6 billion exiting the relevant debt, the increase in the fair value of financial assets for ARS 120 million and in higher commercial and financial interest for ARS 83 million.

These effects were partially offset by an acceleration in the peso depreciation rate against our U.S. dollar net position, which caused a total negative impact in the amount of ARS 1.3 billion on account of foreign exchange rate variations.

Other factors affecting this loss were higher interest from the installed debt with CAMMESA in the amount of ARS 803 million due to higher applicable interest rate and ARS 190 million increase in interest also as a result of the increase in the exchange rate.

Finally, net results showing the ARS 556 million increase, reporting profits for ARS 847 million in the third quarter this year against profits for ARS 653 million for the same period last year.

This is mainly accounted for by an improvement in gross margin as a result of the tariff increases established in the Comprehensive Tariff Review, which were partially offset by the previously described higher operation – operating expenses.

Regarding the financial results, they have not suffered any significant changes as losses resulting from a higher devaluation of the peso were offset by the revaluation of the receivable associated to the real estate asset.

Talking about Edenor’s adjusted EBITDA, it reached to a gain of ARS 1.9 billion in the third quarter of 2018, ARS 1 billion higher than the same period last year. This 120% increase reflects the reconstruction of economic and financial equation of the utility under concession.

Adjustments made to EBITDA corresponds to the retroactive effect of penalties for deviating from the investment plan and commercial interest. Moreover, it is important to note that the deferred income from the August 2018 CPD adjustments, which is not included in the EBITDA, amount to ARS 308 million for the third quarter of this year.

As well, it is important to highlight that the current quarter includes ARS 540 million from the 2017 deferred income to be recovered in 48 installments. Regarding Edenor’s capital expenditures.

During this quarter, our investment totalized ARS 2.1 billion compared to ARS 1.3 billion in the same quarter last year, from which a 59% corresponds to network infrastructure and expansion, and the remaining 41% to network maintenance.

The increase in investments results from the ambitious plan devised by Edenor for the 2017-2021 period, which focuses on investments optimizing service quality levels in accordance with the quality curves required in the Comprehensive Tariff Review by the regulatory agency.

Taking into account our energy losses, they showed an increase, reaching 20.4% in the third quarter of 2018 in comparison with 18.4% for the same period last year. This mainly explained by tariff increases for 2017 and 2018, which generate a greater incentive to fraud by certain customers.

In addition, this effect, alongside with the impact of lower average temperatures in July and August this year, generated a 187 gigawatt increase in the level of losses in physical units. Likewise, the rise in the average energy purchase price increases the value in pesos of these losses.

Furthermore, in the third quarter of 2018, we continued taking actions to reduce energy losses on two fronts. On the one hand, market discipline actions were intensified, aiming to detect and normalize irregular connections 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 the integration of users having a non-regular income, at the same time encouraging the reduction and prevention of irregular connections.

We expect to intensify these actions until reaching expected levels with the purpose of meeting the outlined loss reduction goals. Finally, as far as financial debt is concerned, the outstanding principal of our dollar-denominated financial debt amounts to $226 million, while net debt amounts to $27 million.

Financial debt consists of $176 million from our senior notes 2022 and $50 million from the bank loan taken out with the Industrial and Commercial Bank of China Dubai Branch for a term of 36 months and a six month LIBOR rate plus spread of 2.75% semi-annual incremental. Currently, at a level of 325 basis points until April 2018.

Subsequent to the end of the quarter, we purchased in different market operations corporate bonds for a total face value of about $3 million.

On April 01 this year, the company entered into a hedge transaction with Citibank London with the purpose of fixing the financial cost of the loan granted by ICBC, which is subject to a variable rate during the October 2018 October 2020 interest payment period. Thus, all the company’s financial liabilities are disclosed at a fixed rate.

So this concludes my review on Edenor. Now we are open for questions..

Thank you. And the first question comes from Gustavo Fingeret of Bradesco..

Hi, good morning, guys. Thank you for the call. I have one question, which is pretty similar to what I did in the previous quarter regarding losses and CapEx. When you see losses, they continue to pick up. You were not able to reduce them from one side.

And from the other side, although it’s hard to say that this – you are reducing CapEx because the effects of our wages is hard to know, which is the real number in dollar terms.

It doesn’t seems that it’s picking up significantly quarter-over-quarter in order to see that they’re going to be getting to a much higher level of CapEx to what we saw in the last few years.

Can you give us some guidance on what are you doing? What you would be doing different in order to achieve the targets? How are you going to be increasing CapEx over time? Thank you..

Hi, good morning, Gustavo. First, regarding the – your question about losses, we should say that to – we compare both quarter, we had increased – significantly increased the activity levels in the – in all the actions we take to fight against energy losses.

The main issue is that the difference between the temperature in July and August last year and July and August this year was dramatically different. This year, temperature was 2.4 Celsius degree lower than last winter.

And as you know, our main issue regarding energy losses is because of energy losses in the poorest neighborhoods where they use electricity for heating. So that's the main cause because we have this increase in energy losses, despite the increase we are showing in the activity related to energy losses.

And on the other side, regarding CapEx, we have maintained the same level of CapEx we have estimated for the year. For sure, the devaluations have an impact on our CapEx, but we are – now, we are working or we are analyzing the CapEx for 2018. And we will see how – which is the final impact of the devaluation in our CapEx.

But by the moment, we are keeping the level of CapEx we have set for the Comprehensive Tariff Review period..

Okay. Thank you very much.

One follow-up question on that on losses is do you expect losses in the fourth quarter to be similar to last year? Lower? Higher? What are – which is the guidance here?.

we expect losses to be – should be a bit lower than last year but just slightly. I suppose that it will be the same level..

Thank you very much..

You’re welcome..

[Operator Instructions] And this will conclude our question-and-answer session. With this time, I would like to turn the floor back to Mr. Montero for any closing remarks..

Okay. Thank you very much for joining our conference call. And as you know, the team is always available for any questions you may have. Have a nice day. Bye-bye..

Thank you. This concludes today’s presentation. You may disconnect your line at this. And have a nice day..