EDENOR First Quarter 2019 Filing Summary
Business Context and Reporting Period
This Form 6-K filing covers the first quarter ended March 31, 2019, for Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR), Argentina's largest electricity distributor. The company serves approximately 9 million people in the greater Buenos Aires metropolitan area. Financial figures are presented in Argentine pesos (ARS) of constant purchasing power in accordance with IFRS, except where noted as historical values.
Key Financial Metrics
| Metric | 1Q 2019 (ARS M) | 1Q 2018 (ARS M) | Variance |
|---|---|---|---|
| Revenue from Sales | 15,986.6 | 17,587.1 | (9.1%) |
| Energy Purchases | (10,494.6) | (8,819.3) | 19.0% increase |
| Gross Margin | 5,492.0 | 8,767.8 | (37.4%) |
| Net Operating Income | (11.0) | 3,635.6 | Loss vs. Profit |
| Net Financial Expense | (2,092.1) | (1,120.5) | 86.7% increase |
| RECPAM (Inflation Gain) | 3,308.1 | 1,692.5 | 95.5% increase |
| Net Income | 131.5 | 2,849.4 | (95.4%) |
| Adjusted EBITDA | 886.2 | 4,379.4 | (80%) |
| Capital Expenditures | 2,068.5 | 1,269.0 | 62.9% increase |
Liquidity and Debt: As of March 31, 2019, cash and cash equivalents totaled ARS 70.2 million. Net debt stood at USD 143.7 million, with total dollar-denominated financial debt at USD 215.2 million. This includes USD 165.2 million in corporate bonds and a USD 50 million loan from ICBC.
Material Changes vs. Prior Period
- Revenue Decline: Sales volume dropped 9.6% to 5,018 GWh, driven by a 11.1% decrease in residential consumption due to lower temperatures and economic recession. Revenue fell 9.1% due to volume drops and mismatches in inflation adjustments (VAD).
- Margin Compression: Gross margin collapsed 37.4% as energy purchase costs rose 19.0% (due to a 29.7% increase in average purchase prices) while sales volumes declined.
- Operating Expenses: Increased 8.9% to ARS 5,227.7 million, primarily due to a ARS 564.8 million rise in regulatory penalties and higher material consumption.
- Financial Results: Net financial losses increased 86.7% due to higher interest rates on debt with CAMMESA and negative exchange rate impacts from peso depreciation.
- Energy Losses: The loss rate increased from 16.3% in 1Q18 to 17.4% in 1Q19, attributed to increased fraud incentives and lower demand from large industrial users.
Outlook, Risks, and Unusual Items
- Share Repurchase Program: On April 8, 2019, the Board approved a new program to repurchase up to USD 800 million in shares (max price USD 1.15/share or USD 23/ADR). As of the report date, 1.9 million shares were repurchased.
- Debt Repayment: On April 11, 2019, the company repaid USD 12.5 million of principal on its ICBC loan. Remaining payments of USD 12.5 million are due in October 2019 and April 2020.
- Tariff Adjustments: Regulatory resolutions modified seasonal pricing effective May 2019, maintaining residential stabilized prices but increasing them for non-residential and large users.
- Investment Plan: Capital expenditures increased significantly to support a 2017-2021 plan focused on grid enhancements and service quality, totaling ARS 2,068.5 million in 1Q19.
- Risks: The filing highlights risks related to Argentina's economic recession, inflation volatility, regulatory changes, and the impact of energy theft on loss rates.
Investor Verification Checklist
- Verify the impact of the new share repurchase program on future cash flow and capital structure.
- Monitor the effectiveness of "Market Discipline" actions (DIME) in reducing the 17.4% energy loss rate.
- Assess the sustainability of the RECPAM (inflation gain) offset against rising financial costs and operating expenses.
- Confirm the timeline and collection status of deferred income recoverable in installments (ARS 1,005 million and ARS 841 million deferrals).
- Track the execution of the USD 800 million share buyback against the stated maximum price limits.