EDENOR Form 6-K Summary: Nine Months Ended September 30, 2018
Business Context and Reporting Period
Company: Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR)
Reporting Period: Nine months ended September 30, 2018 (Interim)
Business: Distribution and sale of electricity in the Greater Buenos Aires area under a concession agreement.
Parent Company: Pampa Energía S.A. (following a merger process completed in August 2018).
Currency: Argentine Pesos (ARS), stated in thousands. The filing notes that while Argentina is considered a hyperinflationary economy under IAS 29, the Company did not apply inflation restatement due to local regulatory restrictions (CNV framework).
Key Financial Metrics
| Metric (in thousands ARS) | 9 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2017 |
|---|---|---|
| Revenue | 34,726,613 | 17,576,384 |
| Operating Profit | 5,423,429 | 1,848,331 |
| Net Profit | 2,100,639 | 659,950 |
| Net Financial Expense | (2,356,358) | (927,688) |
| Cash and Cash Equivalents (Sep 30, 2018) | 2,897,364 | 82,860 (Dec 31, 2017) |
| Total Borrowings (Sep 30, 2018) | 9,640,992 | 4,262,871 (Dec 31, 2017) |
| EPS (Basic & Diluted) | 2.35 | 0.73 |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 97.6% year-over-year, driven primarily by tariff adjustments and the inclusion of accrued monthly installments mandated by regulatory resolutions (ENRE Resolution No. 33/18 and No. 208/18).
- Profitability: Net profit increased 218% to ARS 2.1 billion. This was significantly aided by a one-time gain of ARS 1.63 billion from the contractual resolution of a real estate asset (Note 31).
- Financial Expenses: Net financial expenses more than doubled to ARS 2.36 billion. This was largely due to a net exchange difference loss of ARS 2.89 billion resulting from the 43% devaluation of the Argentine Peso against the USD in Q3 2018, impacting the company's USD-denominated debt.
- Balance Sheet: Total assets grew from ARS 25.3 billion to ARS 40.8 billion. Cash and cash equivalents surged from ARS 83 million to ARS 2.9 billion, partly due to the collection of receivables related to the terminated real estate contract.
- Share Repurchase: The Company repurchased 12.9 million Class B shares for ARS 728 million during the period.
Outlook, Risks, and Contingencies
- Regulatory Risks: The Company faces ongoing regulatory challenges regarding tariff adjustments. Approximately ARS 349.3 million in income was deferred due to the phased implementation of CPD increases, and ARS 614.7 million in income was not recorded due to social tariff caps.
- Unrecognized Revenue: As of September 30, 2018, ARS 608.5 million in revenue related to energy sales to shantytowns (Framework Agreement) remains unrecognized pending a new agreement.
- Penalties: The Company has recognized ARS 87 million in penalties for service interruptions and estimated an additional ARS 127 million for future periods. These penalties are currently being challenged in court.
- Real Estate Contingency: The Company terminated a contract for a real estate asset due to seller default. A receivable of ARS 2.07 billion has been recorded, and the Company is pursuing judicial measures for collection.
- Foreign Exchange Risk: The Company holds significant USD-denominated debt. Continued volatility in the exchange rate poses a material risk to financial results, as evidenced by the Q3 2018 exchange loss.
Investor Verification Checklist
- One-Time Gains: Verify the sustainability of net profit by excluding the ARS 1.63 billion gain from the real estate contract resolution.
- Exchange Rate Sensitivity: Assess the impact of further peso devaluation on the ARS 9.6 billion in borrowings, primarily denominated in USD.
- Regulatory Settlements: Monitor the status of the Framework Agreement for shantytown energy sales (ARS 608.5 million at risk) and the outcome of challenges to ENRE penalties.
- Cash Flow Quality: Review the composition of the ARS 2.9 billion cash balance to determine how much is derived from the real estate receivable collection versus operational cash flow.
- Inflation Accounting: Note that financial statements are not restated for inflation (IAS 29 excluded), which may obscure the real purchasing power of assets and liabilities in a hyperinflationary environment.