EDENOR Form 6-K Summary: Third Quarter 2017
Business Context and Reporting Period
Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR), Argentina's largest electricity distributor, reported results for the third quarter and nine months ended September 30, 2017. The company operates under a concession in the northwestern zone of the greater Buenos Aires metropolitan area. Financial figures are presented in Argentine Pesos (ARS) in accordance with IFRS.
Key Financial Metrics
| Metric (3Q 2017) | Value (ARS Millions) | YoY Change |
|---|---|---|
| Revenue from Sales | 6,458.1 | +89.4% |
| Gross Margin | 3,030.8 | +114.4% |
| Net Operating Income | 732.9 | Turnaround from (723.0) loss |
| Net Income | 291.2 | Turnaround from (656.8) loss |
| Adjusted EBITDA | 869.6 | Turnaround from (535.7) loss |
| Capital Expenditures | 1,108.8 | +65.8% vs 3Q 2016 |
| Energy Sales Volume | 5,583 GWh | -2.6% |
Liquidity and Debt: As of September 30, 2017, cash and cash equivalents totaled ARS 67.8 million. Outstanding dollar-denominated financial debt was USD 176.4 million (Corporate Bonds maturing 2022). On October 11, 2017, the company secured an additional USD 50 million loan from ICBC Dubai for working capital and investment.
Material Changes vs. Prior Period
- Revenue Growth: Driven primarily by the first stage of tariff increases effective February 1, 2017, following the Integral Tariff Review (RTI). This offset a 2.6% decline in energy sales volume.
- Volume Decline: Residential demand fell 6.4% due to warmer weather (1.5°C higher average temperatures in Aug/Sep 2017). Medium commercial demand dropped 4.1% due to lower economic activity.
- Cost Structure: Energy purchases rose 71.7% due to a ~79% increase in average purchase prices. Operating expenses remained relatively flat (-1.4%) due to a significant reduction in regulatory penalties, partially offset by higher labor costs and bad debt provisions.
- Profitability: The company returned to profitability in 3Q17, reversing a net loss in 3Q16, largely due to improved gross margins from tariff adjustments.
Outlook, Risks, and Management Commentary
- Tariff Deferral: The Ministry of Energy and Mining (MEyM) deferred a scheduled tariff increase from November 1, 2017, to December 1, 2017. The impact will be recognized via an adjustment mechanism (ENRE Resolution No. 63/17).
- Regulatory Adjustments: Approximately ARS 4,196.7 million in deferred revenue related to VAD adjustments (Feb–Sep 2017) will be recognized in 48 installments starting February 2018.
- Investment Plan: Capital expenditures increased to ARS 1,108.8 million in 3Q17. The 2017-2021 investment plan is being adjusted to align with the deferred revenue scenario.
- Financial Risks: Financial results were negatively impacted by foreign exchange variations due to the depreciation of the Argentine Peso against the USD, increasing interest charges on dollar-denominated debt.
- Operational Initiatives: Energy losses decreased to 18.4% (from 18.9% in 3Q16). The company is intensifying the Market Discipline Plan to combat electricity theft and irregular connections.
Investor Verification Checklist
- Verify the timeline and accounting treatment for the ARS 4,196.7 million deferred revenue recognition starting February 2018.
- Monitor the impact of the December 1, 2017 tariff deferral on Q4 2017 cash flows and liquidity.
- Assess the sustainability of the 18.4% energy loss rate and the effectiveness of the Market Discipline Plan.
- Review the exposure to Argentine Peso devaluation on the USD 176.4 million outstanding debt and the new USD 50 million loan.
- Confirm the execution of the revised 2017-2021 investment plan given the partial deferral of tariff revenues.