Business Context and Reporting Period
Company: EDENOR (Empresa Distribuidora y Comercializadora Norte S.A.)
Reporting Period: Year ended December 31, 2014
Business: Distribution and sale of electricity in the Greater Buenos Aires area under a 95-year concession.
Parent Company: Electricidad Argentina S.A. (EASA), holding 51.54% of capital stock.
Regulatory Environment: Heavily regulated by the National Regulatory Authority for the Distribution of Electricity (ENRE) and the Federal Government. The company faces significant delays in tariff adjustments and recognition of higher costs.
Key Financial Metrics (in thousands of Argentine Pesos)
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | 3,598,376 | 3,440,691 |
| Operating Loss | (253,018) | 1,314,647 (Profit) |
| Net Loss | (779,716) | 772,759 (Profit) |
| Net Financial Expense | (681,054) | (490,896) |
| Operating Cash Flow | 1,547,990 | 1,436,721 |
| Total Assets | 8,630,069 | 7,258,096 |
| Total Liabilities | 8,245,068 | 6,081,794 |
| Total Equity | 385,001 | 1,176,302 |
| Cash and Cash Equivalents | 179,080 | 243,473 |
| Borrowings (Total) | 1,632,403 | 1,350,532 |
Note: All figures are stated in thousands of Argentine pesos. The 2014 results include a significant non-cash "Higher costs recognition" adjustment of 2,271,927 related to SE Resolution 250/13.
Material Changes vs. Prior Period
- Profitability Reversal: The company swung from a net profit of 772.8 million pesos in 2013 to a net loss of 779.7 million pesos in 2014. This was driven by a gross loss of 1.1 billion pesos due to rising transmission and distribution expenses (2.8 billion pesos) outpacing revenue growth.
- Equity Erosion: Total equity declined by 67% (from 1.18 billion to 385 million pesos) due to the accumulated loss. The accumulated deficit now consumes 100% of reserves and over 50% of share capital.
- Debt Increase: Total borrowings increased by approximately 21% to 1.63 billion pesos, primarily due to exchange rate differences and accrued interest on USD-denominated corporate notes.
- Regulatory Adjustments: While the company recognized 2.27 billion pesos in "Higher costs" (SE Resolution 250/13), this was insufficient to offset operating losses. The company utilized offsetting mechanisms against debts with CAMMESA (wholesale market operator) and PUREE (energy efficiency program).
Outlook, Risks, and Management Commentary
- Going Concern Doubt: The Board of Directors and the Independent Auditors have raised substantial doubt about the company's ability to continue as a going concern. This is due to the inability to obtain necessary tariff increases to cover rising costs and the resulting liquidity constraints.
- Capital Reduction Requirement: Under Section 206 of the Argentine Business Organizations Law, the company is subject to a mandatory capital stock reduction because losses have consumed more than 50% of its share capital.
- Liquidity and Financing: The company relies on government loans ("mutuums") and receivables assignments to fund salary increases and investment plans. It lacks access to the financial markets for standard financing.
- Regulatory Uncertainty: The outcome of the Tariff Structure Review (RTI) remains uncertain regarding timing and finalization. Without a revenue recomposition in 2015, the company faces potential dissolution under Argentine law.
- Currency Risk: The company has a significant net liability position in foreign currency (approx. 1.69 billion pesos net exposure). A 10% devaluation of the peso would decrease operating results by approximately 169 million pesos.
Investor Verification Checklist
- Tariff Resolution Status: Verify the current status of the Tariff Structure Review (RTI) and any new government resolutions regarding cost recovery for 2015.
- Capital Reduction Plan: Confirm if shareholders have initiated the mandatory capital reduction process required by Argentine law.
- Government Support: Assess the likelihood of continued government loans ("mutuums") and the terms of receivables assignments with CAMMESA.
- Debt Covenants: Review compliance with negative covenants on Corporate Notes, specifically regarding indebtedness levels and dividend restrictions.
- Legal Contingencies: Monitor the status of lawsuits regarding ENRE penalties and the "Consumidores Libres" legal action challenging tariff resolutions.