Business Context and Reporting Period
Company: EDENOR (Empresa Distribuidora y Comercializadora Norte S.A.)
Reporting Period: First Quarter 2014 (Ended March 31, 2014)
Business Overview: Argentina's largest electricity distributor, serving the northwestern zone of the greater Buenos Aires metropolitan area and the northern part of the city of Buenos Aires. The company operates under a concession and reports in Argentine Pesos (ARS) in accordance with IFRS on a standalone basis.
Key Financial Metrics
| Metric (Million ARS) | 1Q 2014 | 1Q 2013 |
|---|---|---|
| Revenue from Sales | 900.6 | 834.4 |
| Electric Power Purchases | (439.7) | (487.9) |
| Net Operating Loss | (377.8) | (286.3) |
| Net Loss | (738.6) | (510.4) |
| Adjusted EBITDA | (201.0) | (97.3) |
| Capital Expenditures | 275.0 | 189.9 |
| Cash and Cash Equivalents (Ending) | 114.3 | 243.5 |
| Outstanding Dollar Debt | US$ 191.1 | N/A |
Note: USD figures in the source are translated at a rate of ARS 8.00 per USD as of March 31, 2014.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 7.9% to ARS 900.6 million, driven by a 0.9% increase in energy volume sold (5,204 GWh vs. 5,156 GWh). Residential sales volume rose 9.3%, offset by declines in medium commercial (-8.9%) and industrial (-6.5%) segments.
- Widening Losses: Net Loss increased 45% to ARS 738.6 million. This was primarily caused by a 32% increase in operating expenses and significant negative exchange differences of ARS 260.9 million due to the devaluation of the US dollar in January 2014.
- Cost Increases: Total operating expenses rose 32.3% to ARS 810.9 million. Key drivers included salary increases (ARS 82.5 million), higher fees and remuneration for services (ARS 72.6 million), and increased supplies consumption (ARS 22.8 million).
- Power Purchases: Costs for electric power purchases decreased 9.9% to ARS 439.7 million, largely due to a reduction in mobile generation costs, partially offset by higher energy losses.
- Cash Flow: Net cash provided by operating activities was ARS 364.2 million, compared to ARS 322.7 million in 1Q 2013. However, cash and cash equivalents decreased significantly from ARS 243.5 million to ARS 114.3 million due to investing activities and exchange differences.
Guidance, Outlook, and Material Events
- Debt Restructuring: The AESEBA Trust closed, purchasing and cancelling US$ 10 million of Senior Notes due 2017 and US$ 68 million of Senior Notes due 2022. The trust is currently in the process of dissolution.
- Debt Service: Interest coupons were paid in April 2014: US$ 0.8 million for Notes due 2017 and US$ 8.6 million for Notes due 2022.
- New Contracts: The company received the first installment of ARS 19.8 million for an agreement to supply electric power to the Mitre and Sarmiento railway lines and has initiated the project.
- Capital Allocation: Capital expenditures increased to ARS 275.0 million, focused on new connections (ARS 207.5 million) and network maintenance (ARS 41.5 million).
- Risks: The filing contains forward-looking statements subject to risks including general economic conditions, industry conditions, and operating factors. The company notes that actual results may differ materially from expectations.
Investor Verification Checklist
- Currency Volatility: Verify the impact of the January 2014 US dollar devaluation on future financial results and debt servicing costs.
- Regulatory Pricing: Confirm the status of Resolution No. 347/12 and its effect on revenue, as income from this resolution decreased in the current period.
- Debt Obligations: Monitor the remaining outstanding principal of US$ 191.1 million and upcoming coupon payments for Senior Notes due 2017 and 2022.
- Operational Efficiency: Review the trend in energy losses, which increased 1.2% year-over-year, impacting the cost of power purchases.
- Liquidity Position: Assess the reduction in cash and cash equivalents (down 53% year-over-year) against the company's capital expenditure plans and debt obligations.