Business Context and Reporting Period
Company: EDENOR (Empresa Distribuidora y Comercializadora Norte S.A.)
Reporting Period: Fourth Quarter and Full Year ended December 31, 2013.
Business Overview: Argentina's largest electricity distributor, serving the northwestern zone of the Buenos Aires metropolitan area and the northern part of the city of Buenos Aires. The company operates under a concession and reports figures in Argentine Pesos (AR$) and U.S. Dollars (US$) at an exchange rate of Ps. 6.521 per US$ as of December 31, 2013.
Key Financial Metrics
Fourth Quarter 2013 Performance (in millions of AR$)
| Metric | 4Q 2013 | 4Q 2012 | % Change |
|---|
| Net Sales | 872.2 | 809.7 | 7.7% |
| Electric Power Purchases | (467.2) | (433.4) | 7.8% |
| Net Operating Loss (before regulatory adjustments) | (508.5) | (223.2) | 127.8% |
| Net Loss | (19.3) | (389.5) | (95%) |
| Adjusted EBITDA | (287.8) | (50.4) | N/A |
Full Year 2013 Performance (in millions of AR$)
| Metric | 2013 | 2012 |
|---|
| Revenue from Sales | 3,440.7 | 2,977.1 |
| Net Profit (Loss) | 771.7 | (1,016.5) |
| Capital Expenditures | 1,092.3 | 544.3 |
| PUREE Funds | 491.9 | 410.7 |
Liquidity and Debt
- Cash and Cash Equivalents (Year End 2013): AR$ 243.5 million (US$ 37.3 million).
- Net Cash Flow from Operating Activities (2013): AR$ 1,512.2 million (US$ 174.8 million).
- Outstanding Dollar-Denominated Debt: US$ 208.9 million (net of held notes), consisting of US$ 14.8 million Senior Notes due 2017 and US$ 194.1 million Senior Notes due 2022.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 7.7% in 4Q 2013, driven by a 6.3% increase in energy volume sold (5,352 GWh vs. 5,033 GWh) and additional income from Resolution No. 347/12.
- Profitability Turnaround: The company reported a net loss of AR$ 19.3 million in 4Q 2013, a significant improvement from the AR$ 389.5 million loss in 4Q 2012. This was primarily due to a non-cash accounting recognition of AR$ 723.6 million under the Cost Monitoring Mechanism (CMM) via Note 6852/13.
- Operating Expenses: Operating expenses rose significantly. Salaries and social security increased 103.9% in 4Q 2013 compared to 4Q 2012, and ENRE penalties increased 167.5% due to service interruptions.
- Capital Expenditures: CapEx for the full year 2013 more than doubled to AR$ 1,092.3 million, funded largely by the FOCEDE trust for infrastructure and maintenance.
Guidance, Outlook, Risks, and Unusual Items
Regulatory and Operational Risks
- Heat Wave Impact: A severe heat wave in late 2013 caused power outages, leading to ENRE Resolution 1/2014. The company must pay AR$ 77.5 million in compensation to users, recognized as a credit on future invoices.
- Tariff Adjustments: While twelve tariff increases under the CMM have been ratified retroactively to September 2013, they have not yet been transferred to current rates, creating a receivable rather than immediate cash inflow.
- FOCEDE Status: Future investments using FOCEDE funds now require authorization from the Ministry of National Planning, Public Investment and Services, adding a layer of regulatory oversight.
Unusual Items
- Non-Cash Adjustments: The significant improvement in net loss for 4Q 2013 is largely attributable to the accounting recognition of CMM costs (AR$ 723.6 million) and a gain on the repurchase of Edenor Notes (AR$ 23.2 million), rather than operational cash generation.
- Exchange Differences: The company recorded exchange differences of AR$ 92.2 million in 4Q 2013.
Investor Verification Checklist
- Cash Flow vs. Accounting Profit: Verify the discrepancy between the reported net profit and the negative Adjusted EBITDA (AR$ 287.8 million loss) to understand the reliance on non-cash regulatory adjustments.
- Debt Service Capacity: Assess the ability to service US$ 208.9 million in dollar-denominated debt given the company's exposure to Argentine Peso volatility and regulatory cash flow constraints.
- Regulatory Compensation: Monitor the impact of the AR$ 77.5 million compensation liability from Resolution 1/2014 on future cash flows and customer billing.
- Tariff Implementation: Confirm the timeline for the transfer of ratified CMM tariff increases into current rates to ensure future revenue recognition.
- Operational Costs: Review the sustainability of the 103.9% increase in salary-related expenses and the 167.5% increase in regulatory penalties.
