EDENOR 20-F Annual Report Summary (Fiscal Year Ended Dec 31, 2012)
Business Context and Reporting Period
Company: Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR)
Reporting Period: Fiscal year ended December 31, 2012
Accounting Basis: International Financial Reporting Standards (IFRS) – First year of adoption (previously Argentine GAAP)
Operations: EDENOR is the largest electricity distribution company in Argentina, serving the northwestern part of the Greater Buenos Aires metropolitan area and the northern part of the City of Buenos Aires. The consolidated financial statements include the subsidiary Aeseba (and its subsidiary Eden) as of December 31, 2012. The company is currently engaged in an Integral Tariff Revision (RTI) process with the regulator (ENRE) to adjust its tariff structure.
Key Financial Metrics
| Metric | 2012 (USD Millions) | 2012 (ARS Millions) | 2011 (ARS Millions) |
|---|---|---|---|
| Revenue from Sales | 757.5 | 3,725.3 | 2,805.8 |
| Gross Profit | 18.9 | 93.0 | 385.5 |
| Operating Income (Loss) | (145.0) | (713.3) | 258.9 |
| Net Loss (Continuing Ops) | (201.5) | (991.0) | (151.9) |
| Net Loss (Total) | (206.1) | (1,013.4) | (291.4) |
| Cash & Equivalents (End of Period) | 14.5 | 71.1 | 130.5 |
| Total Debt (Borrowings) | 295.6 | 1,453.8 | 1,248.9 |
| Operating Cash Flow | 129.1 | 635.1 | 659.0 |
Note: USD figures are translated at the year-end rate of Ps. 4.918 to USD 1.00. 2011 figures are restated to IFRS for comparability.
Material Changes vs. Prior Period
- Revenue Growth: Revenue from sales increased 32.8% (ARS) to Ps. 3,725.3 million, driven by a 29.3% increase in net sales from Edenor due to higher energy prices (subsidy cuts) and a 3.3% increase in energy volume sold.
- Profitability Collapse: Despite revenue growth, the company swung from an operating profit of Ps. 258.9 million in 2011 to an operating loss of Ps. 713.3 million in 2012. Gross profit plummeted 75.9% to Ps. 93.0 million.
- Cost Inflation: Transmission and distribution expenses rose 43.4% to Ps. 1,570.1 million, primarily due to increased contractor fees (99% increase) and salaries (26% increase). Selling and administrative expenses also increased significantly.
- Financial Expenses: Net financial expense increased to Ps. 377.5 million (from Ps. 257.8 million) due to commercial interest accruals and exchange rate variations.
- Discontinued Operations: Loss from discontinued operations decreased significantly to Ps. 22.4 million (from Ps. 139.5 million) as the company divested several subsidiaries (Edesal, Edesa, EGSSA) during the period.
Guidance, Outlook, Risks, and Contingencies
- Going Concern Warning: The independent auditors (PwC) issued a report containing an explanatory paragraph expressing substantial doubt regarding the company's ability to continue as a going concern. This is due to delays in obtaining tariff increases, the failure to recognize cost adjustments under the Adjustment Agreement, and continuous increases in operating expenses.
- Tariff Renegotiation (RTI): The company is in a prolonged RTI process with the ENRE. Ten requests for Cost Monitoring Mechanism (CMM) adjustments since May 2008 remain largely unapproved. Management estimates uncollected CMM adjustments amount to approximately Ps. 1,999 million.
- Liquidity Crisis: The company has a working capital deficit. As of October 2012, it began partially canceling obligations to the wholesale electricity market (CAMMESA) to preserve cash for essential operations. Commercial debt to CAMMESA was approximately Ps. 696.5 million as of the report date.
- Outlook for 2013: Management estimates negative cash flows and operating losses will continue in 2013 unless the tariff structure is successfully renegotiated or alternative financing is secured.
- Regulatory Risks: Risks include the potential for fines exceeding 20% of gross energy sales (which could trigger foreclosure on Class A shares), energy shortages, and the impact of Argentine macroeconomic instability (inflation, exchange controls).
- Capital Reduction: Due to accumulated deficits exceeding reserves plus 50% of capital stock, the company is required by law to reduce its capital stock. A shareholders' meeting resolved to reduce capital on April 25, 2013.
Key Facts for Investor Verification
- Going Concern Status: Verify the current status of the RTI negotiations with the ENRE and whether the "substantial doubt" qualification has been resolved in subsequent filings.
- CAMMESA Debt: Confirm the current level of unpaid commercial debt to the wholesale electricity market and any regulatory actions taken against the company for non-payment.
- Tariff Adjustments: Check for any new resolutions approving the pending CMM adjustments or the final RTI tariff structure to assess future revenue recovery.
- Capital Structure: Review the implementation of the mandatory capital stock reduction and its impact on share value and equity.
- Dividend Restrictions: Note that the company is restricted from paying dividends without ENRE approval until the RTI is completed.