EDENOR Form 6-K Summary: Fourth Quarter and Full Year 2009 Results
Business Context and Reporting Period
Company: Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR)
Reporting Period: Fourth Quarter ended December 31, 2009, and Full Year 2009.
Filing Date: March 2, 2010.
Business Overview: Argentina's largest electricity distributor, serving the northwestern zone of Greater Buenos Aires and the northern part of the city of Buenos Aires. The company operates under a concession agreement regulated by the National Regulatory Authority for the Distribution of Electricity (ENRE).
Currency: Financial statements are prepared in Argentine Pesos (Ps.) in accordance with Argentine GAAP. USD translations are provided at a rate of Ps. 3.80 per USD (as of Dec 31, 2009).
Key Financial Metrics
| Metric (Millions of Ps.) | 4Q 2009 | 4Q 2008 | Full Year 2009 | Full Year 2008 |
|---|---|---|---|---|
| Net Sales | 499.6 | 604.8 | 2,077.9 | 2,000.2 |
| Gross Margin | 260.4 | 334.8 | 1,074.5 | 1,065.5 |
| Net Operating Income | 23.8 | 117.2 | 190.4 | 302.9 |
| Net Income | 4.7 | 77.0 | 90.6 | 123.1 |
| Capital Expenditures | 112.4 | 100.5 | 404.3 | 335.7 |
| Energy Sold (GWh) | 4,434 | 4,581 | 18,220 | 18,616 |
Debt and Liquidity (as of Dec 31, 2009):
- USD Denominated Debt: $176.6 million outstanding principal (net of notes held by the company).
- Peso Denominated Debt: Ps. 75.7 million (Floating Rate notes due 2013).
- Cash and Cash Equivalents: Ps. 228.4 million (including time deposits and money market funds).
- Current Ratio: 0.91 (Current Assets: Ps. 693.6M / Current Liabilities: Ps. 760.3M).
Material Changes vs. Prior Period
- Revenue Decline (4Q): Net sales decreased 17.4% in Q4 2009 compared to Q4 2008. This was primarily due to the absence of a retroactive tariff adjustment recorded in Q4 2008 and a 3.2% decrease in energy volume sold.
- Profitability Compression: Net Operating Income dropped 79.7% in Q4 2009, and Net Income fell 93.9%. The decline is attributed to lower gross margins and increased operating expenses (salaries, outsourcing, and administrative costs).
- Full Year Performance: Despite the Q4 weakness, Full Year 2009 Net Sales increased 3.9% and Gross Margin increased 0.8% compared to 2008. However, Full Year Net Operating Income decreased 37.1% due to higher operating costs.
- Energy Losses: Energy losses increased to 11.9% in 2009 from 10.8% in 2008.
- Financial Results: Financial expenses generated by liabilities decreased significantly (Ps. 93.2 million improvement) due to a reduction in exchange losses compared to the prior year.
Guidance, Outlook, and Risks
Regulatory and Tariff Outlook:
- Tariff Revision (RTI): The implementation of the new electricity rate schedule resulting from the Revision of the Company Tariff Structure (RTI), expected since February 2009, remains pending as of the filing date.
- Cost Monitoring Mechanism (MMC): The company has submitted MMC adjustment requests for periods through October 2009. Approval by the ENRE is pending, which is critical for restoring the economic and financial equation of the business.
- Legal Challenges: A preliminary injunction issued by a court (National Ombudsman case) prohibits the company from cutting power for non-payment of bills issued with recent rate hikes until a final ruling is issued. The company has appealed this decision.
Risks and Contingencies:
- Regulatory Risk: Delays in tariff adjustments and the RTI process impact revenue recovery and cost pass-through.
- Legal Litigation: Ongoing disputes regarding tax assessments (AFIP), environmental pollution claims (PCB-related, currently in Supreme Court review), and consumer association complaints against rate hikes.
- Exchange Rate Risk: The company has significant USD-denominated debt while revenues are in Pesos. The company utilizes forward and futures contracts to hedge against exchange rate fluctuations.
- Operational Risk: Approximately 83% of employees are union members; collective bargaining agreements expired in 2007, and negotiations are ongoing.
Key Facts for Investor Verification
- Tariff Approval Status: Verify the current status of the RTI implementation and the approval of pending MMC adjustments by the ENRE, as these are critical for future margin recovery.
- Legal Injunction Impact: Assess the financial impact of the court injunction preventing disconnections for non-payment and the outcome of the Supreme Court appeal regarding the PCB environmental case.
- Debt Structure: Confirm the company's ability to service its USD-denominated debt ($176.6M) given the volatility of the Argentine Peso and the reliance on hedging instruments.
- Working Capital: Monitor the current ratio (0.91) and the aging of trade receivables, particularly those related to the Framework Agreement with the Province of Buenos Aires.
- Capital Expenditure Plan: Verify the execution of the Ps. 404.3 million capital expenditure plan, which is essential for maintaining service quality and meeting regulatory requirements.