EDENOR 3Q 2018 Financial Summary
Business Context and Reporting Period
Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR) is Argentina's largest electricity distributor by customer count and energy sales. This Form 6-K reports results for the third quarter and nine months ended September 30, 2018. All figures are presented in Argentine Pesos (ARS) in accordance with IFRS. The Company operates under a concession in the northwestern zone of the Greater Buenos Aires metropolitan area.
Key Financial Metrics
Revenue and Profitability (3Q 2018 vs. 3Q 2017):
- Revenue from Sales: ARS 13,460.7 million (up 108.4% YoY).
- Gross Margin: ARS 5,465.2 million (up 80.3% YoY).
- Net Operating Income: ARS 1,565.6 million (up 113.6% YoY).
- Net Income: ARS 847.4 million (up 191.0% YoY).
- Adjusted EBITDA: ARS 1,876.9 million (up 63% YoY).
Cash Flow (9 Months Ended Sep 30, 2018):
- Operating Cash Flow: ARS 7,332.3 million (compared to ARS 2,079.4 million in 2017).
- Investing Cash Flow: ARS (3,797.2) million used.
- Financing Cash Flow: ARS (936.6) million used.
- Cash and Equivalents: Ended at ARS 2,897.4 million (up from ARS 82.9 million at year-end 2017).
Debt and Liquidity:
- USD Financial Debt: Outstanding principal of USD 226.4 million (Corporate Bonds and ICBC loan).
- Net Debt: USD 27.5 million.
- Capital Expenditures (3Q 2018): ARS 2,145.0 million (up from ARS 1,108.8 million in 3Q 2017).
Material Changes vs. Prior Period
The significant increase in revenue (108.4%) was driven primarily by tariff adjustments (VAD updates and CPD adjustments) rather than volume, as energy sales volume increased only 0.7% to 5,626 GWh. Residential demand rose 2.5% due to lower temperatures, while industrial demand fell 3.5%.
Energy purchase costs surged 133.3% due to a 122.1% increase in average purchase prices and a rise in energy loss rates from 18.4% to 20.4%. Operating expenses increased 79.9%, largely due to higher penalties (ARS 586.1 million increase), third-party service fees, and salary increases (29.4%).
Financial results showed a 7.4% reduction in losses to ARS 314.9 million. This improvement was driven by a one-time gain of ARS 1,629.4 million from the revaluation of a receivable related to a terminated real estate contract, which offset negative impacts from peso devaluation (ARS 1,334.3 million loss).
Outlook, Risks, and Unusual Items
Unusual Items:
- Real Estate Transaction: Edenor terminated a contract with developer RDSA for a USD 46 million asset. The Company collected fines and recorded a receivable with a fair value of ARS 2,068.7 million, generating pre-tax income of ARS 1,629.4 million.
- Hyperinflation Accounting: Although Argentina is classified as a hyperinflationary economy under IAS 29, the Company did not restate financial statements for this period due to a conflict with Executive Decree No. 664/03.
Regulatory and Operational Risks:
- Energy Losses: Loss rates increased to 20.4% due to fraud incentives from tariff hikes and lower temperatures. The Company is intensifying "Market Discipline" actions and installing inclusion meters to mitigate this.
- Rating Downgrade: S&P Global changed Edenor's outlook from "positive" to "stable" (Global "B", Local "raA") citing sovereign risk, peso weakness, and the imbalance between peso inflows and dollar-denominated debt.
- Corporate Structure: Pampa Energía became the direct controlling company following a merger process in August 2018.
Investor Verification Checklist
- Verify the recoverability of the ARS 2,068.7 million receivable from the terminated real estate contract.
- Monitor the trend of energy loss rates (currently 20.4%) and the effectiveness of fraud reduction initiatives.
- Assess the impact of ongoing peso devaluation on the company's USD-denominated debt service costs.
- Confirm the status of pending regularization of obligations arising from the Transition Period with the Secretariat of Electric Energy.
- Review the timeline for the remaining 50% of the CPD adjustment scheduled for February 2019.