EDENOR First Quarter 2009 Financial Summary
Business Context and Reporting Period
Company: Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR)
Reporting Period: Three months ended March 31, 2009
Filing Date: May 13, 2009 (Form 6-K)
Business Overview: Argentina's largest electricity distributor, serving the northwestern zone of Greater Buenos Aires and northern Buenos Aires City. Financials are prepared under Argentine GAAP in Argentine Pesos (Ps.), with USD translations provided at a rate of Ps. 3.720.
Key Financial Metrics
| Metric (in millions of Ps.) | Q1 2009 | Q1 2008 | % Change |
|---|---|---|---|
| Net Sales | 551.9 | 455.7 | +21.1% |
| Electric Power Purchases | (267.6) | (214.9) | +24.5% |
| Gross Margin | 284.3 | 240.8 | +18.1% |
| Net Operating Income | 74.1 | 64.2 | +15.4% |
| Net Income | 30.1 | 19.0 | +58.4% |
| Operating Cash Flow | 128.8 | 68.3 | +88.6% |
| Capital Expenditures | 67.5 | 84.1 | -19.7% |
Liquidity & Debt:
- Cash & Equivalents: Ps. 137.6 million (March 31, 2009) vs. Ps. 126.4 million (Dec 31, 2008).
- Financial Debt: Outstanding principal of approximately US$ 222.5 million as of March 31, 2009.
- Debt Repurchases: Repurchased and cancelled ~US$ 28.9 million of Par Notes due 2016; currently holds ~US$ 11.2 million of Senior Notes due 2017.
Material Changes vs. Prior Period
- Revenue Growth: Driven primarily by the recognition of the Cost Monitoring Mechanism (CMM) adjustment approved in August 2008 (applied retroactively) and increased energy purchase prices passed to certain customers. This offset a 0.7% decline in energy volume sold (4,555 GWh vs. 4,589 GWh).
- Cost Increases: Electric power purchases rose 24.5% due to higher unit prices and a slight volume increase. Operating expenses increased due to salary adjustments granted in late 2008 and a significant rise in the allowance for doubtful accounts (Ps. 11.0 million vs. Ps. 3.2 million) as past due receivables days increased from 3.94 to 7.42.
- Financial Results: Net income surged 58.4% despite higher operating costs. This was largely due to a Ps. 63.1 million gain from the repurchase of corporate notes and favorable exchange differences on assets, partially offset by Ps. 66.3 million in exchange losses on liabilities.
- Energy Losses: Improved to 9.5% in Q1 2009 from 9.1% in Q1 2008.
Outlook, Risks, and Recent Events
- Tariff Uncertainty: The Revision of the Company Tariff Structure (RTI), expected to take effect in February 2009, had not been resolved by the filing date. A preliminary injunction issued in January 2009 prohibits the company from cutting power for non-payment of bills issued with recent rate hikes until a final court ruling.
- New Debt Issuance: On May 7, 2009, the company issued Ps. 75.7 million in Par Notes due 2013 (floating rate: BADLAR + 6.75%) to finance capital expenditures.
- Regulatory Risks: The company faces ongoing negotiations regarding the Framework Agreement for low-income areas and potential penalties from the National Regulatory Authority (ENRE) regarding service quality, though many penalties are currently suspended or under appeal.
- Legal Contingencies: Significant accrued litigation exists (Ps. 100.7 million total), primarily related to tax disputes and service quality penalties. The company believes it has solid arguments against major tax claims.
Investor Verification Checklist
- Tariff Resolution: Monitor the status of the RTI implementation and the court injunction regarding power cuts for non-payment.
- Collectibility: Verify the trend in "days sales outstanding" and the adequacy of the allowance for doubtful accounts, which saw a sharp increase in Q1.
- Debt Structure: Confirm the impact of the new Ps. 75.7 million note issuance on leverage ratios and interest coverage.
- Exchange Rate Exposure: Assess the sensitivity of net income to further fluctuations in the USD/ARS exchange rate, given the mismatch between peso-denominated revenues and dollar-denominated debt.
- Regulatory Penalties: Review the status of ENRE penalties and the Framework Agreement negotiations with the Province of Buenos Aires.