Business Context and Reporting Period
Company: EDENOR (Empresa Distribuidora y Comercializadora Norte S.A.)
Reporting Period: Year ended December 31, 2015 (compared to 2014)
Business: Distribution and sale of electricity in the Buenos Aires metropolitan area under a 95-year concession.
Regulatory Environment: The company operates under a complex regulatory framework involving the National Regulatory Authority for the Distribution of Electricity (ENRE) and the Ministry of Energy and Mining (MEyM). The 2015 results were significantly influenced by SE Resolution 32/15, which granted temporary income adjustments to cover costs and investments, and the December 2015 devaluation of the Argentine peso.
Key Financial Metrics (in thousands of Argentine Pesos)
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | 3,802,162 | 3,598,376 |
| Operating Profit (Loss) | 2,241,687 | (253,018) |
| Net Profit (Loss) | 1,142,443 | (779,716) |
| Net Financial Expense | (915,514) | (681,054) |
| Operating Cash Flow | 3,217,011 | 1,547,990 |
| Investing Cash Flow | (3,103,297) | (1,461,789) |
| Total Assets | 12,980,929 | 8,630,069 |
| Total Liabilities | 11,455,876 | 8,245,068 |
| Total Equity | 1,525,053 | 385,001 |
| Net Debt | 11,326,924 | 8,065,988 |
| Gearing Ratio | 88.13% | 95.44% |
Material Changes vs. Prior Period
- Profitability Turnaround: The company reversed a significant net loss in 2014 to a net profit of 1.14 billion pesos in 2015. This was primarily driven by "Income recognition on account of the RTI - SE Resolution 32/15" (5.03 billion pesos) and "Higher cost recognition" (551 million pesos), which offset operating losses.
- Currency Impact: A 40% devaluation of the Argentine peso in December 2015 resulted in a foreign exchange loss of approximately 683 million pesos, recorded in "Other financial results."
- Balance Sheet Expansion: Total assets increased by 50% to nearly 13 billion pesos, driven by a 33% increase in Property, Plant, and Equipment (PPE) due to capital investments and a significant rise in financial assets at fair value.
- Debt Levels: Borrowings increased by 54% to 2.51 billion pesos, largely due to exchange rate revaluation of USD-denominated debt and new loans for consumption (mutuums) to fund operations and investments.
Guidance, Outlook, Risks, and Unusual Items
- Regulatory Outlook: In January 2016, the government issued Resolutions 6 and 7, implementing a new electricity rate system and a "Social Tariff." The Tariff Structure Review (RTI) is expected to be concluded by December 31, 2016. The company is assessing if granted resources are sufficient to cover costs and debt service.
- Unusual Items:
- SE Resolution 32/15: Provided temporary income increases and allowed offsetting of debts against receivables, significantly impacting 2015 profitability. This resolution was repealed in early 2016.
- Loans for Consumption (Mutuums): The company relies on government-backed loans from CAMMESA to cover operational deficits and investment plans due to the delay in the RTI.
- Key Risks:
- Currency Risk: Significant net liability exposure to the US dollar. Further devaluation of the peso would increase debt service burdens.
- Regulatory Risk: Delays in the RTI process and uncertainty regarding future tariff adjustments and cost recovery mechanisms.
- Liquidity: Negative working capital of 1.8 billion pesos, including a significant amount owed to CAMMESA.
- Legal Contingencies: Ongoing lawsuits regarding tariffs, penalties, and contract breaches with the Federal Government and regulatory bodies.
Investor Verification Checklist
- RTI Progress: Verify the status of the Tariff Structure Review (RTI) and the timeline for the implementation of new permanent tariffs.
- Currency Exposure: Assess the company's hedging strategies and the potential impact of further Argentine peso devaluation on USD-denominated debt.
- CAMMESA Settlement: Confirm the status of the payment plan for the 1.8 billion pesos owed to CAMMESA and the resolution of outstanding balances.
- Regulatory Changes: Monitor the impact of MEyM Resolutions 6 and 7 on future revenue streams and the "Social Tariff" implementation.
- Legal Proceedings: Review the status of major lawsuits, particularly those against the Federal Government regarding the Adjustment Agreement and tariff disputes.