EDENOR First Half 2007 Financial Summary
Business Context and Reporting Period
This Form 6-K filing covers the six-month period ended June 30, 2007, for Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR), Argentina's largest electricity distributor. The company serves the northwestern zone of the greater Buenos Aires metropolitan area. Financial figures are presented in Argentine pesos (Ps.) and translated to U.S. dollars at the June 30, 2007 rate of Ps. 3.093 per USD, in accordance with Argentine GAAP.
Key Financial Metrics
| Metric | 1H 2007 (Ps. Million) | 1H 2006 (Ps. Million) | % Change |
|---|---|---|---|
| Net Sales | 1,066.0 | 669.8 | 59.2% |
| Gross Margin | 622.7 | 286.6 | 117.3% |
| Net Operating Income | 322.7 | 19.9 | 1,521.6% |
| Net Income | 114.8 | 404.2 | (71.6%) |
| Operating Cash Flow | 139.7 | 79.4 | 75.9% |
| Capital Expenditures | 97.1 | 69.4 | 40.0% |
| Outstanding Debt (USD) | 340.4 Million | N/A | N/A |
Note: Net Income decreased significantly year-over-year despite higher operating income due to a non-cash tax charge of Ps. 89.9 million in 2007, compared to a tax benefit of Ps. 189.2 million in 2006.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 59.2% primarily due to a 38.3% increase in the distribution margin (VAD) effective February 1, 2007, and the accrual of a Ps. 218.6 million retroactive VAD adjustment for non-residential customers (Nov 2005–Jan 2007). Excluding the unbilled portion of the retroactive adjustment, sales grew 29.6%.
- Volume Increase: Energy sold rose 9.6% to 8,892.3 GWh, driven by a 7.8% increase in average consumption per customer and a 1.8% increase in customer count.
- Margin Expansion: Gross margin surged 117.3% to Ps. 622.7 million. Excluding the unbilled retroactive adjustment, gross margin would have increased 48.2%.
- Expense Management: Selling expenses decreased 9.0% to Ps. 42.2 million due to a favorable reduction in the allowance for doubtful accounts. Transmission and distribution expenses rose 17.0% due to higher salaries and outsourcing costs.
- Debt Reduction: The company repurchased US$ 36 million in Discount Bonds in May 2007, reducing total outstanding debt to US$ 340.4 million.
Guidance, Outlook, and Risks
- Tariff Revision (RTI): Management expects the Integral Tariff Revision to be implemented in two installments starting February 1, 2008 (67% in Feb, 33% in Aug). The company anticipates the new structure will maintain current distribution margins adjusted for inflation and cost monitoring mechanisms.
- Ownership Change: On June 22, 2007, indirect controlling shareholders signed a Memorandum of Understanding to transfer their stock to Pampa Holding S.A. This transaction is subject to conditions and is not guaranteed to close.
- Risks: The filing highlights risks related to the consummation of the Pampa Holding transaction, general economic conditions, and the timing of tariff adjustments. Net income is sensitive to non-cash accounting adjustments regarding debt restructuring and tax loss carry-forwards.
Investor Verification Checklist
- Retroactive Revenue Recognition: Verify the collectability of the Ps. 198.0 million unbilled retroactive VAD adjustment included in 1H 2007 results.
- Tax Position: Confirm the sustainability of the tax loss carry-forward utilization given the Ps. 89.9 million non-cash tax charge in 2007.
- Debt Structure: Review the terms of the remaining US$ 340.4 million debt and the impact of exchange rate fluctuations on USD-denominated liabilities.
- Transaction Status: Monitor the progress of the proposed sale of controlling interests to Pampa Holding S.A.
- Regulatory Timeline: Track the implementation schedule of the Integral Tariff Revision (RTI) expected in early 2008.