EDN

EDENOR Form 6-K Summary: Nine Months Ended September 30, 2024

Business Context and Reporting Period

Company: Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR)
Reporting Period: Nine months ended September 30, 2024 (Interim)
Business: Distribution and sale of electricity in the City of Buenos Aires and the Province of Buenos Aires.
Currency: Financial statements are presented in millions of constant Argentine pesos (ARS), restated for inflation (101.6% inflation rate for the period) in accordance with IAS 29.

Key Financial Metrics

Balance Sheet and Liquidity Highlights

• Total Assets: 3,505,311 million ARS (up from 3,040,894 million at Dec 31, 2023).
• Total Liabilities: 2,385,786 million ARS.
• Total Equity: 1,119,525 million ARS (up from 884,400 million at Dec 31, 2023).
• Cash and Cash Equivalents: 2,656 million ARS (down from 18,397 million at Dec 31, 2023).
• Borrowings: Total borrowings increased significantly to 326,566 million ARS (166,279 non-current; 160,287 current), driven by new Corporate Notes issuances.
• Trade Receivables: Increased to 356,690 million ARS from 134,222 million ARS.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 20.7% year-over-year (YoY) for the nine-month period, primarily driven by a 319.2% increase in the Distribution Own Cost (CPD) effective February 2024 and subsequent periodic adjustments.
• Profitability Turnaround: Operating result improved from a loss of 127,036 million ARS in 2023 to a profit of 26,850 million ARS in 2024. Net income rose 43.8% YoY.
• Financial Costs: Net financial costs decreased significantly (from 528,474 million loss to 396,231 million loss) due to favorable exchange differences and changes in fair value of financial assets, partially offset by high interest rates on new debt.
• Monetary Gains: Monetary gains (RECPAM) decreased to 527,083 million ARS from 667,064 million ARS, reflecting the impact of inflation restatement on net monetary positions.
• Debt Structure: The company issued new Corporate Notes (Classes 3, 4, 5, and 6) totaling approximately USD 180 million during the period to refinance maturing debt and fund operations.

Guidance, Outlook, and Risks

• Regulatory Framework: The company is undergoing an Electricity Rate Review (RT) process with the National Regulatory Authority (ENRE). The final report with proposed rates is pending submission by November 20, 2024. Management expects the RT to establish a framework ensuring economic self-sufficiency.
• Subsidy Reductions: The government is implementing a gradual reduction in energy subsidies, with caps on subsidized consumption raised and the "Social Tariff" universe redefined. This is expected to improve the company's financial equation.
• Legislative Context: The "Bases Law" (Law No. 27,742) introduces economic deregulation, privatization of state-owned companies, and labor market reforms. While aimed at efficiency, the context remains volatile with uncertainty regarding future measures.
• Contingencies:
  • AFIP Tax Dispute: The company adhered to a payment facilitation plan for social security contributions (2011-2019), agreeing to pay principal in installments with a 70% reduction in fines/interest.
  • Street Lighting Fee: Regulatory changes initially suspended the collection of street lighting fees via electricity bills, though provisional measures have reinstated the obligation in several municipalities.
  • Legal Proceedings: Various class actions and administrative proceedings are ongoing, including a challenge to the nullity of a 2019 agreement regarding concession transfers.
• Credit Ratings: Credit rating agencies (S&P, Moody's, Fix SCr) improved the company's long-term debt ratings in the first nine months of 2024. Moody's upgraded the issuer rating to A.ar in October 2024.

Investor Verification Checklist

• Rate Review (RT) Outcome: Verify the final approved electricity rate schedule post-November 2024 to confirm the sustainability of the improved gross margin.
• Debt Covenants: Confirm compliance with debt covenants (Debt Ratio < 3.75; Interest Coverage > 2.0) given the significant increase in borrowings.
• Cash Flow Sustainability: Monitor operating cash flows against the substantial increase in trade receivables and the reduction in cash balances.
• Inflation Restatement: Understand the impact of the 101.6% inflation rate on the comparability of financial figures and the volatility of monetary gains (RECPAM).
• Subsidy Transition: Assess the actual impact of the government's subsidy reduction program on collection rates and revenue realization.