EDENOR Form 6-K Summary: Condensed Interim Financial Statements
Business Context and Reporting Period
Company: Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR)
Reporting Period: Six and three months ended June 30, 2022
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 (36.2% for the period) in accordance with IAS 29.
Parent Company: Empresa de Energía del Cono Sur S.A. (owns 51%).
Key Financial Metrics
| Metric (Millions of Constant ARS) | Six Months Ended June 30, 2022 |
Six Months Ended June 30, 2021 |
|---|---|---|
| Revenue | 72,426 | 77,443 |
| Energy Purchases | (48,214) | (48,549) |
| Gross Margin | 4,988 | 10,021 |
| Operating Profit (Loss) | (10,681) | (2,702) |
| Net Financial Costs | (25,637) | (15,610) |
| Monetary Gain (RECPAM) | 30,819 | 18,846 |
| Profit (Loss) Before Taxes | (5,499) | 534 |
| Net Loss for the Period | (9,859) | (19,113) |
| Loss Per Share (ARS) | (11.27) | (21.84) |
Balance Sheet Highlights (as of June 30, 2022):
- Total Assets: 325,529 (vs. 324,211 at Dec 31, 2021)
- Total Liabilities: 234,921 (vs. 223,750 at Dec 31, 2021)
- Total Equity: 90,608 (vs. 100,461 at Dec 31, 2021)
- Cash and Cash Equivalents: 3,847 (vs. 4,324 at Dec 31, 2021)
- Borrowings: 9,768 total (6,339 non-current; 3,429 current)
Cash Flow (Six Months Ended June 30, 2022):
- Operating Cash Flow: 14,825 (Positive)
- Investing Cash Flow: (12,104) (Negative)
- Financing Cash Flow: (3,761) (Negative)
- Net Decrease in Cash: (1,040)
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased by approximately 6.5% compared to the prior year, despite a 6.7% increase in electricity sales volume (GWh). This indicates a reduction in effective tariff rates or a shift in customer mix.
- Widening Operating Loss: Operating loss increased significantly from (2,702) to (10,681). This was driven by a drop in gross margin (from 10,021 to 4,988) and increased administrative expenses (from 5,066 to 6,950).
- Financial Costs Surge: Net financial costs rose by 64% to (25,637), primarily due to higher commercial interest and exchange differences, partially offset by a significant monetary gain (RECPAM) of 30,819 due to inflation restatement.
- Improved Net Loss: Despite the operating deterioration, the Net Loss improved from (19,113) to (9,859), largely due to the inflationary monetary gain and a lower income tax expense compared to the prior year.
- Debt Restructuring: The company executed an exchange offer for Class No. 9 Corporate Notes (due 2022) for new Class N I notes (due 2025), achieving a 73.25% acceptance rate.
Outlook, Risks, and Management Commentary
Going Concern Uncertainty: Management and auditors have highlighted a material uncertainty regarding the Company's ability to continue as a going concern. This is due to insufficient tariff adjustments relative to inflation (annual rate >60%), negative working capital, and currency restrictions.
Regulatory and Economic Risks:
- Tariff Structure: Recent regulatory changes (SE Resolutions) implemented seasonal price adjustments and subsidy segmentation but did not improve the Company's core revenue from the Company's Own Distribution Cost (CPD).
- Currency Restrictions: Central Bank of Argentina (BCRA) restrictions limit access to foreign currency (MULC) needed to service financial debt and import essential goods.
- Debt Covenants: As of June 30, 2022, the Company is not in compliance with leverage and interest coverage ratios required by its Corporate Notes. However, this does not trigger an Event of Default, and the company retains the ability to incur "Permitted Indebtedness."
- Unpaid Obligations: The Company has accumulated past due payments to CAMMESA (wholesale electricity market) totaling approximately 38,937 in principal plus interest and charges.
Management Actions: The Company is analyzing measures to mitigate financial deterioration, including debt restructuring (completed exchange offer) and seeking transitional solutions to restore the economic equation.
Investor Verification Checklist
- Going Concern Status: Verify the specific transitional solutions or government support mechanisms EDENOR expects to rely on to maintain operations given the auditor's emphasis of matter.
- Tariff Adequacy: Assess the impact of the new seasonal reference prices and subsidy segmentation on future cash flows and the ability to cover operating costs in a high-inflation environment.
- Debt Compliance: Monitor the Company's leverage ratio and interest coverage ratio to ensure they remain within the "Permitted Indebtedness" thresholds to avoid triggering a default on Corporate Notes.
- Currency Access: Evaluate the risk of BCRA currency restrictions preventing the settlement of the remaining 26.75% of Class No. 9 Corporate Notes due in October 2022.
- CAMMESA Arrears: Track the status of the accumulated past due balance to CAMMESA and any potential legal or operational consequences of continued non-payment.