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 months ended June 30, 2021 (compared to six months ended June 30, 2020)
Business: Distribution and sale of electricity in the City of Buenos Aires and the Province of Buenos Aires.
Ownership Change: On June 30, 2021, control of the company transferred from Pampa Energía S.A. to Empresa de Energía del Cono Sur S.A. (51% of Class A shares).
Currency: Financial statements are presented in millions of constant Argentine pesos, restated for inflation (25.2% for the period) in accordance with IAS 29.
Key Financial Metrics
| Metric (Millions of Constant Pesos) | Six Months Ended June 30, 2021 |
Six Months Ended June 30, 2020 |
|---|---|---|
| Revenue | 47,148 | 59,513 |
| Energy Purchases | (29,557) | (38,051) |
| Gross Margin | 6,101 | 8,878 |
| Operating Profit (Loss) | (1,643) | (221) |
| Net Financial Costs | (9,503) | (6,509) |
| Monetary Gain (RECPAM) | 11,473 | 4,891 |
| Profit (Loss) Before Taxes | 327 | (1,839) |
| Income Tax Expense | (11,963) | (853) |
| Loss for the Period | (11,636) | (2,692) |
| Loss Per Share (ARS) | (13.30) | (3.08) |
Balance Sheet and Liquidity Highlights
- Total Assets: 192,893 million (June 30, 2021) vs. 186,335 million (Dec 31, 2020).
- Cash and Cash Equivalents: 8,557 million (June 30, 2021) vs. 5,463 million (Dec 31, 2020).
- Total Liabilities: 125,759 million (June 30, 2021) vs. 107,570 million (Dec 31, 2020).
- Total Equity: 67,134 million (June 30, 2021) vs. 78,765 million (Dec 31, 2020).
- Borrowings: Non-current borrowings were 9,379 million; current borrowings were 163 million.
- Working Capital: The company continues to record negative working capital, exacerbated by the suspension of electricity rate updates since February 2019.
Material Changes and Commentary
- Revenue Decline: Revenue decreased by approximately 21% compared to the prior year, driven by a decrease in demand and regulatory constraints.
- Net Loss Increase: The loss for the period increased significantly to 11,636 million pesos. While a substantial monetary gain (RECPAM) of 11,473 million pesos offset operating and financial losses, a large income tax expense of 11,963 million pesos (driven by a change in the corporate income tax rate to 35% and deferred tax adjustments) resulted in the net loss.
- Financial Costs: Net financial costs rose to 9,503 million pesos, primarily due to commercial interest and exchange differences.
- Regulatory Environment: A 9% partial tariff adjustment was approved in April 2021, which management deems insufficient to cover economic and financial needs. The company has filed an administrative appeal against this resolution.
- Debt with CAMMESA: As of June 30, 2021, the company accumulated a past due principal balance of 17,919 million pesos plus interest and charges of 10,312 million pesos owed to CAMMESA (wholesale electricity market operator).
Risks, Contingencies, and Going Concern
- Going Concern Doubt: The Board of Directors has raised substantial doubt about the company's ability to continue as a going concern due to the negative working capital, currency restrictions, and the mismatch between costs and revenues. The financial statements are prepared assuming the company will continue to operate, but adjustments may be required if uncertainties are not resolved.
- Currency Restrictions: Central Bank of Argentina (BCRA) restrictions require prior authorization for foreign currency transactions, impacting the ability to service financial debt and import necessary goods.
- Legal Contingencies:
- AFIP Dispute: Ongoing dispute regarding social security contribution rates (17% vs 21%). The company believes the 17% rate is correct and has not recorded liabilities.
- ENRE Proceeding: A complaint filed by the regulator regarding compliance with concession agreement penalties. The company believes it is in compliance and has not recorded liabilities.
- Dividend Restrictions: Negative covenants in the Corporate Notes program prevent dividend payments if the Debt Ratio exceeds 3.
Investor Verification Checklist
- Going Concern Status: Verify the company's plan to address the substantial doubt regarding its ability to continue operations and the potential impact of deferred payment obligations.
- Tax Liability Impact: Confirm the sustainability of the 35% corporate tax rate and the magnitude of deferred tax liabilities (40,726 million pesos) on future cash flows.
- CAMMESA Debt: Assess the risk and timeline for regularizing the significant past-due debt (approx. 28,231 million pesos total) owed to the wholesale electricity market operator.
- Tariff Adjustments: Monitor the outcome of the administrative appeal regarding the 9% tariff increase and future regulatory decisions on rate structures.
- Change of Control: Review the implications of the transfer of control to Empresa de Energía del Cono Sur S.A. and the mandatory public tender offer for Class B and C shares.