EDENOR Form 6-K Summary: Nine Months Ended September 30, 2019
Business Context and Reporting Period
Company: Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR)
Reporting Period: Nine and three months ended September 30, 2019
Business: Distribution and sale of electricity in the City of Buenos Aires and the Province of Buenos Aires.
Currency: Financial statements are presented in thousands of constant Argentine pesos (ARS), restated for inflation (37.58% cumulative inflation Jan–Sep 2019) in accordance with IAS 29.
Regulatory Status: The concession jurisdiction is being transferred from the Federal Government to the joint jurisdiction of the Province of Buenos Aires and the City of Buenos Aires.
Key Financial Metrics
| Metric (in thousands of constant ARS) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 |
|---|---|---|
| Revenue | 64,307,585 | 62,311,437 |
| Operating Profit | 4,148,801 | 8,081,830 |
| Profit Before Taxes | 21,430,480 | 11,153,832 |
| Net Profit for the Period | 12,425,405 | 7,093,622 |
| Earnings Per Share (Basic & Diluted) | 14.16 | 7.93 |
| Net Cash from Operating Activities | 7,057,715 | 13,797,316 |
| Total Assets | 110,359,524 | 105,925,842 |
| Total Liabilities | 55,863,104 | 63,318,730 |
| Total Equity | 54,496,420 | 42,607,112 |
| Cash and Cash Equivalents | 215,194 | 37,983 |
Material Changes vs. Prior Period
- Profit Surge: Net profit increased 75% year-over-year (from 7.09B to 12.43B ARS). This is primarily driven by a one-time non-cash gain of 15.3B ARS recorded under "Agreement on the Regularization of Obligations" (Note 2.b), which settled historical claims with the Federal Government.
- Operating Profit Decline: Excluding the one-time gain, core operating profit decreased significantly from 8.08B to 4.15B ARS. This reflects rising operating costs, including a 17% increase in electric power purchases and higher provisions for contingencies.
- Cash Flow Pressure: Net cash from operating activities dropped 49% to 7.06B ARS, despite higher reported profits, due to the non-cash nature of the regularization gain and increased working capital requirements (trade receivables increased by 4.8B ARS).
- Debt and Liquidity: Total borrowings increased slightly to 12.04B ARS (10.14B non-current + 1.90B current). Cash and cash equivalents improved significantly to 215M ARS from 38M ARS at year-end 2018.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Item (Regularization Agreement): The company entered an agreement with the Federal Government to settle claims from the 2006-2016 Transitional Tariff Period. This resulted in a one-time profit recognition of ~15.3B ARS but requires future capital investments of ~7.6B ARS over five years and does not generate immediate cash inflows.
- Regulatory Changes: Jurisdiction over the concession is transferring to the Province of Buenos Aires and City of Buenos Aires. An agreement was reached to maintain electricity rate schedules effective prior to August 1, 2019, and postpone certain cost adjustments (CPD) until January 2020.
- Macroeconomic Risks: Management highlights high volatility in the Argentine economy, including a 37.58% inflation rate, significant peso devaluation, and a reference interest rate exceeding 74%. These factors create uncertainty regarding future cash flows and cost recovery.
- Share Repurchase: The company acquired 8.27M of its own shares (Class B) during the period for 536M ARS as part of a treasury stock program.
- Post-Reporting Event: Following September 30, the company settled a real estate dispute, receiving USD 14M immediately with the balance to be paid in installments.
Investor Verification Checklist
- Quality of Earnings: Verify the sustainability of the 12.4B ARS net profit, noting that ~15.3B ARS is a non-cash accounting adjustment from the government settlement agreement.
- Cash Conversion: Analyze the divergence between reported net profit and operating cash flow (7.1B ARS), driven by the non-cash gain and rising receivables.
- Regulatory Risk: Monitor the implementation of the jurisdiction transfer to the Province/City of Buenos Aires and the impact of the postponed tariff adjustments scheduled for January 2020.
- Debt Service: Review the company's ability to service its ~12B ARS debt load given the high local interest rates (>74%) and inflationary environment.
- Future Capex: Confirm the funding sources for the mandatory 7.6B ARS investment plan required under the Regularization Agreement over the next five years.