EDENOR 3Q 2019 Financial Summary
Business Context and Reporting Period
Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR) is Argentina's largest electricity distributor by customer count and sales volume. This Form 6-K filing reports results for the third quarter ended September 30, 2019. All financial figures are presented in Argentine Pesos (ARS) at constant purchasing power, prepared in accordance with IFRS, except for the Statements of Comprehensive Income which are expressed at historical values.
Key Financial Metrics
| Metric (3Q 2019) | Value (ARS Millions) | YoY Change |
|---|---|---|
| Revenue from Sales | 24,148 | +1.7% |
| EBITDA | 3,371 | +4.2% |
| Adjusted EBITDA | 3,509 | -9.1% |
| Net Income | 258 | -92.5% |
| Capital Expenditures | 2,168 | -36.9% |
| Operating Cash Flow | 7,058 | -48.8% |
Debt and Liquidity: As of September 30, 2019, outstanding dollar-denominated financial debt was USD 201.3 million, with net debt at USD 154.3 million. Cash and cash equivalents totaled ARS 215 million.
Material Changes vs. Prior Period
- Revenue: Increased 1.7% due to higher seasonal electricity prices and the application of Own Distribution Costs (CPD) adjustments. This was partially offset by a 4.7% decline in physical sales volumes (5,362 GWh vs. 5,626 GWh) driven by higher temperatures and economic recession.
- Profitability: Net income dropped significantly to ARS 258 million from ARS 3,422 million in 3Q 2018. The decline is primarily attributed to a one-off gain in 3Q 2018 from the revaluation of a real estate receivable, which did not recur.
- Costs: Energy purchases rose 14.7% due to an 18.1% real-term increase in average purchase prices. Operating expenses decreased 25.4% due to lower penalties and reduced salary costs in constant currency.
- Losses: Energy loss rates increased from 20.4% to 23.1%, driven by higher fraud rates associated with the economic downturn.
Outlook, Risks, and Unusual Items
- Tariff Agreement: On September 19, 2019, EDENOR executed a maintenance agreement with the Federal Government. This deferred CPD adjustments for the January-June 2019 period to January 1, 2020, with recovery in seven monthly installments. Seasonal price updates were also deferred to January 2020.
- Real Estate Settlement: EDENOR reached a final agreement regarding a terminated real estate project, receiving USD 15 million in total compensation from an insurance company (USD 14 million received as of filing date).
- Credit Ratings: Moody's downgraded EDENOR's global rating to Caa1 and local rating to Baa3.ar. S&P Global Ratings downgraded local ratings to 'raBBB' with a negative outlook, citing Argentina's sovereign downgrade and challenging macroeconomic context.
- Service Quality: Despite economic headwinds, service quality improved, with SAIDI (outage duration) improving 39.0% and SAIFI (outage frequency) improving 20.6% year-over-year.
Investor Verification Checklist
- Verify the impact of deferred tariff adjustments (CPD) on future revenue recognition starting January 2020.
- Monitor the collection status of the remaining USD 1 million from the real estate insurance settlement.
- Assess the sustainability of the 23.1% energy loss rate and the effectiveness of fraud reduction initiatives.
- Review the company's ability to maintain service quality investments given the 36.9% reduction in Q3 capital expenditures.
- Track credit rating trajectories given the negative outlook from S&P and the sovereign risk exposure.