EDENOR Form 6-K Summary: 2018 Financial Statements
Business Context and Reporting Period
Company: Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR)
Reporting Period: Year ended December 31, 2018 (Filed March 21, 2019)
Business: Distribution and sale of electricity in the City of Buenos Aires and the Buenos Aires metropolitan area under a 95-year concession.
Accounting Basis: Financial statements are prepared under IFRS and restated for hyperinflation (IAS 29) effective July 1, 2018, due to Argentina's cumulative inflation exceeding 100% over three years. Figures are stated in thousands of Argentine pesos (current measuring unit).
Key Financial Metrics (2018 vs. 2017)
| Metric (Thousands of Pesos) | 2018 | 2017 |
|---|---|---|
| Revenue | 55,953,649 | 39,602,868 |
| Operating Profit | 3,941,256 | 2,370,538 |
| Net Financial Expense | (6,270,256) | (2,284,920) |
| Gain on Net Monetary Position | 8,503,862 | 5,505,073 |
| Profit for the Year | 4,297,466 | 5,080,635 |
| Net Cash from Operating Activities | 9,621,032 | 7,360,652 |
| Total Assets | 76,992,178 | 70,881,927 |
| Total Liabilities | 46,023,206 | 43,088,208 |
| Total Equity | 30,968,972 | 27,793,719 |
| Net Debt | 42,614,048 | 38,687,851 |
| Gearing Ratio | 57.91% | 58.19% |
Material Changes and Drivers
- Revenue Growth: Revenue increased 41% year-over-year, driven by the full implementation of the Tariff Structure Review (RTI) and new electricity rate schedules effective February 2018.
- Profitability: While operating profit improved significantly, net profit for the year decreased by approximately 15% compared to 2017. This was primarily due to a sharp increase in net financial expenses (up 174%) caused by exchange differences and interest costs on USD-denominated debt, partially offset by a higher "Gain on net monetary position" resulting from inflation restatement.
- Debt and Currency: Total borrowings increased to 8.27 billion pesos (approx. USD 219 million at year-end rates). The company holds a significant net liability position in foreign currencies (approx. USD 4.72 billion net liability), exposing it to peso devaluation risks.
- Working Capital: The company reported a working capital deficit of 7.3 billion pesos, largely due to amounts owed to CAMMESA (wholesale electricity market operator) totaling 11.9 billion pesos.
Outlook, Risks, and Contingencies
- Regulatory Framework: Management is optimistic that the RTI will restore the company's economic position, allowing coverage of costs and debt service. However, the company is negotiating with the Federal Government regarding the settlement of balances with CAMMESA and the treatment of penalties under the Adjustment Agreement.
- Jurisdictional Transfer: Per Law No. 27,467, jurisdiction over the electricity distribution service is transferring from the Federal Government to the Province of Buenos Aires and the City of Buenos Aires effective January 1, 2019. The company is analyzing the scope and effects of this transfer.
- Legal Contingencies:
- RDSA Real Estate Dispute: The company terminated a real estate purchase agreement with RDSA due to default. A claim for liquidated damages (approx. 3 billion pesos) is in arbitration. RDSA filed for reorganization in February 2019, and the surety bond insurer is under regulatory restriction. An allowance has been recorded for partial recovery.
- Consumer Lawsuits: Ongoing litigation regarding VAT reimbursement and late payment interest rates. The company believes these claims are not probable.
- Financial Risks: Significant exposure to currency risk (USD debt vs. Peso revenue) and interest rate risk (floating rate loans). A 10% devaluation of the peso would decrease annual profit by approximately 472 million pesos.
Investor Verification Checklist
- Hyperinflation Accounting: Verify the impact of IAS 29 restatement on comparability with prior years and the specific inflation indices used (IPC/IPIM).
- Currency Exposure: Assess the sustainability of debt service given the mismatch between USD-denominated liabilities and Peso-denominated revenue, especially in the context of Argentine exchange rate volatility.
- Government Settlements: Monitor the status of negotiations with the Federal Government regarding the 11.9 billion peso receivable from CAMMESA and the regularization of penalties.
- Jurisdictional Impact: Evaluate the implications of the transfer of concession jurisdiction to provincial/city authorities on future tariff adjustments and regulatory stability.
- RDSA Recovery: Track the arbitration outcome and the financial status of the surety bond insurer to determine the recoverability of the 3 billion peso claim.